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SS 70 – Learn About the Self-Directed IRA Market with Jeff Desich

Episode: 70

Guest: Jeff Desich

iTunes: Stream Episode

For today’s special Solomon Success lesson, our host Jason Hartman invites Jeff Desich on to the show to talk about investing your retirement money correctly and wisely. Jeff Desich is the CEO of Equity Trust, a company that has been in business for over 40 years and overseas the life savings of millions of clients. Jeff explains to the audience the difference between the various retirement options Americans can choose from, how Americas want more freedom and flexibility over their savings, and much more on today’s episode.

 

Key Takeaways:
2:20 – Today’s lesson is about investing wisely.
5:00 – Jason introduces Jeff Desich to the show.
7:00 – Anybody can do a self-directed IRA.
11:40 – Only 2% of the American market is self-directed, why is that?
15:10 – Wall Street has a great sales force, but they sell such awful products.
18:10 – The real estate industry is a fragmented business, Jason says to embrace this because that’s what keeps the big guys out of it.
22:00 – Equity Trust is not a fan of Checkbook Control LLCs.
27:40 – If Equity Trust sees something that’s not right with your account, they will give you a call and let you know. They’re like your personal compliance department.
31:45 – There’s a special offer just for Jason’s listeners at https://www.trustetc.com/offer/053

 

Tweetables:
“Embrace the real estate market fragmentation because that’s what keeps the big institutional investors out.”

“It doesn’t help you in a fragmented industry to have more money. It just creates more difficulties.”

 

Mentioned In This Episode:
https://www.trustetc.com/
https://www.trustetc.com/offer/053

 

Transcript

Jason Hartman:
Hi there, it’s Jason Hartman your host and thank you for joining me for another episode of the Solomon Success show with Biblical wisdom for business and investing. Let’s go to today’s lesson and then I’ll come back on and then we’ll have our main portion with our guest relating to that lesson.

Announcer:
As individuals and investors, one of the greatest problems we fight against is our own lack of diligence. It is easy for us to become complacent in our successes and allow failures to creep into our financial decisions. Being fallible humans, we often succumb to the temptation to blame others for these failures. However, before we point the blame to others, it is necessary to first examine ourselves.

King Solomon recognized this when he passed his wisdom to us through the book of proverbs. In the sixth chapter of Proverbs, King Solomon wrote:

Take a lesson from the ants, you lazy fellow. Learn from their ways and be wise! For though they have no king to make them work, yet they labor hard all summer, gathering food for the winter. But you – all you do is sleep. When will you wake up? “Let me sleep a little longer!” Sure, just a little more! And as you sleep, poverty creeps upon you like a robber and destroys you; want attacks you in full armor.

As we go throughout our financial life, one of the things that we must continue to fight against is a lack of diligence concerning our own investment decisions. One of the areas where great diligence can create great rewards is the realm of Self-Directed IRA’s. The Individual Retirement Account is one of the vehicles that has been put in place to help with efficiently saving funds for retirement.

There are two types of IRA’s available. The “Traditional” IRA allows investors to contribute funds that are deductible from current taxes, with the compounded proceeds being taxed at regular rates when they are withdrawn. This type of IRA allows investors to defer their tax burdens. Another type of IRA available is the “Roth” IRA where investors contribute after-tax funds, with the compounded proceeds being completely tax free. This type of IRA allows investors to pay their tax burden up-front, and have all of their future growth occur without taxation.

Ordinarily, the types of IRA accounts that investor open are run through banks, brokerages, or mutual fund companies. What this ultimately means is that the investment products that are offered in the IRA’s are the ones that are available to the institutions overseeing your account. Typically, it is some variation of either debt (bond) or equity (stock) offerings that are available through these providers.

What a “Self Directed” IRA allows you to do is take more control over your sheltered retirement investments. People who open Self Directed IRA’s frequently use their funds to purchase investment real estate, invest in small businesses, or make private loans. These have the potential to be much more lucrative than traditional financial products, but there is no industry organized to market them to the public.

In order to take advantage of these financial opportunities, you must have the diligence to do the work that is required to research and execute these alternative strategies. Jason Hartman has many years of experience with non-traditional strategies, and is ready to teach us more about Self Directed IRA’s so that we can use these strategies in our own lives.

