Tax-free Double-digit Returns with Your IRA or 401(k) With John Bowens
John Larson and the Real Estate Cowboys talk passive income real estate investing.
Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk to John Bowens of Equity Trust about the tax benefits surrounding self-directing your IRA or 401(k). Bowens is an active investor himself and walks through his experiences in real estate.
Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.
About John Bowens
John Bowens, Retail Sales Manager, and National Education Specialist provides educational resources to real estate and alternative asset investors. Through years of experience working with self-directed IRA investors and holding positions in contracting, operations and building management, John has developed educational curriculums that delve deep into the lesser-known aspects of IRA investment techniques.
Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red-hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.
John Larson: Welcome to another episode of the Real Estate Cowboys. This is your host, John Larson. This week we are going to be discussing how to achieve double-digit returns through your IRA or 401k. We have a great guest on the show today. His name is John Bowens from Equity Trust Company. He’s the retail sales manager there. He’s going to provide some great info on how to get self-directed, if you’re already self-directed, investment opportunities that are available to you, um, that are obviously tax-free, will come back to you tax-free or tax-deferred, these returns if you’re going through a self-directed IRA or 401k. And just what we’re seeing in the market currently with the stock market this year. A little bit more volatile than what we saw last year. Last year things were going really well. This year, not so much. Uh, also, you know, we’re looking at a possible recession here looming, um, where with real estate prices, where they are on single family homes, especially cap rates just are not there. You’re not getting these double-digit fixed returns through rentals. Still tax benefits. Obviously, we talk about the six ways that real estate pays you, not just on cash flow, but for investors that are looking for a truly passive income stream. You know, I’ve been talking more and more about this on the show, private money lending, becoming a hard money lender and I just think it’s such a great option for the IRA 401k crowd. There’s something like $26 trillion in IRAs and 401ks and just retirement accounts in general in the US, and only a small fraction of that is self-directed. And that just tells me that just investors don’t know about the opportunities that are available with a self-directed IRA. They don’t know how to go about it. Um, you know, they’re just stuck in the traditional investments that they’ve grown up with, that their parents did or grandparents did and stocks, bonds, mutual funds, annuities, and you know, they’re just not aware that they can self-direct these funds, take full control of the funds, get in the driver’s seat and find good partners like Real Estate Cowboys, American Real Estate investments who have great development opportunities.
John Larson: Great developments in general that you can lend on in really good markets. Uh, you know, Dallas and Houston being two of the best markets, I believe in America, the state of Texas being the twelfth largest economy in the world. It’s just, there’s a lot going for it. And even with a recession looming, I just do not see cities like Dallas and Houston being too affected. You saw Houston get through the oil bust in late 2014, 2015 when oil prices dropped drastically and 30 years ago that would have depressed Houston and the state of Texas. However, Houston still kept going strong and so did the state of Texas. The last recession that we went through in ’08 and ’09, we didn’t experience the problems that the rest of the country did down here in Texas. And we can thank Rick Perry for that who brought in all these jobs into Texas and made Texas such a business-friendly climate.
John Larson: And so I’m still taking advantage of that today by developing office buildings in Dallas, developing land, turning raw land into single family lots that we’re selling to Lennar, David Weekley, some of the largest national builders in the country and things have been running great. Um, I mean I just, I can’t think of a better investment opportunity out there then, especially in today’s market and investors that are looking for cash flow. I cannot think of a better investment opportunity then loaning money out and loaning money through an IRA or 401k because like I said, those dividends are coming back to you tax-free or tax-deferred depending on the type of account that’s set up. And so John’s going to talk a lot about that on our interview here coming up.
John Larson: Just some quick information on John before we go into the interview. John Bowens is the retail sales manager and national education specialist at Equity Trust. He provides educational resources to real estate and alternative asset investors. Through years of experience working with self-directed IRA investors and holding positions in contracting operations and building management, John has developed an educational curriculum that delves deep into the lesser-known aspects of IRA investment techniques. John has trained over 100,000 real estate investors and entrepreneurs on self-directed account techniques, appearing as a guest lecture and hosting individual workshops for eight-plus years, appearing at over 200 venues nationwide. John Bowens also personally self-directs accounts, primarily in private real estate loan opportunities. So I’m sure he’s going to have some great things to say about self-directing and getting your money working for you in a private money lending model or hard money lending model. So welcome Jon Bowens to the show.
John Bowens: Hey, thanks, John, for having me. Appreciate it.
