Jason DeBono  02:44

Yeah, I’m excited about our conversation all about self-directed IRAs, which is what you’re alluding to there, and specifically using them to invest in real estate, because like you said, I think it’s really a great opportunity for a lot of investors, especially new investors. And I think it’s often overlooked, I think a lot of people aren’t aware of it, they think it’s not possible, you know, whatever the case may be, they just don’t think it’s a it’s an option for them.

Robert Leonard  03:05

And we mentioned it in passing a lot here on the show, because I think it is a great strategy. But we’ve never dove deep into it. So I’m excited to do that with you today. So first, tell us what exactly is a self-directed IRA? And how is it different than a traditional or Roth IRA that people listening to the show probably have?

Jason DeBono  03:23

Well, for starters, what’s interesting is, is it’s not different. Self-direction is not a type of IRA. So you can still have a traditional IRA or a Roth or a separate simpler a solo 401k, an HSA, an Educational Savings accounts, those are all plan types, as defined by the IRS. What differs between them is what the custodian limits you to.

Jason DeBono  03:44

So when we use the term, you know, self-directed IRA, it’s really to help people understand, if you take your IRA and go to a Schwab or Fidelity, they’re only going to let you buy stocks, bonds, mutual funds, right? Wall Street based investments. A true self directed custodian like Nuview is, is going to let you buy whatever you want. So it’s not just stocks, bonds, mutual funds, it’s all the mainstream investments that come along.

Jason DeBono  04:08

And that’s where the real estate and all these other investments come into play. So when we talk self-direction, the IRA type is so critical. But self-direction gives you the choice to pick those investments inside whatever IRA you desire to establish.

Jason DeBono  04:21

And you mentioned that your dad’s broker didn’t want him to know about this, and I’m assuming this is probably a stockbroker or more on the traditional sense. Why didn’t your dad’s broker want him to know about self-directed IRAs?

Jason DeBono  04:33

I’m going to speculate a tad and it’s a good question because there’s no right answer to it. And I’ll tell you this, Robert, the answer probably would have been different 15 years ago than it is today. I think 15 years ago, when information wasn’t at everyone’s fingertips, it was a very selfish decision, right? Whether they knew or didn’t know about it, likely it was just to keep him from moving his money out of his control.

Jason DeBono  04:55

Today, I think most advisors understand that there’s a place for it. I haven’t heard someone say that it’s illegal or anything along those lines in quite some time. I think most advisors realize that, hey, listen, you know, some of my clients are probably better suited picking their own investments and duplicating some of their personal investment strategies, which tend to include real estate inside a tax advantaged vehicle like an IRA.

Jason DeBono  05:17

So today, thankfully, we’re seeing a significant amount of advisors really pushed business to us, because they realize if they tell their customer, they can’t do it, it won’t take but about 10 seconds on the interweb, to figure out that they can. And that’s not how you build trust with your customers. So different answer today than 15 years ago, but at the end of the day, I think it just boils down to either lack of information and knowledge or not wanting the assets to leave their control.

Jason DeBono  05:43

That’s why I asked that question, because I kind of knew what I thought you were gonna say, and that was exactly it. Because when somebody is your advisor, or your broker or something along those lines, they often get paid as a percentage of assets under management or something along those lines or even commissioned based on what you’re purchasing and selling. And if that’s the case, if you take your assets out of there, you’re not going to keep making them any money. So a lot of times they want to keep it in.

Robert Leonard  06:02

And so it’s interesting to hear that. And I think, like you said, just because of how much information is available, I don’t think that’s as prominent as today as it was back 15 years ago, but I think you do still see it happening. And that’s why I wanted to bring it up. Because if people hear from someone else, whether it’s their broker, or even if it’s family, or whoever it may be, if they hear them, telling them that just realize that’s not true, you know, they’re probably either misguided, or potentially just trying to lead you down the wrong path for whatever reason. And I would encourage you to look at incentives, because that will often lead you to why you’re getting the answer you’re getting.

Jason DeBono  06:33

On that note, when my dad set up his account with us for it, you know, shortly after I took the job here, when he sent his statement in his retirement account was held in an annuity, a five year annuity at under 3%. So obviously, that advisor had one interest in mind, and that was making as much money off my father as possible. And it’s sad, you know, because you go to some of these people for trusted advice.

Jason DeBono  06:55

And I do believe it’s, it’s still the minority of the advisors that are focused more on themselves and their clients. But we see this a lot with clients that come to us and think their advisor has been steering them in a good direction. But buying an annuity and an IRA, that’s already long term where you don’t get any tax benefits of the annuity. You don’t already have any IRAs, it’s just the only reason you make that investment is because someone got a healthy commission on it.

Jason DeBono  07:19

And I’m no annuity expert by any means, but I have done a little bit of reading on them. And I know that the commissions can be pretty steep on them. So I’m sure that that plays a big role in it. And like I said, always look back at incentives, that’s where a lot of things will be born and why they say certain things.

Robert Leonard  07:33

So when we look to use this type of account, an SD IRA or a self-directed IRA, to invest in real estate, how does that work? And I know that’s a broad question, but what is the process for an individual real estate investor to use these funds to invest?

Jason DeBono  07:47

So every investment’s a little different, so so you’re right, it’s a little broad, and there’s no necessarily one size fits all answer, but I’ll talk in kind of general terms. The first step in the process is you’ve got to have a custodian that’s going to let you hold real estate. So if your account is sitting at Schwab, Fidelity, you know, Merrill, chances are unless you got a significant portfolio with them, they’re not going to let you do it.