Jason:
That was today’s lesson. Let’s get to our guest, but before we do that, please regardless of what platform you’re listening to us on, whether it be iTunes, Stitcher Radio or SoundCloud, please write us a review, we’d really appreciate that and check out the free resources at our website, SolomonSuccess.com. Here’s today’s main segment.

It’s my pleasure to welcome Jeff Desich to the show. He is the CEO of Equity Trust and as you may recall I was speaking one of their events recently and we interviewed another key player with our company and they’ve got a huge self-directed IRA business, they’re a custodian, they’re the biggest in the market place. They have about 25% market share about 13 billion, with a B, in accounts there and just looking forward to a great interview with Jeff, Jeff welcome, how are you?

Jeff Desich:
I’m doing great. Thank you so much for having me on today. I’m really excited about this.

Jason:
Well, the pleasure is all mine, so tell us a little bit about just the self-directed IRA market in general and then we’ll talk about some of the reasons and benefits to self-direct and kind of go from there.

Jeff:
Sure, well, when we talk about a self-directed IRA, really what we’re talking about is freedom and the ability to really invest in what you now and what you feel comfortable with, so for most people when they’re using a self-directed IRA, they’re going to invest in real estate or precious metals or maybe a private placement, so the account gives you a lot of freedom and we’ve seen, you know, Americans, as a trend, be more open to investing in different types of non-traditional investments that’s going outside of the stock market. So, the self-directed IRA really gives you a lot of freedom.

Jason:
Fantastic, when did this start? Sometime back in the 70s?

Jeff:
It did, it did. In 1974 there was a big law called a ERISA that was passed that created 401ks and IRAs and since the beginning you’ve had the ability to invest your IRA in these types of investments, but most people just didn’t realize or don’t know today that you can do this and that’s why even the biggest part of our job at Equity Trust is education and awareness, you gotta make sure people understand they can do this and open their eyes to the possibilities that are out there.

Jason:
Who is really eligible to self-direct their IRA? You know, Jeff, maybe you just want to give an overview along with that answer as to how many different types of retirement accounts are there. I mean, there are 401ks, there are what’s known sometimes as a solok, like a 401k, but just for a single solo business owner, there are SEPs, and defined benefits, and defined contributions. This is a pretty confusing landscape it seems like. There’s a Keogh, there’s probably a few others I’m not mentioning, but who really can do this? Can anybody do it?

Jeff:
That’s the best part of a self-directed IRA and that is the flexibility and the adaptability to the individual investor. So, first off, as long as you number one, alive, number two have earned income, so you have W2 income, 1099, income from self-employment, as log as you have earned income and you’re alive, you can have one of these accounts or many accounts. So, that’s the first requirement to be in the game. Now, when it comes to different types of accounts, there’s really two ways to look at it. There are individual accounts that no matter what you do at work or are self-employed, you can always have and those would be a traditional IRA or a ROTH IRA and then we have plans that you would typically have as an employee or if you’re self-employed for your business yourself and those would be a 401k or Simple or a SEP, those are kind of the typical popular plans that you would hear about.

So, when we look at a self-directed IRA or a self-directed retirement plan, when we talk about what you can buy or how you can invest, that applies to any type of plan that we’re going to be talking about. So, again, if you have a traditional IRA or a ROTH or if you have a roll-over 401k from a job maybe that you are with 10 years ago, all of those plans or the funds that you have, you have the ability to self-direct and that’s really why I think they’ve been so popular because of the flexibility and really the ease of use.

Jason:
Are there any opportunities for someone that has a company 401k plan. Are there ways, we did a story in my news letter a few years back and it was very popular when we posted a little video about it. It was called breaking out of 401k jail. I just wanna put the question to you. Are there any opportunities that someone has inside of that corporate plan, 401k plan, to get more control and more freedom with their money.

Jeff:
That is an excellent question and it’s one that we get every single day.

Jason:
And the answer is no.

Jeff:
The answer is maybe.

Jason:
Okay, maybe.

