In early 2010, while still engaged in completing my 4-year plus rehab project of the log cabin and seriously considering an entrepreneurial career change, I was approached by a friend who was then (and still is) successfully engaged in high-end custom home building in southern FL. He inquired as to my interest in becoming an active partner in his building business. I considered the opportunity very seriously and began to do some research into how I might fund buying into his already successful business.
At our first meeting to discuss this opportunity, I discovered that he was in serious financial difficulty due to the 2008 home mortgage crisis. He found himself in an over-extended situation and was in need of an immediate cash infusion. He had lost several properties to foreclosure and was in the process of short-selling his personal residence.
Having discovered an article in the February 15, 2010 issue of USA Today entitled Entrepreneurs turn to 401(k)s, I became aware that I could actually self-direct my ROTH IRA and make a business loan to my friend. I had about $81k in my ROTH at that time and immediately took action to move those funds out of the traditional hands of the Edward Jones Company and into the custodianship of a company called Entrust which my father had used to self-direct some of his own retirement investment funds in the past.
Unfortunately, I discovered as a part of the mandatory training required by Entrust that I would not be able to work with or for my friend’s company because having made the loan out of my self-directed retirement account made any working association between myself and my friend’s company what the IRS calls a “prohibited transaction”. Feeling that the urgent need of my friend was a higher priority than my own career change at that time, and having an unshakeable respect for the integrity and workmanship of this individual, I decided that I would invest what I had as quickly as possible to help him keep his company solvent.
I knew very little at the time about good business practices associated with making loans and so I deferred to my friend as to the terms of that loan. He suggested that 6% would be a good rate, so I drafted a Legal Zoom promissory note for $81,000 at 6%. I had assumed that I would make a profit of $4,860 on that loan and I was willing to accept that for the good that it would. When he paid the loan off in just 3 months and only paid me a $1,215 profit which ultimately amounted to a mere $800 profit after paying the Entrust initiation and maintenance, I felt that I had been taken advantage of as I had not realized that 6% only amounted to 0.5% per month. My “friend” got a very favorable loan and I got a very expensive education; even more so in that with my aversion to Wall Street, I never put that money back into the stock market, but instead waited for the right investment opportunity to come along.
Eight years later, still with an aversion to the stock market that money sits at $86,000 in value. At 6% per year it would have grown to $121,794. Now it is time to break out that money with a serious and aggressive investment strategy.
In that same year, I was looking for opportunities to invest in. During that period, I had been receiving credit card balance transfer offers at 0% interest for up to 24 months with a $50 or 3% transfer fee whichever was greater. I had heard that if one requested a waiver on the transfer fee that it could be granted. I had one card that had an available credit limit of $85,000. I had been toying with the concept of trading stock options; the put and call variety, but did not have any cash with which to do this. I considered using that $85,000 credit card as a source of investment funds, but first I had to find out whether I could really access those funds at 0% with no strings attached.
I called the credit card company and told them that I wanted to tap the entire $85,000 credit limit, but that I would only do so if they would waive the transfer fee. They agreed to waive the fee and my bank account balance swelled by $85,000. Month after month I made the minimum payment on that balance from the account into which I had deposited the money and at the end of the term I paid off the balance with the funds that were still in the account. I had proven to myself that I really could access 0% credit in large sums.
Once all of this had been arranged I was offered an opportunity to move to Utah on a military project that would pay me up to $250k per year. I took that opportunity and earned the highest income of my life, sold the log cabin, and bought a one-acre property in UT. The caveat was that the $250k per year earnings consumed more than 80 hours per week of my life and involved a 240 mile RT commute which spanned 3 hours per day. I was taken out of the investment game all together during this time as I had no time to pursue any investment opportunities at all.
When the project in UT ended, I took my opportunity to leave the defense industry. I found work as a senior manufacturing engineer and began what would prove to be the most challenging project of my career. Failure was not an option and I barreled through to success, but not without a heavy toll. I went back to 80 hour weeks for 40 hour pay and nearly ran myself into the ground as I delivered on my commitments, but during one of the lowest periods of my life, I took notice of a simple sign on the side of the road which read, “Real Estate Investor Seeks Trainee. Earn $10k per month. Call 801-555-1212.”
To make a long story short, I called and the rest is history. I was introduced by this investor to the best real investment education program in the country; while my ship had not come in yet, I finally had an “engineering” plan through which to achieve my destiny.
My first course of action was to avail myself of the Self-Directed IRA education that my new mentor had exposed me to. This filled in all of the holes and nooks and crannies that existed after my first crash course in self-directed retirement fund investment when I was rushing to solve my friend’s financial problems. I spent a good portion of the first year moving all of my retirement accounts into checkbook access self-directed vehicles and learned the ins and outs of utilizing those funds to market and acquire properties without getting sideways with the IRS.
I completed my education in the realm of Self-Directed ROTH IRAs and came to understand what was and what was not a prohibited transaction. With the two self-directed ROTH accounts that we established I realized that my strategy would be such that I could not so much as drive a single nail into a shingle that had blown off of the roof of a real estate investment property that I were to invest in. As I had learned earlier I could not invest in a business or entity that I would perform any work in nor could I take compensation pre-retirement from anything funded by this money.
I soon re-discovered another vehicle, the ROBS, which I had actually read about in the 2010 article referenced above. ROBS stands for Roll-Over Business Startup and I call it the inverse of the Self-Directed IRA. This vehicle allows me to fund a business, earn revenue, and then not only allows, but mandates, that I take a salary from this business, contrary to the SD ROTH IRA which prohibits me from taking any compensation until I retire, but at which time I will take my retirement income completely tax free.
To summarize, I discovered that I have three sources of revenue with which to fund my real estate investment activities:
- SD ROTH IRAs which I must passively manage, but which will grow tax free income forever.
- ROBS funds which will finance a business that I can actively participate in and take a salary from while growing the 401(k) which funded the business.
- Zero percent credit cards which can be used to acquire properties and/or materials as part of the over-all Fix and Flip process.
Armed with these ready to go investment funds and the very best real estate investment education in the country, I am now prepared to begin career number two firming up my retirements funds while establishing multi-generational wealth.