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Mark’s Story Part I: How He Learned and Gained Confidence
Equity Trust Educational Speaker, John Bowens, sat down with our Self-Directed Investor of the Year, Mark from North Carolina, to discuss how he successfully completed his first two investments resulting in $119,000 of tax-deferred profits.
The following interview (part one of three) walks through the nuts and bolts of how Mark learned about these opportunities and gained confidence to move ahead, with little-to-no real estate investing experience.
John: To kick things off Mark, could you share with our group a little bit about your background and what got you into real estate investing and using your self-directed IRA?
Mark: Yeah, I was a salesman for 35 years. Before I retired, I dabbled a little bit into real estate. I own a condo on the beach and a condo in the mountains, in addition to my primary residence, but prior to investing in real estate via my Equity Trust Account, I really didn’t have any investments at all.
The real reason why I got started was diversification. I needed to diversify my portfolio and not have it all in stocks, specifically regarding what has happened to the stock market in the past. It’s up and down and up and down.
So I was mainly looking to diversify.
The only regret I have is that I didn’t do this 10 years ago.
– Mark, Investor of the Year
If I would have known that this avenue was open 10 years ago, I would have jumped all over this, specifically when the market crashed. I was not aware that this vehicle was even available.
John: Oh, outstanding Mark. I can’t tell you how many investors I work with and kind of take them through the process and that’s what they tell me.
After they do their first deal, and they get things up and running, and they’re starting to see profit, typically they say, “I regret that I didn’t do this sooner.”
With that being said, let’s go ahead and dive right into your investments.
As an aid to go through this, here is the three-step process for how this works:
The first step of the process is to establish and fund the account. The second step is to identify and direct the investment and then the third step is managing investment.
We’ll go through our myEQUITY portal, and how that technology tool can allow you as an investor to streamline the investment process by simply doing everything online.
Mark, can you elaborate a little bit more on how you work through that process of opening your account?
Mark: Sure. When I contacted Equity Trust, they actually put me in contact with the Fidelity rep that was actually managing my company’s 401(k) that I had retired from. In addition to that, I had a couple of other IRAs from previous companies I had worked at.
They all said there’s a certain way you have to do the rollover, there are certain forms that have to be completed. So, fill out the forms and have Equity Trust contact us; they’ll do it and finish up all the paperwork.
You’ll need to fund your account in advance before you start trying to invest, because I believe from start to finish, when I started moving some money over, it took two weeks to maybe 30 days before the money was actually eligible to start investing.
John: Yeah, it’s interesting, because, like I always say, we’re at the mercy of that other financial institution. So, it could take a few days, or it could take upwards of three to four weeks. And I appreciate you mentioning the Fidelity account.
For people that have 401(k)s or other employer-sponsored plans, what Mark was doing there is he had to reach out to his 401(k) administrator to initiate a direct rollover.
And it’s a fairly simple process, you reach out to them and in most cases, they’re simply processing everything over the phone, and then sending out a check directly to Mark’s address. Mark has his account set up ahead of time with us. And then he just mails that to our offices to deposit into the IRA.
Now it’s important to know that when, and I’ll ask you Mark, when you roll that money over, transfer that money, did you pay any taxes or penalties or receive any IRS notification that you did something improper?
Mark: No because I let the professionals handle it. So, there were no tax consequences.
John: So, we got the account setup and running. Let’s move on to step two, which is directing the investment. Mark, take us through it. How did you find the deal? Or who brought you the deal? How did you get it under contract?
Mark: Whether you create your own luck, or I was just lucky, I’m not sure which one. But one of my neighbors is a realtor and she knew that I had just recently retired and knew I was looking to invest in real estate.
So she brought me this property that was stuck back in the 70s – it was vacant for over a year and it really needed some TLC.
It needed to be rehabbed completely. Everything was overgrown, and it was just a nice position to actually be in. It was a distressed property that you don’t normally find.
John: So, you got this from a realtor ultimately who brought it to your attention.
To clarify, you’re not a professional rehabber. You’re not a professional real estate investor. That this was your first rehab, right?
Mark: Oh, yes. I’ve never done this before.
I’m not a professional flipper. This was the first house that I’ve ever renovated, and I wasn’t a professional investor either.
This was the first true real investment in my whole life. I’ve owned other things, but they were bought for other reasons and not for purely an investment.
John: Now moving on to the directing of the investment part. You got the property under contract. I assume you had the same realtor that brought you the deal handle the contract for you in that process.
Take us through what that looked like from signing the contract to reaching out to Equity Trust Company. How did you process that transaction?
Mark: I actually advised all parties that I was going to have to get my other “partner” involved, which is Equity Trust to review all the paperwork, sign off on the paperwork in addition to issue the funds that need to be issued for earnest money.
Here in North Carolina you have to provide due diligence money also. So I sent the contracts to make sure everything was okay. And then requested the monies to be sent to the attorney that we had agreed to use.
So, from that, we just went through the process of the due diligence and then closing on the property. We closed on the property in, I believe, about 60 days.
John: Okay, great, great. Mark mentioned a purchase contract. So, he’s got the documentation, and he mentioned sending that to Equity Trust Company.
Mark would simply log on to myEQUITY and say Equity Trust, I’m buying this property. Contract price is $89,000. I need an earnest money deposit, and Mark how much was the earnest money deposit for you?
Mark: I believe it was just $1,000 and then $500 for due diligence.
John: Okay, so Mark would go online and request a check for $1,500 earnest money to be sent out to the designated escrow account. And the way it works through myEQUITY is Mark can enter in all the information: contract price, estimated date of closing all the other details, and really in under five minutes, have an earnest money deposit sent out via check or send out via ACH direct deposit or wire transfer.
So now that money leaves the Equity Trust IRA, and at that point, we then would have the client, in this case Mark, go through the remaining process online providing all the necessary details.
Just like buying a stock or mutual fund, cash leaves the account and in return for that cash is a stock certificate. When buying properties, it’s the same concept cash leaves the account in return for that cash is a deed to the property.
Can my IRA purchase real estate that my corporation, partnership or LLC owns?
No. This is considered a prohibited transaction (see IRC 4975).
How are funds transferred to Equity Trust?
Cash funds can be transferred via check or wire. All other assets are transferred either ACATS or non-ACATS.
What investment options are possible with an Equity Trust account?
Some of the investments Equity Trust clients make using their self-directed accounts include real estate, tax liens, digital currencies such as Bitcoin, private lending, purchasing notes, private placements, precious metals, forex and other investment options that are permissible under IRS guidelines.
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