Jason DeBono  08:08

So the first step is you got to move your account to a custodian like Nuview that can provide the services needed to keep your IRA, an IRA, while still allowing you to hold real estate investments. Once the account is set up, and step two is identifying your investment. And really, that’s the part where it’s, it’s the self and self-direction, you get to go out and do your own due diligence, look and see properties that you know, and understand, determine that the numbers make sense.

Jason DeBono  08:33

And then once you’ve determined that, you will request that purchase through our team. So most of it can be done completely electronically. Obviously, depending on the deal, there’s still some stuff that has to trade hands in paper format. But for the most part, it’s just a matter of notifying new view providing us the information on the investment and then authorizing all the money movements when they’re ready to go out.

Jason DeBono  08:54

Once that transpires. The IRA now owns the asset, and any income associated with that asset rental proceeds or anything all come into the IRA. And then if there’s expenses, so if you own a rental property and you got to pay a plumber, you got to pay other expenses, you can go right down to the website, just like you would to Bank of America, go onto the bill payments section, and queue those up and there’ll be paid out of the IRA proceeds as well. So all money, no money out of the IRA as it relates to the IRA, or sorry, to the real estate investment.

Jason DeBono  09:23

What role does the custodian play when it comes to self-directed IRAs? And what are some of the most important things to look out for when you’re choosing a custodian?

Jason DeBono  09:32

So our role is passive and every custodian that’s in this business is passive. That’s what allows us to do what we do that means we’re non fiduciary. So we provide no investment advice, no investment endorsement or discretion. Everything that our clients do is our clients choice. So our job is to take direction from the client act on that direction, and keep track of everything that comes in and out of the account and report it to the IRS as required throughout the year. And that’s really the role that we serve.

Jason DeBono  09:58

In terms of identifying a custodian, I think there’s a couple things that you’re going to want to look for. Number one is, what is their educational format and platform with self directed accounts, there’s a need to be educated, right? We’re talking on the show today, and there’s a lot of people listening that may be familiar with a self-directed account in general terms, but they don’t know the first thing about how to go out and operate when or what the limitations are, what the boundaries are. So you know, having having a custodian that can really provide good educational content as part of their business offering, I think is critical.

Jason DeBono  10:28

The second thing is, is what’s their responsiveness? So when you pick up the phone and call their office, does someone answer? Do you get a live person or you dumped into voicemails, and you gotta wait? And I always tell people, if you ever evaluate any service business, whether it be a custodian, like us or anyone else, never make a judgment on the sales folks, they’re paid to answer their phones and return calls, call him like your customer and see what it takes to get someone on the phone and what that process looks like, because that’s critical.

Jason DeBono  10:56

And then lastly, you know, how are they regulated? Not everyone in this business is a custodian. So a custodian is someone with typically with a trust charter. So we’re, we’re chartered in the state of South Dakota, as a publicly chartered Trust Company, we’re audited by the Division of Banking in South Dakota. We have capital pledges to the state, meaning we have money that just sits on pledge in South Dakota to ensure the safety and adequacy of the client accounts that we hold, not everyone is held to that same standard.

Jason DeBono  11:23

So make sure that you understand regardless of who you’re talking to, and how enjoyable the conversation is, what’s their financial backing, you know, are they a registered Trust Company? Or are they administration company that rents the services of a Trust Company? You know, do they have capital on pledged, that sort of thing. So if you’re going to give your money to a group and organization, make sure that an organization is in good financial strength.

Jason DeBono  11:45

If the custodian that somebody is going to use such as Nuview in this case, if they’re not able to give financial advice, which makes sense, who would they go to for that type of advice? Who would they speak to? Is it a CPA? Is it an attorney? Is it someone else as a different professional, it’d be able to give them more guided specific SD IRA feedback or just advice?

Jason DeBono  12:05

I wish there was an easy way to answer that question. And it’s certainly a good one. Typically, CPA level professionals provide tax related advice, legal professionals provide legal related advice. And we do push clients to those types of professionals frequently depending on what they need. But when you get into the individual investment advice, it is a challenge because obviously, you can go get all the advice you want in the stock, bond, mutual fund market by someone that’s commissioned to do so.

Jason DeBono  12:30

In the real estate market, people aren’t paid the same way. They’re not incentivized the same way. On that note, there’s lots of groups, clubs and associations that exists that provide really good information. So depending on where you reside, geographically, there’s real estate investment associations. I personally prefer nonprofit ones versus for profit ones, I just think your information is going to be a little bit less skewed, not to say that it will be but less likelihood of being steered in a direction that’s financially viable for others. So the nonprofit’s tend to be good.

Jason DeBono  13:02

Obviously shows like this, I think I commend everybody that’s on here. One of the things that we’re big on is education. And I have bought everybody that’s taken the time whether you’re driving sitting at home, or whatever it is, you may be doing your you’re getting functional use out of your time, and really getting some good quality information. So it is an amalgam of ways that you’re going to have to get it and you’ve got to source it well, because as the old adage goes, in the old commercial, right, if it’s on the internet, it must be true, you got to be careful that you source it from the right places.

Jason DeBono  13:30

So there’s lots of good information out there. Very little of it, you should have to pay a premium for, but it is worth investing in your own knowledge and a few 100 bucks to hear someone that’s been there, done that, and you can learn from their experience. That few 100 bucks is a lot cheaper than gaining the experience directly.

Jason DeBono  13:46

And now my next question, we talked about how for tax advice somebody should consult with a CPA. And so I’m not going to hold you to necessarily exactly what we’re going to talk about. But I want to get at least a little bit of a high level conversation around this. So and this is gonna be a little bit specific to the US. But when you invest in real estate through a self directed IRA, do you still receive tax benefits?