Jeff:
If you were still employed with the company and you were part of their 401k plan or 403b, you are confined to what their plan allows and incorporate America what we know it typically is, you know, a handful or an array of mutual funds or maybe they might let you invest in individual stocks, but you are limited based on the plan of the company where you work. Now, there are a couple of options. Number one, if you’re no longer with the company, but you still have your plan with them, you have the ability to roll that over to a self-directed IRA where you have all of this freedom. If you are still employed with the company, you have the opportunity, and we talk to real estate investors.

Now, I’m just speaking specifically to real estate investors right now, but it can be practically with any type of investing that most people don’t realize that their real estate investing is a business and because you are in business and you are buying and selling homes or buying and renting homes, you have the ability to have a 401k for that business and we have the same basic contribution limits. Obviously, depends on every individual situation, but you have the ability to have a 401k or an individual 401k, which is this incredible plan for self-employed individuals, but you can have that plan for your real estate business even if you are still part of your 401k at your normal 9-5 job. Again, there is the ability for anyone if you working 9-5 and you’re in a 401k plan now or if you’re not to self-direct and to start taking advantage of your knowledge and expertise in investing.

Jason:
Jeff, I mean, if this so great, self-directing, which I think it is of course, but I’ll just pose the question as the devil’s advocate, if this is so great, why is it that in America only 2% of the market is self-directed starting way back in the 70s. I mean, where people could do it. Just people haven’t heard about it? They’re lazy and apathetic and not taking the bull by the horns and getting control of their plans or what’s going on out there? Is it just the Wall Street propaganda machine? You know, maybe that’s it.

Jeff:
Well, I think it’s a combination of all of those, but without a doubt, we have a very unique relationship with our customers, because when you have an IRA with us, we have an annual maintenance fee that you pay every year, usually a couple of $100 dollars and that includes everything. Anything that you’re going to do with that account, we don’t make or charge a commission or make any money from a mutual fund or a stock that you might buy, so when it comes to a financial planner or your stock broker, there really isn’t an incentive for them to talk to you about this, to tell you about this, because their job is to sell you investments, so right out of the gate when you look at, you know, when you’re on CNBC or reading the Wall Street Journal, I mean, there’s a whole industry helping people invest in mutual funds and stocks and bonds.

First off, you’re not typically going to hear this from your financial professional. The second part of it is, without a doubt, is that it does take an investor to say, I want more freedom. I want more to look beyond what I have, you know what, my banker, my brokerage firm. Sure, many Americas just really don’t want to deal with this or they don’t want, you know, to open up the statements every quarter and see where their account is at, so it does take some kind of self motivation, but again, we see tens of thousands of Americas every year that are taking that step and realizing, I need to be more involved with my retirement planning and that might mean for some people just opening up that quarterly statement and looking and seeing where they’re actually at.

For others, it’s I want to be more involved in the investments that I have in my account and I want to open up my portfolio and have more diversification, so I think going back to my question why it’s only 2% is number one is we think we’re doing a really good job of opening people’s eyes and making them aware, but we’re just in the infancy in terms of getting the world out all across the country. Again, it’s for somebody that wants to be involved and recognize that I can hope and wish that in 10-20-30 years that I’m going to have enough money to, you know, provide and live the life that I want to or I can be involved and make sure that in 10-20-30 years I am where I need to be at.

Jason:
I’ll tell ya, Wall Street does a fantastic job of separating people from their money. It’s the old thing of, you know, this broker on Wall Street, takes one of his buddies down to show him his new yacht and the friend says, well, he explains the whole harbor is full of yachts of all his friends in the brokerage industry and the Wall Street industry and the friend says, “Well, where are all the clients’ yachts?” The clients don’t have the yachts. The insiders do. It’s incredible. It’s amazing, Jeff, Wall Street has such an incredibly good sales force and such an incredibly good marketing machine, yet they have such mediocre at best products in my opinion. I just gotta ask you, what’s your impression? What do you think of that? How did that come to be and why is it sustainable?