John Larson: Yeah, no problem. Okay, so you know with the landscape of our business right now, we’ve been getting a lot more IRA 401k investors coming to us who are looking to self-direct and do things like private lending, which is our show today. Um, and private lending is basically becoming a hard money lender, taking the position as the bank with first lien position on a commercial development in a market like Dallas or Houston where we’re headquartered. So if you could just give a little information on your company, what you specialize in and, and talk a little bit more about Equity Trusts and the solution that you can provide to these IRA and 401k investors who are looking to diversify out of the traditional investments out there.
John Bowens: Absolutely, John. Our business model is pretty simple and straightforward We are a passive custodian, which means we’re unlike your traditional brokerages and wirehouses that are oftentimes providing some sort of advisory solutions and in most cases, it’s within the traditional realm. So investing in stocks, mutual funds, bond funds, ETFs, you know, assets that are traditionally tied to the stock market. Our clients are coming to us because they’re looking for another solution to managing their retirement account and they want to manage their retirement account on their own. They don’t want to lean on it an advisor or a financial planner that’s going to say you need to invest in this lineup of mutual funds or these mutual funds and these ETFs and maybe a qualified annuity or something of that nature. They’re looking to invest primarily in real estate. And our core business all the way going back to 1974 when our company founder Dick Desich founded Equity TrustCompany, was based on investing in real estate and the opportunity to invest in assets outside of stocks, bonds, and mutual funds. So we have clients that flip houses in their IRA, they own rentals in their IRA. They invest in commercial real estate, apartment buildings. And then I’m really excited to talk about private lending with a self-directed IRA because about 50 percent of our real estate investors are actually making loans secured by real estate. So their IRA doesn’t hold physical property. Their IRA doesn’t hold the deed to a property. Their IRA Is actually lending money. But again, going back to who we are and answering the question, we’re a passive custodian. So our services are helping investors open an IRA, rollover money, transfer money, however, they want to move that into the self-directed IRA Some rollover or transfer. Some just simply make a contribution to get the account up and running. But we help them through that process and then once their funds are in the self-directed IRA, they can direct those funds to making a loan or buying a rental or flipping a house or partnering with another investment sponsor or another investor that they’re working with. And ultimately the investor’s in the driver’s seat, taking full control of how they invest and where they invest. As a regulated financial institution, we’re very similar to the Fidelities, the Wells Fargos, the Schwabs of the world. The key difference or differentiator here is that we’re a non-fiduciary, non-discretionary custodian, which benefits the investor because they have the peace of mind knowing that they have the freedom to take control of their retirement account and ultimately decide on where they want to invest and how they want to invest.
John Larson: Right. That makes sense. That actually leads into my next question. Can you kind of just give a basic overview of the process that’s involved with setting up a self-directed account? So a lot of our investors that come to us, some are already self-directed and surprisingly the majority are already with Equity Trust, which makes it a very easy process at that point, but for someone that’s not set up yet, they have their money with Fidelity or Charles Schwab or wherever, and their money is tied up in stocks, bonds, mutual funds, annuities. How do they go about starting the process of getting their account self-directed or self-directing a portion of their money in their retirement account? What does that process look like?
John Bowens: Absolutely. So it’s a three-step process. It’s fairly simple and straightforward. I will say that for many investors at first glance, it’s very daunting, you know considering taking my money from my 401k or a thrift a savings plan or IRA or a Roth IRA or wherever it’s coming from and moving it to another financial institution. A lot of people perceive it as a very daunting task and we understand that, have understood that for many years. So we made the process very easy and what we do is we encourage folks to reach out to us. When folks reach out to us, they are assigned a singular point of contact onboarding associate, and this is somebody that’s trained in the financial services business to help open a self-directed IRA and move money from point A to point B. So we essentially do all the heavy lifting. We do all the paperwork and all the processing for the most part for the client. So a client would call us and say Equity Trust, I have $50,000 over at–Fidelity is a great example–I want to move it to Equity TrustCompany to do a private mortgage; to make a loan with my IRA. So step one, we’re going to, over the phone, fill out an account application and an account transfer form for the client, we’re going to send it to a client, they’re going to print it, sign it, send it back to us, and then we will send the transfer request over to Fidelity and they will then send the money to Equity Trust. Now that can take a few business days, possibly upwards of 10 to 15 days. We’re really at the mercy of that other financial institution, which means it’s. critically important that the client is opening and funding their account well in advance before they’re actually finding, selecting opportunities. But once that account is set up and funded, they can then move on to step two, which is directing their investment. So in the instance of making a loan, they would simply provide to Equity TrustCompany a copy of the promissory note and mortgage. Most of everything we do can be done online, so it’s an automated system. The client goes online, says, I’m making a loan. Here are the documents, document upload. Great, we get the information. A liaison reaches out to the client, confirms they do in fact want to send the money out, and then the money goes out the door from the IRA. And then on to step three is just managing the account. So, for the most part, everything can be done online. The client can track their interest and principal payments coming into the IRA or if they’re like short-term flipper loans, like six months to 12 months loans, there may just be a balloon payment on the loan after the property is sold, in which case the title company sends a check for the principal and interest payment on a balloon. Money goes back into the IRA, deposited and then rinse and repeat. The client can do it all over again, making another loan or buying another property or whatever the transaction is that they may have the most interest in doing in their IRA.