Robert Leonard  14:06

And the reason I asked this, because one of the biggest reasons a lot of people get into real estate is because of all the amazing tax benefits that we get, whether it be depreciation, you know, all kinds of other different things you can get as a US citizen investing in real estate. So whether it be from investing in a retirement account, because you get deferred capital gains or pay your taxes up front and then not paid on the distribution at the back end. So do you still have those tax benefits? And then do you also still get the real estate tax benefits such as depreciation?

Jason DeBono  14:32

This can be a little technical, and I’ll do my best to stay at 20,000 feet just to make sure we don’t get too deep in the weeds on it. But at face value, the short answer is you cannot double dip. But understand the way tax benefits work. So when we look at tax deductions, right depreciation and other things for owning real estate, those are tax deductions, right? You can use those to minimize the tax bill associated. So you have to have income that’s taxable, to be eligible to use your depreciation and other things to reduce against. In an IRA, none of your income is taxable. So you’re not giving up the credits or the depreciation, you just simply don’t need it.

Jason DeBono  15:10

So I use the example of it’s kind of like, like, if I gave you a $20 coupon, well, if you go to the mall, and you you have a $20 coupon, and you buy a $15 shirt, they don’t give you $5, you just get whatever credit. So the net result, the best result you can ever happen is zero. On your best day. Well, if you bought a $40 shirt and gave him a $20 coupon, you’re out of pocket 20 bucks.

Jason DeBono  15:33

In an IRA, there’s no coupon, but there’s no price for the shirt. So you are gaining significantly more value by eliminating the top line number, which is the actual expense amount and foregoing the second number, which is the discount. So discounts only matter when you have something to apply it again. So the beauty is and all if I can take just one more second on this question to elaborate on the value of IRAs.

Jason DeBono  15:57

And I want to help people understand that people that truly build wealth, and I hate to say the wealthy build wealth, right, I mean, that sounds such like such a dumb statement. But it’s true. We all know the rich get richer. And the reason the rich get richer is they understand how to keep more of what they make.

Jason DeBono  16:11

So where the average investor goes wrong is they chase yield, I want to make 20%, make 20%. That’s not good enough. I want to make 30%. And they go chase yield. And what happens when you chase yield or you chase return is it’s like hitting a homerun. Well, if you look at the stats, almost historically, over time, the number one stat associated with the highest home run hitter is generally the highest strikeouts, because they get the big heavy bat, they swing as hard as they can. And they either strikeout or hit a home run.

Jason DeBono  16:36

That problem is what plagues so many investors today they’re focused on yield, what most smart, prudent wealth building investors are focused on is really understanding the way to keep the most of what they make, and then yield. So I’ll give you an illustration in dollars.

Jason DeBono  16:52

If I take $1, and I double it every year, for 20 years. So what most Americans do is they take the dollar, they keep it in its regular dollar state, meaning taxable, they double it every year. So they take $1 and make $1, then they take $2 and make $4 turned into $4. Well, what they don’t realize is every year they pay tax, so assuming they’re in a 25% tax bracket at the end of 20 years, they’ll have taken that dollar doubling every year less 25% tax, and they’re going to have about 78,000 bucks.

Jason DeBono  17:21

Now most investors will highfive their friends and family members. And they’ll go on social media and say look at me, I just turned $1 into 78,000 bucks. And by every account, most people would say, wow, but Jason’s really killing it. What they don’t realize is the same dollar into the same investment doubling every year, but done through a tax advantaged account.

Jason DeBono  17:42

So the wealthy investor says, I’m going to take that dollar and I’m going to put it into a retirement account first or some tax vehicle, then I’m going to take the same dollar put it in the same investment doubling every year. That person that makes that decision first has significantly more money than the 78,000 bucks all the way to the tune of 1,000,045 or so $1,000.

Jason DeBono  18:05

So same investment amount, same investment. But the wise investor simply put it in a tax beneficial vehicle first, and made a little over a million bucks. And the other investor who didn’t know better, didn’t have the resources or didn’t take the time to educate themselves only made 78,000 bucks. So if you’re listening today, ask yourself, what type of investor do you want to be? I mean, the answer is clear. We all want to be the million dollar guy or girl, not the seven $8,000 guy or girl.

Jason DeBono  18:27

So when you think you’re doing well understand that there may be a better way to do it. And education is the key. And this is what keeps the wealthy wealthy because they know these tax advantages exists. And an IRA is that vehicle.

Robert Leonard  18:38

And you need to look at these investments on a net basis. So you could have somebody could be chasing return, say 10%. And they’re gonna be super excited about that. And they’re gonna say forego a an 8% return because they’re so well 10% obviously greater than 8%, right? But assume that 8% was in a tax advantaged account, or it was tax free for whatever reason. But now that 10% isn’t tax free. And so now you maybe say you have a 30% tax rate, now you’re down to a 7% return where the 8% would have been better.

Robert Leonard  18:47

But to your point, the wealthy probably would have taken the eight because they would have realized that but the those who are not educated about it would have probably chosen the 10. Because on a gross basis, it looks like it’s more but in reality, it’s not.

Robert Leonard  19:23

And similar to taxes, you can say the same thing about fees. I mean, thankfully, a lot of trading commissions and things like that are coming down in the stock market, but just fees and retirement accounts in general, they have the same effect as taxes. And if you do a calculator, just like you were just talking about, you can see the profound effect that these have on returns.

Jason DeBono  19:40

You’re spot on from a fee standpoint. So in our business, we charge fees. We don’t have any other way to make money. So when people come to us, I can’t tell you how many times I’ve had customers say I can’t believe you’re going to charge me for my account. Fidelity doesn’t charge me. You know, and I’m thinking to myself, do you really believe that? Fidelity is last time I checked is not a nonprofit. I mean, Fidelity is is a billion dollar profit company and they’re not doing that by charging, you know, fees.