Jeff:
I would agree in the sense that it is a lot easier to invest a $100,000 and make it 10-20-30% return then it is to invest a billion dollars and I think, you know, again, when we look on such a large scale, it’s difficult, very difficult to achieve the type of returns that we’re looking for when you have to invest that much money. I think on an individual basis when we look at our customers and the success they have day in and day out, it’s because they have the ability to go in and either find a property or find a potential investment that they can buy in and achieve the returns that they’re looking for with it, so I think there is some, you know, validity trying to find those great deals when you have that much money to invest gets more difficult, but I also think to that point of if you want to be passive and you can wish and hope that there are going to do the right thing in the investments are going to have the right outcome, you know, your expectations I think can be lowered over time, but for those that, you know, that are more actively involved, you know, there’s the different expectations, and it’s, I think, hard to achieve when you’re in the pool with everybody else.

Jason:
Yeah, okay, let me just, let’s just drill down kind of clarify what you said and what you were meaning there. I think what you were saying is that when you’re a fund manager on Wall Street and you’re pooling money and you have a billions you need to deploy, the Wall Street-type products make it really easy because you can deploy that money fast, granted the return will be probably pretty lame, but it’s a big system. There’s a ton of liquidity. There’s like an endless number of products whether they be these hooky derivative-type products that are smoke and mirrors largely in my opinion, but it’s easy to deploy it, yet for a small investor, for an individual, for a small business owner, if they’re self-directing their plan and they have a couple hundred thousand dollars, a couple of million dollars in the plan, it’s pretty easy to deploy that and make nice returns for an individual investor.

This is one of the things I say, Jeff, always to our investors, my famous quote is, “Embrace the fragmentation.” What I mean by that is this – in the real estate industry for example, it’s a very fragmented business where in every market place, I mean, my company does business in numerous cities around money and we help people build these national portfolios of property and say diversified geographically, take the most historically best-performing asset class really in America, which is income property, and diversify geographically within that class and it’s a very fragmented business. Every broker, every property manager, every market place, you know, has some different customs and they do things a little bit differently and that frustrates investors at times, but I say to them embrace the fragmentation, because the very issue and annoyance and frustration that sometimes becomes is what keeps the big institutional investors out of our business and leaves the opportunity for the small investor.

You can see it right now. You look at all these funds, you look at Blackstone, you look at, you know, a zillion other funds, we have some of them as clients whether they be private equity funds or hedge funds that have come into the residential real estate market and are buying up houses, they’re finding – I mean, this is my observation, they’re finding it difficult to deal with this. It’s just too fragmented for them. They’re spoiled. Their expectations are, hey, I got a couple billion dollars, I can just deploy it with the click of a mouse or a meeting with Pimco, you know, but in real estate, it’s all, this deal and that deal and it’s really fragmented. Your thoughts on that?

Jeff:
Oh, no. I would agree exactly and I think that’s, if you look at the funds out there buying rental properties, again, you can buy a property and get a great deal and make 20-30% rate on a deal. We know that, it happens, it’s not, you know, with everyone, every single day, but without a doubt it happens. So, you could do that on one, but if you now need to buy a 1,000 houses, you might have those returns on some, but on the others, the returns might not be so good, so when you average that all out, all of a sudden now, you know, you might be back to the 5-6-7% return. So, without a doubt that fragmentation offers so much opportunity and that’s where, again, for the individual investor, it gives you the advantage versus, you know, it doesn’t help you in a fragmented industry to have more money, it really doesn’t, because it just creates more difficulties for you to run the business.

Jason:
Right, right. Well, a little more money is fine, but when we’re talking..

Jeff:
Agree.

Jason:
But when we’re talking billions of dollars, it’s hard to deploy that. Well, very interesting. Okay, let’s talk about one other aspect of this and I gotta hint as to Equity Trust position, but there are companies out there, some of them have been on my show before and they’ve spoken at my events and so forth and they talk about one thing that investors really like and that is a Checkbook Control LLC. Now, the thing I get from talking to Equity Trust is that you guys, correct me if I’m wrong, but seem to think this is that great of an idea and what I mean here just to tell the listeners is that within an IRA, some investors will setup an LLC, an entity inside the IRA and then open a bank account in that LLC and then go and buy income properties and right checks from that bank account, wire money from that bank account as needed, and that gives them checkbook control, so it makes things a little simpler and easier for the investor, but is the IRS okay with that?

