S ELF -D IRECTED R ETIREMENT P LAN L OANS Presented By: 4/13/2015 - - PowerPoint PPT Presentation

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S ELF -D IRECTED R ETIREMENT P LAN L OANS Presented By: 4/13/2015 - - PowerPoint PPT Presentation

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S ELF -D IRECTED R ETIREMENT P LAN L OANS Presented By: 4/13/2015 Ryan Sahd Senior Vice President FirstBank 1 T WO B ENEFITS Knowing about Self-Directed IRAs benefits: 1. You By putting your real estate expertise to work within your own

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SLIDE 1

SELF-DIRECTED RETIREMENT PLAN LOANS

Presented By: Ryan Sahd Senior Vice President FirstBank

4/13/2015

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SLIDE 2

TWO BENEFITS

Knowing about Self-Directed IRAs benefits:

  • 1. You – By putting your real estate expertise to work within

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

  • 2. Your Business – By working with IRAs, you are opening

up a new source of business, and, in many cases, you have already created the relationship!

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CLIENT CONTACT OPPORTUNITY

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

Nobody knows how! You can help!

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THE WINNING TEAM

Self-Directed IRA Administrator

IRA with Real Estate

Real Estate Professional

+ = +

Non-Recourse Lender

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SLIDE 5

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TAX-DEFERRED/FREE PLANS ELIGIBLE

FOR SELF-DIRECTION

  • 1. Traditional
  • 2. Roth
  • 3. Simplified Employee Pension (SEP)
  • 4. Savings Incentive Match Plan for Employees
  • f Small Employers (SIMPLE)
  • 5. 401(k) Plan
  • 6. HSA – Health Savings Accounts
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SLIDE 6

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THE IRS DOES NOT ENDORSE

OR APPROVE INVESTMENTS…

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SLIDE 7

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.

* Exception US Government Minted Gold Or Silver Eagle, Gold and palladium bullion

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SLIDE 8

POSSIBLE ASSETS

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SLIDE 9

REAL ESTATE INVESTMENT CHOICES

  • Single family and

multi-unit homes

  • Apartments
  • Condominiums
  • Commercial property
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SLIDE 10

REAL ESTATE INVESTMENT CHOICES

  • Improved or unimproved land
  • Mortgages, lease/options
  • Foreign property investments
  • Trust deeds
  • Leveraged and

un-leveraged property

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SLIDE 11

REAL ESTATE INVESTMENT CHOICES

  • Fix & Hold
  • Fix & Flip or Redevelop
  • Hold for appreciation
  • Short sales, foreclosures
  • Auctions
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W

AYS FOR AN IRA TO PARTICIPATE IN

REAL ESTATE

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. Hold title to Real Estate.

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SLIDE 13

NO SELF-DEALING

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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 permitted.

No Self Dealing You & Disqualified persons IRA

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SLIDE 14

Brother

Spouse IRA Holder

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

Sister In-Law

Niece

Defining Disqualified Persons

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SLIDE 15

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

decision maker, highly compensated individual, involved in high level entity decisions.

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SLIDE 16

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IRS REG. SECTION 4975 – PROHIBITED TRANSACTIONS

Selling something you

  • wn 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 Getting “paid” by your IRA

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SLIDE 17

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

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PROPER TITLING

Earnest money must be paid from the IRA or by a non-disqualified person.

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DEBT IS ALLOWED IN IRAS BUT

THE RULES ARE NOT WIDELY KNOWN.

  • Taxes may apply (UBIT)
  • No personal guarantees
  • Not all lenders lend to IRAs
  • Non-recourse loans only
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THE IRA – A CLOSER LOOK

3 IRAs, all with the same net value. $150,000 $ 150,000

Stock IRA RE IRA

$300,000

$150,000

RE IRA

W I T H L E V E R A G E

$ 4 5

,

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SLIDE 20

WHY REAL ESTATE?

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

  • utside retirement to purchase real estate

4/13/2015

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FIRSTBANK PROGRAM REQUIREMENTS

 Plan Qualifications  Property Qualifications  Underlying Participant Qualifications

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FIRSTBANK PROGRAM REQUIREMENTS

 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.

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FIRSTBANK PROGRAM REQUIREMENTS

Property Qualifications

 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

65%.

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CASH FLOW CONSIDERATIONS

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.

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GROWING YOUR IRA

(SEVEN YEAR GROWTH EXAMPLE)

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%

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STEP-BY-STEP

  • 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

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FIRSTBANK PROGRAM REQUIREMENTS

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.

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FIRSTBANK PORTFOLIO LOAN ADVANTAGES

Local underwriting and decision making No limits on number of properties Efficient process Local loan servicing FirstBank is a relationship lender, not a

transaction oriented bank

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SLIDE 29

PORTFOLIO MORTGAGE LOANS

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,

townhome, and condominiums

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SLIDE 30

MORTGAGE MODIFICATION

 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

 Processing takes two-three weeks  No appraisal required

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FIRSTBANK HISTORY

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  Branches in Arizona and California

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QUESTIONS

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