Jason DeBono  20:04

So I think the naivety of investors I mean, Wall Street has conditioned us to be exactly where they want us, they want us chasing yields and buying in when the tail end and catching the last little wave of growth by tagging the main street is somebody is investing into a publicly traded security, they may think they’re doing well, because it went up 10%. But when that thing drops, 20-30% because all the big money left first, generally, it’s the individual investors holding the bag.

Jason DeBono  20:31

So just because you don’t see the fees, doesn’t mean they don’t exist. The Fidelity’s of the world make a significant business in a significant return. The average mutual funds over 1%. So if you think about it, every mutual fund you buy, you’re paying over 1% of the value annually in fees just to be in the fun, whether it makes money or not. So it’s it’s a very expensive proposition to be in Wall Street backed investments.

Jason DeBono  20:55

And I’m not saying that investing in the stock market is bad. I’m a big stock investor myself, I love doing that as well as real estate. But to your point, it’s not free. There is no free lunch. And a lot of people think that they’re not paying any fees because trading commission’s went to zero. But what they’re not realizing is that in the bid, ask spread, so you have the bid, and you had the ask, and there’s usually a spread there. And where do you think that spread goes? As to go somewhere, and it goes to the brokerages, and that’s one of the places where they make a lot of their money.

Robert Leonard  21:20

And I mean to your point, they also have the mutual funds that have much higher fees as well. So there is no free lunch. And although you’re not necessarily seeing it as a deduction in your account, you’re paying that on the front end or or it’s there in some way. So definitely wanted to mention that as well.

Robert Leonard  21:34

So I’ve mentioned that I’ve studied self-directed IRAs a little bit. And so I know there’s some strict guidelines and rules around how you can use these funds. When you’re investing in real estate, please walk us through how some of the most common rules or laws regarding investing in real estate using a self-directed IRA.

Jason DeBono  21:50

The first thing I’ll say is kind of think about that example. I said, right, the dollar doubling over 20 years in a taxable account is about 75 grand and doing it in a retirement account a little over a million. Well, obviously, because of that spread, the ability to generate significant returns and keep them all, the IRS puts a pretty strong fence around that tax benefit.

Jason DeBono  22:11

They want to make sure that there’s no opportunities for people to funnel money in or out of these tax advantaged accounts. So they want to, they want people to use IRAs as true passive accounts to get to retirement, but they don’t want them to use them as tax shelters. So the way that they set the rules up is two fold. And for those with kids, I think you’ll you guys will all understand this. And without, I think you’ll get it too.

Jason DeBono  22:32

The rules are kind of the same way that we parent our children. So I’ve got a nine year old and an eight month old. And we generally don’t walk around and say you can do that, you can do that, you can do that. Right? How do we parent our kids. Don’t touch that, don’t eat that, don’t climb on that. And the idea is that if we tell them all the things they can’t do, it’ll help create the framework of what they can do. And the IRS guidelines around self-directed accounts are just like that. So maybe that’s the IRS, IRS’ way of saying we’re kind of like toddlers, and there’s probably some truth to that to some degree.

Jason DeBono  23:04

But the way the rules read is very simple. No life insurance, no collectibles. So if it’s considered a collectible in any way, shape, or form or falls under the life insurance family, you cannot buy it inside an IRA, it’s expressly prohibited. So if you wanted to go out and buy artwork or or gems or or rugs, antiques, they even consider alcoholic beverages, you know, in there to keep people from putting vintage wines and other things into their accounts. It’s all expressly prohibited, pretty straightforward.

Jason DeBono  23:32

The second rule, and it’s rule two of two, is they want to make sure that the IRA as its own entity, this tax deferred entity, they want to make sure that it only does business at an arm’s length. And to ensure that they put a list of people they don’t want that entity doing business with. Those people include you and your spouse, people above you, so your parents and grandparents or lineal ancestors, and then your lineal descendants, children and grandchildren, by extension spouses and businesses of any of those parties.

Jason DeBono  24:01

So what that means is the IRS says, there is no way that Jason’s IRA is going to invest at an arm’s length, meaning fair market value with Jason’s Dad. There’s too much incentive for me to get a premium of income, right? Because it all goes in tax free, maybe a way to pass generational wealth. And so the IRS says, we’re not going to police it, we’re just going to prohibit it. So even if you think the deals at a fair market rate, it doesn’t matter. You can never do business with you, your spouse, parents, grandparents, children, grandchildren, and the businesses and spouses of any of those parties.

Jason DeBono  24:35

So if that’s the case, and somebody hears that, how can I use my money in a self-directed IRA to invest in real estate?

Jason DeBono  24:41

So you can buy anything else. So what they’re saying is you can buy real estate so my IRA could go out tomorrow and buy a piece of real estate, let’s just say a single family home in Denver. I could do that tomorrow, no question asked. If the property was currently owned by my father, I couldn’t do it because my dad would have to sell something to my IRA.

Jason DeBono  25:01

Well think about it this way, if my dad sells it at a severe discount, he gets a loss on his personal taxes. And I buy this million dollar property for 50 grand. And now I have a million dollar asset in my IRA that only costs 50 grand, and that’s completely tax free. And you can see how easy it would be if they allowed it to commit tax fraud.

Jason DeBono  25:21

So they say, we’re not going to even police the fair market value, we’re just going to tell you, you can’t do it. So I can buy property, I can rent the property, I can sell the property, I can hold it as long as I want. I just can’t buy it from that small group of people, I can’t sell it to that small group of people, nor can I rent it. But I could buy a piece of real estate tomorrow. And I could rent it to you, Robert, and your family to go move into.