Jeff:
I’m glad you bought this up, because we’ve been in this business for 40 years and one thing that does not change is that every few years there are kind of new strategies or schemes that are created, hyped up, and they always end up going by the waist side and with the checkbook control, with that concept, we at Equity Trust as a custodian, as a regulated entity, as a company that has been in business for 40 years, we look up the checkbook control and we are very concerned by it.

It is very clear that within in the law there is a reason for a custodian and that is the person or the company that holds the assets of your retirement account and there’s a reason why you don’t have the ability to just, you know, walk into your brokerage firm or your bank just pull money out or put money back in yourself. You have a custodian that does that, you tell us what to do and then we do it for you. So, it’s very clear that the government has created that role for a specific reason and by having a checkbook IRA or a checkbook LLC, what you essentially do is the client has the ability to write checks or deposit money into an account that is owned by your IRA.

Now, the IRS has not had a specific or the tax courts have not had a specific trial or opinion on this, but every year the IRS releases, they call it their dirty dozen and that’s kind of either tax scams or programs that they want to Americans, hey, you need to be watching out for this. In 2011, LLC, single member LLCs owned in your IRA made the list and so, we again, think that there’s so much potential liability and when you have the account with the full service custodian like ourselves, you know, with Equity Trust, we have online bill pay. So, if you own property in your IRA and you need to pay the electric bill or you need to pay, I don’t know, for a new furnace, you can do that all online, paper-less, just like you would at your normal banks.

So, you know, the flexibility, I agree, I would love to have a checkbook when it comes to, you know, managing properties in my IRA, but today, this afternoon, I need to take about an hour drive and I’m going to be going down the turnpike. I wish I could go 100 miles per hour so I can get there quicker, but the speed limit is the speed limit and I need to obey the speed limit. At the end of the day, again, we just feel as though there’s a lot potential risk there, the upside is not, in my opinion, worth the risk, and we would really tell our clients and potential clients that you really want to look hard at that and really ask yourself is it worth the risk.

Jason:
Yeah, I’ll tell ya, that can definitely present problems. I had a guy named Mike Dillard on my show awhile back and he has this thing called the Elevation Group. He had one of his guests on that was talking about buying gold inside your IRA and taking possession of physical cold inside your IRA. I tell ya, if you do that and the IRS finds out, you’re going to get nailed. I mean, that is just a complete, from what I understand, violation of the law because it has to be an arm’s length transaction, if you take a possession of it – and that’s what they do, setup an LLC, have checkbook control, buy your gold or silver, and take possession. Well, you just violated the terms of the deal, right?

Jeff:
Again, without a doubt, the government has created the role of a custodian and this has been here for, again, almost 40 years now. So, IRA is pretty black and white that you need to have your custodian hold your assets, you can have full control, I mean, this is self-directed account. You tell us, we don’t do anything unless you tell us to do, but when it comes to any time that you have access to those funds, you know, you’re playing with fire.

Jason:
Yeah, I got it, but if you have online bill-pay. Don’t you run into the same problems? I mean, if the IRA owner can go on and cut checks online to pay bills, I mean, wouldn’t that just be the same thing? Couldn’t they just get themselves into trouble that way as well or is there some limitation as to the way of the online bill paying works?

Jeff:
Well, the most important aspect is we as the custodian write the checks or send the money. So, you can tell us online, but obviously we are the ones in the back office that do that and that’s what is important, because the custodian is the one that is sending the money, not the individual client. Same thing with depositing money. You can send us a rental check from your property that comes from your tenant and we’ll deposit it into your account, but at that point, you know, you do not have, you couldn’t just walk into the bank and say, hey, I want the money out of my IRA. Again, you can tell us if you want a distribution and then we code it that way and we have to tell Uncle Sam. So, again, the difference is that the custodian is the one who is paying the bills ultimately even though, you know, you’re going online and instructing us to do that.

Jason:
As the custodian, do you sometimes say, oh, this is an invalid transaction. We don’t want to send this one, because it’ll get the investor into trouble?