John Larson: Yeah, makes sense. And we’ve been working on a pretty good system with your team over there. Obviously focusing a lot on private lending opportunities …here in the Texas market and things have been running pretty smooth. I will say that, out of all the custodians that we’ve worked with Equity Trust is probably the easiest to work with. You guys definitely have a good process in place so I can attest to that. My next question would be, in 2017 we saw the stock market was doing really well which probably made investors feel comfortable with keeping their money in the market, keeping their money in traditional investments. However, in 2018, I’ve seen the market going up and down, and it hasn’t been as consistent. Would you say that you’ve been seeing more inquiries coming over in 2018 for investors who are interested in going the self-direction route?
John Bowens: Yeah, and I’m glad you brought that question, John. It’s interesting to look at market trends, looking at the stock market as well as the real estate market and then correlating that to increase or decrease inquiries, increased or decreased account production through our offices here in Equity Trust and if you go all the way back to 2008, 2009, that’s when the self-directed IRA business really, in my opinion, started to take off. And some of that had to do with just the natural progression of technology and the internet, right? The iPhone came about in 2006, information at everyone’s fingertips was more available IN 2007 and 2008, and then what happened in 2008, right? Huge recession. Well, a lot of folks at that time lost 60, 50. You know, the lucky ones only lost 40 percent of their portfolio value during that period of time if they were invested in, tied, correlated 100 percent or nearly 100 percent to the stock market. And once it rebounded in, we’ll say mid-2009, people then got to a point where they were comfortable liquidating their current stock portfolios or mutual fund portfolios or ETF portfolios because they were able to recoup a lot of their previous losses and move it over to a self-directed IRA.
John Bowens: Coincidentally, it was just a perfect storm at the time. People had been displaced from their occupation, so they were in a position to roll over their 401ks. Whereas before they were locked into the 401k because they were still working for the company. And oh, by the way, real estate inventory was at an all-time high. So there was tons of opportunities, as you may know, John being, investing back at that time, you know, the REO markets when crazy. The foreclosure markets went crazy. And oh, by the way, there were real estate investors all across the country that needed capital and couldn’t get it from institutional lenders. As you know, back then even a lot of hard money lenders weren’t willing to lend back then. And a lot of them, unfortunately, had their lumps through the market turbulence as well. So this opened up some opportunities here for clients to onboard their self-directed IRAs. So they moved over their money and they started buying rental properties. They started flipping houses, they started buying properties at foreclosure auctions, they started buying properties through various online auction sites, tax liens and tax deeds were being purchased at that time. And then we had 50 percent all the way through of folks that were saying, Hey, I don’t want to own real estate in my IRA. I want to make loans to all of those investors out there that need capital and can’t get institutional financing. And oh by the way, do you think those investors are willing to pay more for the capital? Absolutely. So folks were charging, I think 10, 12, 14, 16 percent return on money, on doing private lending with their IRA or charging, you know, maybe three points and 14 percent, right? So we absolutely saw an incredible amount of inquiries there. Still, to this day, we’re not seeing as much growth in the self-directed IRA business, but we’re still seeing considerable growth year after year after year in the self-directed IRA marketplace. And what that tells us is that investors who are able to unlock their 401ks and IRAs are moving those over and saying, Hey, I want to invest in other things, I don’t just want to invest in stocks and mutual funds, I want to diversify into other types of alternative assets. So the shorter answer, that’s the longer answer. The shorter answer is, absolutely. We are continuing to see increased inquiries across the entire self-directed IRA industry.
