SELF-DIRECTED RETIREMENT PLAN LOANS

S

ELF

-D

IRECTED

R

ETIREMENT

P

LAN

L

OANS

Presented By:

Ryan Sahd

T

WO

B

ENEFITS

Knowing about Self-Directed IRAs benefits:

your own Traditional/Roth IRA, SEP IRA, Solo 401(k), or HSA, you may be able to retire with more savings and/or sooner.

C

LIENT

C

ONTACT

O

PPORTUNITY

1. Are you interested in investment real estate?

2. Did you know that you can buy investment real estate in your IRA?

3. Would you like me to keep you informed of investment property I come across?

Ask Each Client 3 Questions

T

HE

W

INNING

T

EAM

Self-Directed IRA Administrator

IRA with Real Estate

Real Estate Professional

+

=

+

5

T

AX

-

DEFERRED

/

FREE

PLANS

ELIGIBLE

FOR

SELF

-

DIRECTION

1. Traditional

2. Roth

3. Simplified Employee Pension (SEP)

4. Savings Incentive Match Plan for Employees

of Small Employers (SIMPLE)

5. 401(k) Plan

6

Life Insurance _Collectibles

Statutorily Disallowed Assets

• any work of art, • any rug or antique, • any stamp or coin*,

• any alcoholic beverage, or • any other tangible personal

property specified by the

Secretary for purposes of this subsection.

R

EAL

E

STATE

I

NVESTMENT

C

HOICES

• Single family and

multi-unit homes

• Apartments

• Condominiums

R

EAL

E

STATE

I

NVESTMENT

C

HOICES

• Improved or unimproved land

• Mortgages, lease/options

• Foreign property investments

• Trust deeds

• Leveraged and

un-leveraged

R

EAL

E

STATE

I

NVESTMENT

C

HOICES

• Fix & Hold

• Fix & Flip or Redevelop

• Hold for appreciation

W

AYS

FOR

AN

IRA

TO

PARTICIPATE

IN

R

EAL

E

STATE

Invest in an entity that is

investing in Real Estate.

Loan money to a

borrower who uses Real

Estate as collateral.

Tenants-in-Common with

a partner entity.

N

O

S

ELF

-D

EALING

13

No transactions between you or other disqualified persons and your IRA.

A personal benefit derived from your plan that does not come to you as a distribution is not

Brother

Daughter

In-Law Son Daughter

Son In-Law

Grandson’s

Spouse Grandson Granddaughter Granddaughter’s Spouse

Grandmother Grandfather Grandmother Grandfather

Mom Dad

Nephew

Uncle

Aunt

Uncle

Cousin

Sister

In-Law

Niece

Defining

Disqualified Persons

Not just personal finances, but any entity

that they own or control:

• Ownership usually means owning 50% or

more, but in some cases, it could be less.

• Control usually means a financial

16

IRS R

EG

. S

ECTION

4975 –

P

ROHIBITED

T

RANSACTIONS

Selling something you own to or buying from

IRA

Lending money, extending credit to IRA

Providing services for IRA –

No Sweat Equity Personal (DQ person)

use of plan assets

Use of assets by Fiduciary

Both offer and closing documents are titled in the name of the IRA:

New Direction IRA, Inc. FBO Client Name, IRA -OR-

New Direction IRA, Inc. FBO Account No. 12345678 -OR-

New Direction IRA, Inc. FBO Client Name, IRA, Account No. 12345678

17

P

ROPER

T

ITLING

D

EBT

IS

A

LLOWED

IN

IRA

S

BUT

THE

RULES

ARE

NOT

WIDELY

KNOWN

.

T

HE

IRA –

A C

LOSER

L

OOK

3 IRAs, all with the same net

value.

$150,000

$ 150,000

Stock IRA RE IRA

W

HY

R

EAL

E

STATE

?

There are many reasons people look to real estate

as an investment tool:

 Maximize the return on investment  Diversify investment portfolio

 Stabilize the fluctuations in value of investments  Tangible asset they can see

 Have money in retirement but not enough liquidity

outside retirement to purchase real estate

F

IRST

B

ANK

P

ROGRAM

R

EQUIREMENTS



Plan Qualifications



Property Qualifications



Underlying Participant Qualifications

F

IRST

B

ANK

P

ROGRAM

R

EQUIREMENTS



Plan Qualifications

 Self-directed plans should be in place prior to

application

 Only single member plans or member/spouse are

allowed. No multiple employee plans. Often, separate plans can partner together to purchase a property.

