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Investor Insights Blog|Joel’s Story Part I: How His IRA Helped Save a Home

Promissory Note Investing

Joel’s Story Part I: How His IRA Helped Save a Home

IRA investors have impacted the lives of many people, but rarely do you see investments that touch so close to home.

For one western New York investor, it was the creative use of his self-directed IRA that saved his brother from losing his home and, in another investment, revitalized a run-down building in his hometown.

Joel spent 35 years working in “almost every facet” of the building industry. His experience selling materials, inspecting structures, and constructing buildings translated well into real estate investing with his self-directed IRA.

In the early 2000s, Joel learned it was possible to invest in real estate with a self-directed IRA from a friend in the industry.

As he described it, “I couldn’t believe this existed. It was (and still is) the best kept secret in the industry.”

Little did Joel know at the time, but years later this knowledge would be called upon to help a family member.

Loss of Employment Becomes the Start of Something Bigger

Joel lost his job of 35 years in 2004 and, after working several jobs over the next few years, decided to start his own business in 2007.

His new business did fairly well (facing challenges many new businesses face), but he felt he could do better if he had more capital. It was difficult to obtain financing from banks to pursue the real estate investment opportunities he identified.

This was the catalyst for Joel to make a change and consider investing on his own with a self-directed IRA.

In 2009, Joel bought a small, neglected, vacant lot with his Traditional IRA.

The investment was easier and less complicated than any purchase I had ever done in the past.

– Joel, Real Estate Investor

 

After recently looking into the Erie County registrar of deeds, Joel stated, “I’m happy to say I see thousands of IRA transactions in the county records since I first started. I’d like to think I may be part of the reason for some of those that followed.”

Joel has since used his real estate knowledge and desire “to find a way to get it done right” to make several alternative investments in his IRA – perhaps none more important than the one that helped his brother.

IRA Capital Saves His Brother’s Home

Joel’s brother, also in the construction industry, built a beautiful new home for himself several years ago.

A few years later, he received a private loan from a high-interest private lender. Before long, the high interest rates were overbearing and the lender called the loan due, threatening to foreclose on the home.

Joel realized his IRA capital could provide a solution and issued his brother a $100,000 promissory note to repay the initial loan and save his home.

The promissory note used his brother’s home as collateral and provided a reasonable payment plan that would allow his brother to stay in his home.

Joel worked with his attorney to draw up an amortization schedule with interest rates between 3-5% – thus keeping it at a fair market value.

Joel’s IRA received monthly payments, returning tax-deferred to his account, until his brother paid off the note a few years early.

This investment provided a stable return for Joel’s IRA, but more importantly, he was able to help his brother with his IRA capital in the process.

Continue to Part II: How Joel’s IRA Turned a Run-Down Building into a Community Favorite

1

Can I co-invest other funds with my IRA to make an investment?

Yes, partnering your self-directed IRA or other retirement account with another funding source is possible. You can partner your IRA with your non-IRA money, your other retirement accounts, your spouse’s IRA, other people’s IRAs, another investor’s non-IRA money and your children/grandchildren’s CESAs, to name a few options.

2

Can my IRA purchase real estate that I currently own?

No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property, or interest in a property, that’s currently owned by a disqualified person, which includes yourself.

3

What are the advantages of opening a self-directed IRA?

Some advantages of self-directed IRAs include:

  • Tax-deferred or tax-free profits
  • Investment diversity (it is possible to invest in an array of assets in your retirement account)
  • Potentially building wealth for future beneficiaries

Case studies provided are for illustrative and educational purposes only. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Quotes and information included in the case studies and testimonials were provided by the investors and included with permission. Equity Trust Company does not independently verify all information provided by third parties.


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