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Illinois investors Cynthia and Kevin have built a real estate investing business that not only provides healthy returns, but also makes a meaningful difference in their community and creates a lasting legacy. A key part of their strategy involves using self-directed IRAs.
The married couple, which owns a real estate business, invests in properties to provide housing to people who have been denied traditional financing.
They purchase homes and create a path for people to one day own their own home, sometimes providing the financing themselves. Many of their home purchases and loans are funded through their self-directed retirement accounts.
Self-directed IRAS and other retirement accounts enable them to build their wealth with alternatives to stocks and bonds such as real estate – something they have a knowledge and passion for.
“What has been really great about being able to do this is since we can self-direct how the asset and the money is used in those self-directed IRAs, it allows us to buy real estate that’s part of our business, specifically our Path to Homeownership program,” Cynthia explains.
Structuring the loans
The couple uses a land trust to purchase the property, and their IRAs are the beneficiaries of that account. Cynthia describes the process of purchasing the home with IRA funds as simple.
“We literally just fill out the forms. [Equity Trust] sends the money to the title company. The home is purchased and our client moves in,” she says.
After purchasing the property, their IRA holds a type of land contract as the owners make payments over time.
The time to pay off the loan depends on the client. If they’ve started the lease with the option to purchase, that can be a two- to three-year time frame. If they’re not ready at that point to get bank financing, or move up to Kevin and Cynthia’s in-house financing situation, they typically extend the agreement.
The couple likes to reward and keep those who are good customers.
“If they’re in at an agreement for deed level, that’s a typical 30- or 40-year amortized loan, just like a bank would offer them,” Cynthia explains. “They’re not stuck at any given time having to be out of that. That is truly on their timeframe and whenever they’re ready.”
“When you have a family that comes to the closing table, and they're crying, but it's happy cries...that now, this is theirs. That means something to them because many of those folks didn't feel like they could ever have that happen for them.”
A ripple effect
Cynthia and Kevin are dedicated to “doing good while doing well,” which is their mantra. Their investing benefits more than just their business, as they’re helping members of the community become first-time homeowners.
“When you have a family that comes to the closing table, and they’re crying, but it’s happy cries…because now, this is theirs,” says Cynthia. “That means something to them because many of those folks didn’t feel like they could ever have that happen for them before.”
Their impact goes far beyond the individual buyers. From contractors to title companies to material suppliers, real estate investing circulates dollars throughout the local economy, and is compounded by the high volume of real estate they purchase.
“Supercharging” their wealth
The couple didn’t want to end up a cautionary tale of living retirement in poverty.
“A lot of people you see in the world today do not have anything saved for retirement,” Kevin says. “They end up working 40 years of their life and try to retire and they can’t, and they have to go back to work because they didn’t save enough. It wasn’t that they failed to plan; they just didn’t have a good plan in place.”
They realized they had only themselves to rely on to secure their financial future.
“We knew, and a lot of people know that you can’t really depend on Social Security,” Kevin says. “Nobody knows if that’s going to be there for us.”
Self-directing their IRAs allows them to “supercharge” their retirement savings beyond stocks, bonds, and mutual funds.
For Kevin and Cynthia, supercharging meant taking control of their retirement account with a self-directed IRA.
“The operative word there,” says Cynthia, “is control. There are lots of other investment opportunities out there in the world. However, very little of them allow you to actually say, ‘Here’s where my money to go.’ And that’s the whole self-directed part.”
This enabled them to use their retirement account to invest in real estate just as they did outside of their retirement account. With this method, they’re able to bring in income now, as well as build up savings for retirement.
The proceeds from the real estate investments and loans provide predictable cash flow back into their retirement accounts. Because they primarily use their Roth IRAs for investments, the account growth, and withdrawals, are tax-free.
While they could begin to cash out their Roth IRAs at age 59 1⁄2, they plan to leave their self-directed IRA portfolio as a legacy to continue helping community members and future generations.
“It’s kind of cool to be able to have that flexibility that at 59 1/2,” Cynthia says. “You can choose to either take it out or not, and at a tax-free advantage, but our focus became a little different. It becomes sort of a dynasty and a legacy to give, not just beyond us and our lifetime, but to continue that legacy going to help the community, help the individuals ongoing for as long as possible.”
Watch the entire video interview with Cynthia and Kevin to learn more about their Path to Homeownership program, how they find investments, and more.