 Plan documentation is subject to review and approval by

FirstBank attorneys.

 Liquidity in the plan is a necessity.

F

IRST

B

ANK

P

ROGRAM

R

EQUIREMENTS

 1-4 family residential properties and quality commercial

properties are eligible.

 Properties may be located throughout the Front Range

from Colorado Springs to Fort Collins, as well as select mountain communities.

 75% of projected rents must cover PITI payments (for 1-4

family residences).

 No lease is required at closing (for 1-4 family residences).

Commercial properties may be subject to pre-lease requirements.

 Maximum Loan-to-Value (LTV) and Loan-to-Cost (LTC) is

C

ASH

F

LOW

C

ONSIDERATIONS

Purchase Price - $200,000 (3bed 2 bath SFR) 65% Mortgage - $130,000

35% IRA Contribution - $70,000 + Closing Costs Monthly Rent - $1,400

Minus 25% in Expenses* - $350 Discounted Rents - $1,050

Monthly PITI - $924 (PI = $708) Coverage Ratio - 1.13 (1.0 minimum) Net Cash Monthly Cash Flow - $126

Net Annual Cash Flow - $1,512 (Goes back into IRA)

*25% expense factor accounts for vacancies and upkeep. Remember, all expenses need to be paid for out of the IRA, which is why initial liquidity and ongoing positive cash flow is key. Long-term tenants and properties with low upkeep will increase annual cash flow.

G

ROWING

Y

OUR

IRA

(S

Y

G

E

)

Initial Asset Value: $200,000 Initial Leverage: $130,000 Initial IRA investment: $70,000 Loan balance after 7 years: $114,617 Conservative 7 year cash flow earnings: $10,584

Asset Appreciation (at 5% per year): $70,000 7 year asset liquidation value (Net of Sales Cost): $253,800

Effective IRA balance after 7 years: $149,767

($253,800 - $114,617 + $10,584)

IRA grew $79,767 in 7 years, which is an average growth rate of 13%

S

TEP

-B

Y

-S

TEP

1. Submit personal financial statement to FirstBank

2. Transfer funds to qualified custodian

3. Have custodian send IRA statement and disclosures to bank

4. Prequalification letter issued based on statement balance

5. Make offer and go under contract with IRA as purchaser (i.e. NDIRA,

FBO John Smith, IRA)

6. Bank generally needs an additional week to close, all other dates are standard

7. 1 week prior to closing, IRA beneficiary reads and initials off on all loan documents

8. All documents then sent to the custodian for signing (remember the

custodian is the borrower)

9. Documents sent to title company for real estate closing

F

IRST

B

ANK

P

ROGRAM

R

EQUIREMENTS

Underlying Participant Qualifications



Although you cannot personally guarantee the

loan it is important for FirstBank to understand

the character of the underlying participant.



An analysis of personal debt service, net worth,

and credit is required (Personal Financial

Statement)



The underlying participant(s) must meet

minimum credit standard of a 680 fico.

F

IRST

B

ANK

P

ORTFOLIO

L

OAN

A

DVANTAGES



Local underwriting and decision making



No limits on number of properties



Efficient process



Local loan servicing



FirstBank is a relationship lender, not a

P

ORTFOLIO

M

ORTGAGE

L

OANS



FIRM-5 & FIRM-7 (ARM) terms available



30 year amortization

No balloons



Stable index (1-year U.S. Treasury Index)



Annual and Lifetime caps on rate adjustments



5, 7, 10, year fixed



Acceptable collateral properties: 1-4 Family,

M

ORTGAGE

M

ODIFICATION



Modify your FirstBank interest rate to the

current market rate for any portfolio product.

 No underwriting required

 1% modification fee + $250 doc prep fee

 Amortization doesn’t change unless accelerated term

is selected

F

IRST

B

ANK

H

ISTORY



Began 1963 in Lakewood, CO



Family and employee owned



Grown organically – Slow and steady



Largest locally owned bank in Colorado



Over 130 locations in Colorado