Jeff:
There’s two answers to that. Without a doubt, our folks who are trained, if they see something that they believe is prohibited, we will talk to the client about it and let the client know about it and take the appropriate steps, so that is an added bonus that you do get when you’re working with a full service custodian. Now, with that said, we’re not attorney and we’re not your accountant and making calls on if you’re doing things right or not, but I will tell you if we see something that we feel is out of line, we’re going to give you a call and say, hey, listen, we think there’s an issue here. Let’s talk about it and make sure what you want to do is possible.

Jason:
Yeah, it’s like the investor has another set of eyes looking at the transaction and just making sure that it’s within compliance. It’s kind of the investor has their own compliance department with Equity Trust, right? So, that’s a handy resource.

Jeff:
It definitely is an extra set of eyes and that’s the other thing to when we just go back to the checkbook IRA or LLC, a lot of times folks, once they get started and they have their own checkbook and they start doing things, you might not have the intention to do something the wrong way, but it’s a lot easier for it to happen. Remember, you need to keep meticulous records when it comes to, you know, what your IRA is doing just in case, you know, down the road you ever get audited, you want to be able to present your case just like anything else in business.

Now, when you have a checkbook LLC, you’re the one who is doing all of that and I hope you have copies of your checks, images, all the documents, so when you sold that property five years ago, you still have copies of the settlement statement or the purchase agreement. When you work with Equity Trust, all of that is scanned and imaged. We have full accountings of all of your accounts and activities, so again, when you need that or if you ever do, we’re doing all the book keeping for you, we’re doing all the accounting for you. If you go the other route, that’s all you’re responsibility and your expense as well.

Jason:
Fantastic. Well, anything else you’d like people to know and please give out your website as well, Jeff.

Jeff:
I appreciate that. So, I guess first off what I would say is one of the kind of biggest misnomers that we hear a lot is that well, we’re going to deal with something with the self-directed IRA, this is, I’m sure this is something that’s complicated, you know, it’s something that I, maybe it’s too complex for me to do, but the truth of the matter is is that using a self-directed IRA is very, very easy to do and for 99% of our customers when it comes to what their buying inside of their IRA, if you’re buying a piece of property and you’re buying a piece of property from a 3rd party, you know, disinterested 3rd party, demotivated seller that you find out there, the process is very easy to do. It’s very simple.

We, last year, we helped our clients buy over 13,000 pieces of property all across the country, so this is something that we’re very familiar with, the process is very painless and easy to do and it’s not as difficult as you might think, so to take the time, do the homework, we have some great education, and programs to help you understand this better and to be able to walk through it and really get that understanding that you’re looking for.

One of the things I’ll just give out as well, I received from our marketing team, we have an incredible marketing team, but they said, Jeff, when you’re on today, we really applaud people taking action, because that’s what this is all about. So, for folks that want to learn more we have a special offer that I’m suppose to give out, so I want to make sure that I do this so I don’t get in trouble with our marketing folks, but we have a great program called the Real Estate Success Kit that includes downloads to our guide to self-directed retirement investing. We have a guide about the rules, what you need to know. We have a real estate quick start guide that gives you really the basic foundations of what you need to get started using a self-directed IRA, so it’s a great product, because it helps individuals get that foundation that they’re looking for. It’s in a format that’s easy to understand and to be able to review relatively quickly and it gives you what you need to get started in the next phase.

Jason:
Where can people get it?

Jeff:
Sure, all you need to do is go to, our site is TrustETC.com and if you just do /offer and then /053. https://www.trustetc.com/offer/053. If you go to that landing page, you can go ahead and you can get the Real Estate Success Kit and it gives you everything that you need to have to get a solid foundation and to get started in the next 30 days and that’s for everyone that is listening today, special offer just for your audience.

Jason:
Fantastic. Well, Jeff thank you so much for joining us today and keep up the work. Your company certainty puts on some great events and it has great education and it was a real pleasure to meet your crew when I spoke at your event in Orlando. So, keep up the good work and happy investing to all your clients and all our listeners as well.

Jeff:
Well, thank you very much, again, I appreciate the opportunity to talk to the listeners today and I appreciate you coming to our event. Again, with the self-directed IRA investing, it’s just such a flexible opportunity with so many different options. It’s really something that can work for everyone. So, appreciate the time today.

Jason:
Fantastic, Jeff, thanks for joining us.

Announcer:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.