Jason DeBono  25:44

So that’s the clarification that I was looking for, is you can do the purchase yourself. You just can’t purchase it from somebody or sell it to, like you said, or rent it to one of those named people, but you can do the deal yourself. I was under the impression that you actually had to give that money to someone else to invest. So I thought, you know, Jason, if you and I were going to invest in the deal together, say I had an SD IRA, I’d have to give you the money. And then you could invest it in your own deal. But I couldn’t actually use the money myself. But that sounds like that’s not the case.

Jason DeBono  26:13

Unfortunately, you know, there’s so much bad information out there. And that’s the hard part about the internet. If you can fog a mirror, you can call yourself an expert and put something on there. And we deal with this all the time with what we refer to as just common misconceptions. And it happens all the time.

Jason DeBono  26:29

But to your kind of comment, the issue is not what you buy. The issue isn’t about giving the money to someone else. The issue is just simply stating your investment can’t include those parties. But as long as it doesn’t include those parties, I’ve got clients that own single family homes multifamily duplex, triplex raw land. We have clients that own boat slips burial plots. We’ve got clients that own orange groves and citrus groves and hunting land and mineral rights. And I mean, clam farms and stuff that you kind of go holy cow, I didn’t even know you could put money into something like that, you know, it just seems so esoteric.

Jason DeBono  27:05

But all of those investments are permissible, it’s not the asset class that’s going to get you in trouble. Any of those investments, so long as you’re buying and selling with unrelated parties and leasing to unrelated parties, if applicable, you got no issues at all, buy whatever you want. If you want your transaction to involve some of those disqualified parties I mentioned, then you’re likely going to stub your toe, because the IRS wants to ensure that you’re only investing for the benefit of the plan at retirement.

Jason DeBono  27:30

And again, let’s face it, as honest as I think I am, if I bought a piece of property from my father through my IRA, it’d be way too attractive to buy it at a discount for the reasons I’ve already mentioned. So the IRS knows that and even the best of taxpayers and the most honest of taxpayers are going to skirt the law if they didn’t put those rules in place.

Jason DeBono  27:49

So how can someone leverage a self-directed IRA, that someone else has to raise money for the deal that they’re doing their real estate deal.

Jason DeBono  27:58

So this is the other people’s money story. And this is where IRAs really play a big role. So there’s two types of people with IRAs out there. There’s what I refer to as passive and active, right. And that’s very profound. And I didn’t necessarily make that up myself. But the reason that it’s important to categorize people into that bucket is because it depends on what they want to do.

Jason DeBono  28:18

Active, people are going to go out and find their own deals, that’s just how they work and operate, they’re willing to invest the time, they don’t want to give up any of the interest, they’re going to go find the properties, they’re going to go through that process, those people aren’t interested in investing into someone else, they’re going to own it from start to finish. Those individuals that are active need money to get these deals over the finish line. And so those people look for the passive people, right?

Jason DeBono  28:41

The passive people are someone just like myself, I’ve got a W two job. I’ve got 50 employees here, and day to day that keeps me so busy, I don’t have time to go out and knock on doors and find properties. So I got 10 or 12 people that I know really well that I got to know over the years. And they call me when they have a deal. Hey, this is the property, this is what I found. And we come to terms on what they can pay me for my money. I use my IRA for that. And we come to terms on something that makes financial sense for the deal. I want them to make money because I want them to do more of it. So they keep calling me with deals and I want to make enough money that justifies the risk I’m taking.

Jason DeBono  29:17

So active people love passive people, passive people love active people. So if you’re one of those active investors, yeah, I mean, as you’re out talking to people about investing with you, there’s nothing that would preclude them from using their IRA for those investments. And I’d even take it a step further to say it actually benefits everybody if they do, because the passive investor gets the tax benefit, and they don’t have a strong need for that money today.

Jason DeBono  29:41

So if you’re investing, you’re not under a time constraint. Whereas if I were to invest with you, Robert, if you’re the active investor, and I’m the passive guy, if I use my personal money, I may be calling you six months from now because COVID hit saying, Hey, man, what’s going on? I need my money, right? I lost my job or whatever it is, but if it’s in my IRA, that’s it. The last money I’m ever going to touch. So it’s patient money. And that benefits the passive investor but but really benefits the active investor.

Jason DeBono  30:07

So what is the best way for a real estate investor who’s looking to raise that capital for their deal to easily and effectively educate someone else, a third party on how they can convert their other retirement accounts into a self directed IRA and invest in their deal.

Jason DeBono  30:23

So this may sound like a weird answer, especially considering among the IRA custody side, but it you’re not going to educate someone on the IRA portion. And I know that may sound again, contrary to what I do as a business. But your job as an active investor, when trying to raise money, whether it be from one investor or 1000, investors, it’s the same, the first piece of importance is you got to make sure the individual knows you, understands what you do, trust you, and likes the deal.

Jason DeBono  30:53

Going back to that shirt example, it doesn’t matter how someone’s going to pay for the shirt if they don’t like the shirt to begin with. So if you walked into a store, and the first thing out of someone’s mouth was, hi, Robert, welcome to ABC retail store, how are you going to be paying today? That’s really what an IRA is, it’s just a form of payment.

Jason DeBono  31:10

So when you’re out talking to investors, we encourage all the groups that we talk to is your job is really to help them understand who you are, what you do, and how you’re going to be a good steward of their money. The second thing is you have to do that, if you tell them, you’re going to do something, do it.

Jason DeBono  31:25

The third step once they say, wow, that’s really cool. How do I engage, or I’d like to learn more, do more, that’s when the conversation comes in to say, hey, I don’t know if you know this or not but I learned on the real estate investing podcast that I could use an IRA for an investment like this, and I wanted to pass it on to you in case your money was locked up in an IRA.

Jason DeBono  31:45

I’ve got a resource that I can refer you over to you that can walk you through the process, they’re not going to help you on the investment side, that’s my job, but they can help you understand how this type of deal works in an IRA. If that’s of interest to you. If not, if you want to pull your pen and checkbook out, write me a check today, I’m not going to slow that process down either. I just wanted you to know, there’s another way to do it in a tax advantaged manner. If that’s of interest.

Jason DeBono  32:08

Given that there aren’t as many people that have just 50 $100,000 sitting around in a checking account that can invest. But there’s a much larger pool of people who have retirement funds that could invest. How do you navigate that dynamic that you just mentioned?

Robert Leonard  32:21

Because I think you made a really good point. And I think like you said, you don’t want to go there and ask for a payment right away until you have a relationship. I really agree with that idea. And I like that idea a lot. But how does an investor not waste their time on building that relationship with someone and then them not being able to even in fund their deal or you know, not follow through with their self-directed IRA, or whatever the case may be? How do they not understand that they’re going to be a real viable investor without talking about that upfront?

Jason DeBono  32:46

Great comment, because you’re right, I mean, it’s a little bit of threading a needle, that can be difficult. You obviously want to qualify that investor before you, you know, spend hours telling them all about how wonderful you and your investment are only for them to say sorry, but I don’t have $1 to maintain.

Jason DeBono  33:01

And again, I think the tightrope that you’re walking is introducing the monetary discussion before you’ve given them a chance to understand what you do. But generally, if you’re raising money from someone, I mean, you’re generally familiar with basic levels of qualification, there should be a couple of questions that you can ask to determine if someone’s eligible to even participate in a deal.

Jason DeBono  33:22

So in our world, just to give you perspective, our qualifying questions really are do you have a retirement account? And are you interested in alternative investments? If the answer is no to one or both of those, you just don’t need our service. So I would encourage everybody that’s out there to kind of list a couple of very generalized qualifying questions that you can work into the conversation early on.

Jason DeBono  33:43

So if I’m going through this, I may ask the question like, you know, hey, Robert, if you’re interested in kind of what you hear today, as we talk about this investment, are you even willing and able to participate in this offering, if it was a 50, or $100,000 minimum? And so you may be able to ask some generalized questions that are Ira specific, that give you that and you can always probe a tad bit more depending on that answer to say, you know, and just by the way, one thing that I like to share right up front, is this, this investment is IRA eligible. So if you’ve got money in a retirement account, we don’t have to get deep into it right now. But I just want to give you a heads up. This is something that a lot of our clients use retirement money to participate in, is that something that may be of interest to you?

Jason DeBono  34:23

To go back to the point about limitations for a second, does a real estate deal that’s using self-directed IRA funds? Does it have to be fully funded by self-directed funds? Because I thought I had heard in the past or read about that, that you couldn’t commingle money. So you couldn’t have one investor, that’s just bringing in taxable cash and then another person that’s bringing in self-directed IRA money.

Jason DeBono  34:44

This may be another one of those kind of unfortunate misconceptions out in the marketplace. Obviously, everything we’re talking about is in general terms. It doesn’t mean it universally applies, but it applies more often than not. There is no limitation on commingled funds where you have to be careful with commingled funds. commingled between related parties people on that list.

Jason DeBono  35:03

But you know, again, using you, Robert is the active investor, if you came to and said, you know, I’m gonna go out and do an office building deal, I’ve got it under contract, I need a million bucks to take it down. And it’s going to generate 12 to 14% for my investors, just using some round numbers. As you’re out, if you’re going to go find 10 $100,000 investors, it doesn’t matter if Sally uses her IRA, and Billy uses his IRA, and then Mikey pays personally, and Jimmy pays with a trust and Johnny pays with a corporate account that they may have.

Jason DeBono  35:35

There’s no limitation because each investor is treated individually, kind of like when you buy stocks. Microsoft can have investors that use IRAs and non IRAs and personal enjoyment. So there’s no limitation there. As long as it’s clearly defined what each investor owns, and what each investor is entitled to in terms of pro rate interest in the investment. There’s absolutely no limitation on on commingling money, even down to potentially and again, I’ll say this with a big asterisk that you want to make sure you understand this is a little bit more of an advanced approach.

Jason DeBono  36:06

But if you have that deal, I’ll just use myself I have a 401k through my company that allows us to buy and sell real estate, right? It’s fully self directed, which is pretty rare. I have an HSA account, which is tied to my high deductible health insurance plan. We have an ESA account for Tyler, our nine year old.

Jason DeBono  36:23

So if you came to me with an investment, that office deal, I could put $50,000 For my 401k into the deal $20,000 For my HSA into the deal, and $10,000 from my son’s ESA, because each individual account is a unique individual investor to you. So I’ve not invested that money with each other because my 401k is not paying anything to my HSA. And my HSA is not paying anything to my son’s ESA. They’re all individual investors uniquely titled to your investment.

Jason DeBono  36:55

So there’s some strategies that can be deployed to put money to work together and alongside disqualified party so long as you don’t transact with each other, which is, again, sorry to kind of get a little advanced there, but I wanted to drop that nugget because it’s a fantastic strategy, and very candidly, one that I’ve deployed for the last 15 years.

Jason DeBono  37:13

No,I think that’s great. And I think this is really, really interesting and important information. And I’m really glad that we’re having this conversation, because like I said, I’ve read a little bit about it here and there online. But as we’ve discovered throughout this episode, there’s been some misconceptions that even I’ve had just from the things I’ve read across Google or other resources.

Robert Leonard  37:29

And then we’ve had other people on the podcast that have briefly mentioned, SD IRAs, you know, in passing, but we’ve never done a full deep-dive. So it’s really interesting to hear all of these different intricacies and all the different things you can do with these funds. And I think it is a great opportunity for a lot of investors. So how does leveraging these funds impact somebody’s ability to obtain traditional bank financing? Or does it even impact it at all?

Jason DeBono  37:52

So if an investor wants to leverage the IRA itself, so in the example of you as the active investor, and me investing my money passively through my IRA with you, it really doesn’t matter how you finance the property, because you as an individual can finance it however you want, because you’re buying it personally, right?

Jason DeBono  38:09

But if my IRA is going to go acquire a property, and it’s going to be the owner, I can use leverage, and this is very, very powerful. I do have that luxury, and I’ll just go so far to say very, very simply, you cannot leverage your IRA to buy stocks and bonds, not because it’s not allowed, because no bank or anyone out there will ever write you a loan on stocks in an IRA, because the loan has to be non recourse. And non recourse means that it’s really an asset based loan, not a person based loan.

Jason DeBono  38:42

So if you think about it, if Robert, you walk into Bank of America and say I want to go buy that property, it’s X dollars, they’re going to look at you and say, okay, how much money do you make? And what’s the likelihood that your income will provide enough over the years to pay the mortgage? They’re looking at your ability to pay the loan.

Jason DeBono  38:56

In a non recourse loan, the bank is saying, I don’t care about you, Robert, I care about the property you’re buying. So they’re going to look and say what is the property’s ability to generate enough money to pay the loan back. So it has to be income producing property, but non recourse loans exist all day long may exist pretty heavily in the commercial space, million dollar strip Plaza. Nobody’s personally guaranteeing that stuff, right, or a $10 million apartment complex, they’re not worried about a personal guarantee, they’re looking for the property’s ability to generate income to repay it.

Jason DeBono  39:26

In an IRA, what’s awesome is you can go get a non recourse loan and leverage your account. So my dad, I told the story about him from the get go. My dad owns two properties in his IRA today that both have leverage. So he has two loans on the properties. One is bank financing. So he went to a bank and got non recourse financing.

Jason DeBono  39:45

And the second is a private loan. He went to a private lender, and somebody that had money that was looking for, you know, a decent return, and they loan the money via a non recourse loan, and those are both held in my dad’s account. The way it works is simple. So property A has a $900 mortgage and it rents for 1200 bucks and collects the 1200 bucks pays the 900 bucks out for the mortgage, TI, TI and whatever’s left stays in the account. And the goal is that, you know, you can pay the property off or use that leverage to buy multiple properties and build steady streams of income.

Jason DeBono  40:15

So who is a self-directed IRA good for? I think it’s good for a lot of people, but who is it specifically good for and then on the other side who might it not be good for?

Jason DeBono  40:24

Well, a self directed IRA is really good for anyone that has any sort of either desire or aspiration or knowledge in mainstream investments. So most of our customers, and I won’t say all but most of our customers, they already have some inclination to alternative investments, or mainstream investments. So these are likely people that have already invested in real estate, they’ve already owned a rental property or done a passive investment deal. Not many people come to us and make the very first nonstock investment they’ve ever made in their IRA.

Jason DeBono  40:56

So generally, it’s people that already have an interest level. I mean, you know, think about it, how many people listen to this podcast? Everyone on here is a prime candidate, you’re taking the time out of your day to understand how to be a better real estate investor and understand it, well, why wouldn’t you take that knowledge and put it to work in a tax advantaged vehicle like your IRA. So that’s really our primary kind of core customers, someone that’s doing something like this already in a taxable account, and they just want to join the club of people that are keeping more of a make of what they make and do it in a tax advantaged way.

Jason DeBono  41:27

Who is this not for? When I say it’s not for all paid a little bit of a bigger brushstroke. It’s really for people that don’t want to go out and do their own due diligence. Because even if you’re going to go be the active investor, and I’m the passive, it doesn’t mean I don’t have due diligence to do. I still need to do my due diligence on you, I still need to look at the deal. He told me you’re going to make a million dollars on a deal. And it’s crazy, I need to know that up front.

Jason DeBono  41:48

So for the people that are willing to do that, and there’s a lot of people and they may be unwilling because they just don’t want to or they may be unwilling because they don’t have an interest or understanding. So in either case, this is really not for people that don’t know a whole lot about investing and don’t want to put in the time and energy to learn it.

Jason DeBono  42:03

And also say that nearly everything we’ve talked about throughout the episode so far has been pretty positive about self directed IRAs. But almost everything in this world has drawbacks. So what are the disadvantages, or some of the issues, not necessarily limitations, but issues with using self-directed IRAs?

Jason DeBono  42:20

So the biggest issue that we find is, it’s the self and self direction, it means you have to go find your own investments. And what happens for a lot of investors is it sounds great in theory, but as a practical matter, they don’t want to actually do it, kind of like going to the gym. It sounds great in theory, but a gym membership does you no good if you don’t physically go to the gym.

Jason DeBono  42:29

A self-directed IRA, does you no good if you don’t physically put the effort in to find investments for it, because we won’t. And I’ve had customers after a few months call and say, you know, I just haven’t had time to go do it. Can you tell me what I should put the account into? And I have to tell them, it’s probably best you don’t have this account, because I can’t help you with that piece of it. That’s not the role and responsibility that we play.

Jason DeBono  43:06

So yeah, it’s really the biggest challenge for many people in the biggest drawback is that you gotta go out and find investments. And it’s not easy. It’s not hard. I’ll say that if I can do it, it’s certainly a testament that it’s not hard. But it’s not easy. It’s work. Even as a passive investor, I still gotta go find deals.

Jason DeBono  43:24

Yeah, so I was gonna say it might be a little bit difficult. I mean, it’s doable. And it just takes a little bit of work. I mean, if you’re going to get good returns, nothing comes free, we talked about this, there’s no free lunch, you got to put in a little bit of work. So we’ve also mainly talked about self directed IRAs to invest in real estate. But I know and you’ve mentioned it, but I know there are a lot of other options for investment when you’re using a self directed IRA.

Robert Leonard  43:44

So briefly walk us through some of those other assets or asset classes that you can invest in using your self-directed IRA that you can’t necessarily access with a traditional retirement account.

Jason DeBono  43:54

So it really boils down to, we’ll call it three main categories. And they’re almost equally split in terms of our asset holdings here, we’ve talked to that 1/3 is real estate, we’ve talked all about that. And it’s real estate of every possible type you can imagine. And then some.

Jason DeBono  44:11

The second category is debt, private loans and loans. So there’s a significant amount of this, some of this is real estate back. So there’s a, it could fall into either camp, but in our system, it means that somebody has lent money on some sort of repayment terms. And this could be personal loans, it could be loans, and I’ll give an example of something I’ve done.

Jason DeBono  44:30

From a lending standpoint, this is how I do a lot of my investments passively. So I’ve invested passively as the lender to was hard money. So I’ve given someone money to go do a deal. I’ve done a private mortgage on someone that was buying a property. I’ve done a personal loan for someone that had some credit card debt at significantly high interest and so I was able to cut the interest in half while still making double digit returns for me, and this individual was able to really cut their debt servicing in half and that was turned out to be a great investment for both of us. We both went at the end of that.

Jason DeBono  45:02

All of those are private loans. You can lend money privately to companies as well. We have clients with loans to convenience stores secured by a liquor license, so to bars and nightclubs and restaurants. So we see a little bit of everything. But yeah, this basically a loan means that someone has agreed to repay you under terms, not equity position, that position.

Jason DeBono  45:23

The third category would be private company investing. So this is syndications would fall into this if you’re investing into a syndication, but this also includes operational businesses. So I think everyone is familiar with Uber and Lyft. I mean, those companies not too long ago were private. So yet they raised millions and billions of dollars. Well, every single company early on takes on investors, every single one. And obviously, we’d all like to be the second or third investor, hell, I’d like to be the 50th investor in Uber. But there’s lots of those opportunities right in our backyard, and certainly not Uber level.

Jason DeBono  45:56

But there’s lots of successful companies that are private, that take on investors, and so you can buy stock in those companies, just like you do a publicly traded company. But if it’s private, you can’t sell it easily. And so you’re you’re a little more confined to your ownership. But those are kind of the the big three categories

Jason DeBono  46:12

When I say miscellaneous, it’s not because it’s not important. It’s just the numbers are a little bit smaller in terms of overall asset class, precious metals, cryptocurrency, those probably are kind of the highest tax liens, tax deeds, tax certificates, customer that owns a racehorse, you name it, you can do it. That last category is it may be the smallest as a percentage, but being on the custody side is probably the most fun for me, I see some pretty interesting stuff.

Jason DeBono  46:37

Yeah, I was gonna say might be the smallest percentage, but it’s probably the most fun. Jason, I’ve mentioned it a couple times throughout this episode, I’ve really enjoyed our conversation. I love learning about this stuff, I think it’s such a good opportunity for everyone listening to the show, really, for all real estate investors or really any investor.

Robert Leonard  46:51

So I know a lot of people listening to the show today are going to enjoy the conversation and are probably gonna want to learn more and connect with you. So where’s the best place for them to go to learn more about you and connect with you?

Jason DeBono  47:02

First place that I always recommend is our website. It’s nuviewtrust.com with a n and u viewtrust.com. The reason I suggest the website, there’s so much educational content, obviously, all of our contact information is there. So you can certainly get a hold of us, should you choose to engage. But even if you just wanted to go on there and go to our blog section, there’s hundreds of pre-recorded videos and things that we’ve done on a variety of topics.

Jason DeBono  47:26

So obviously today our conversation was pretty general, even though we covered a lot. But there’s a lot of things we talked about that we drill down in. So we talked about getting a loan in an IRA, we have a 30 minute to an hour program just on that. And so we get deep in the weeds. So if that’s where your interest level is, or any particular asset class, or I mentioned, I use my HSA and ESA to invest in real estate, which people think is like the coolest thing ever. And there’s presentations that are just geared to that.

Jason DeBono  47:52

So our job on the website is to educate you, we want you to be informed and understand how to do it. So without a doubt, spend some time there, kick the tires a little bit. And if you feel like you’ve got questions or want to understand how it applies to your situation, all of our contact info is on there. And we certainly would love to chat with you.

Robert Leonard  48:08

I know, I’ve spent quite a bit of time myself reading and watching videos and just going through all the different resources on the Nuview website. So I highly recommend that everybody listening to the show today goes and does that themselves. I know you’ll learn a lot of great information. Jason, thanks so much for joining me. I really appreciate it.

Jason DeBono  48:24

Robert, thanks for having me. It was a lot of fun today. Thank you.

Robert Leonard  48:27

I hope that this week’s episode gives you another idea of how to maximize all the resources available to you in order to scale your real estate portfolio. As always, relevant links and contact information are in the show notes below in your favorite podcast player, or at theinvestorspodcast.com/real-estate-investing/. Thanks so much for joining us on this week’s episode of Real Estate Investing. And I’ll see you again next week.

Outro  48:53

Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.