John Larson: That’s great news. I would say, you know, the main reason why we’re not seeing more people self-directing is, I just think that people just don’t know about it, which is why I like to promote these opportunities, you know, obviously on my websites and on my podcast because I do believe the private lending model, like you just said, investors seeing anywhere from 10 percent up to 16 percent or more fixed returns by lending money through the IRA and 401k. And then obviously those returns are going back to them tax-free or tax-deferred. I don’t really know a better option out there and a more passive option out there. If you’re working with the right team and lending on developments in good markets like a Dallas, uh, that’s growing by 400 people a day and is already home to the most corporate headquarters in America, I think you can really minimize your risk, especially if you’re taking the role of the bank and also getting first lien position. So really your only risk would be if the borrower did default and at that point, you do have recourse to go ahead with the foreclosure process. So that’s why I wanted to have you on the show today just to educate our investors and educate my listeners more about the opportunities that are available to you when you do self-direct your account. Uh, you know, the stock market can be volatile, the real estate market can be volatile as well, but when you have recourse in the form of first lien position, you know, you do have, you have some recourse to get your money back. Whereas with the stock market, you know, a company goes bankrupt, you really have no recourse at that point.
John Bowens: I’d agree with that statement and you know, without giving because I can’t give any type of financial advice or legal advice where we’re a passive custodian. These types of things are done for educational purposes only. I can attest to the fact that investors contact us and that’s one of the first things they tell us. We ask them why what’s the purpose of you self-directing your IRA? You know, we want to make sure that that’s a client that’s going to move their money over and actually do something with it, actually take action, uh, speed of implementation, implement something as quickly as possible and start buying notes or real estate or other alternative assets and be able to increase their performance of their retirement plan and access to what the stock market’s yielding. And so the first question is just simply, you know, why you doing this? And nine out of 10 cases, it’s not more; the response is I feel I can drive a higher rate of return with less risk. That’s not to say every investor is successful, right? Yes, there are of course are these stories of individuals that are not. But for those that are diligent in performing their due diligence and they are looking at transactions objectively and looking at the risk-adjusted returns, you know, they can make, um, you know, a very good, uh, retirement plan, uh, in a short period of time by instituting some of these practices and some of these principles.
John Larson: Yeah, and I can attest to that as well. I have family members and friends and obviously, I brush shoulders with investors every day and the feedback I’m getting from the community is private lending through the IRA or 401k is one of the best investment options out there. And it’s not just that it’s one of the highest grossing investment options out there and knowing what you’re going to make each month to the penny. With rentals, I’ve done rentals my entire life. I still do rentals. I’m still a big advocate for rentals, but it’s about finding your “why”. Like you just said, why are you investing in rental properties? Most cases, many people, they, if they’re using their cash savings, they like going the rental property route because of all the, you know, tax write-offs that are available to you, but with the private lending models of the IRA and 401k obviously there’s no tax and implement a tax. Uh, what’s the word I’m looking for? Implications, you know, by, by having those dividends going back into the account tax-free. But it’s all about finding out your “why.” And actually, that’s what we did on last week’s episode. I talked about finding your “why.” And so that’s a great why to invest or self-direct and get into a private lending model because yes, these investors can see higher returns and they can see a more passive experience by loaning money. So that’s another reason why I wanted to bring you on the show today to talk about that. But we already kind of touched on some of the common investments that you see done in a self-directed account. We focus mostly on single family homes, rental properties, right? That we manage for our investors, which I still think that’s a good model for the IRA, 401k, but I just try and caution my investors and let them know that there is a little bit more risk with rentals and maybe not necessarily risks but variables, things that can go wrong that could affect cash flow going back into the accounts. And we all know that, you know, the person is not actually buying the rental property, the account, the self-directed account, right, is where the property is owned, right? Within that. So if there are any maintenance issues or a renovation needs to be done when a tenant moves out, that money needs to come out of the account. For my investors that are looking for a truly passive income stream, I really like to drive them into the private money lending opportunity because like I said, you know what you’re making each month to the penny and it doesn’t come with as many variables. What would you say to that?
John Bowens: What I’d say is looking at the data and knowing that 50 percent of investors are taking the direction of self-directing into knows that what you’re stating there could absolutely be valid, and I can speak to it from just a practical perspective. Ease of use logistically from a maintenance perspective; when the IRA makes a loan to an LLC, that LLC is buying a piece of real estate or maybe already owns the real estate and they’re doing sort of a cash-out refinance. The process is fairly straightforward. It’s not as if the IRA is entering into a purchase contract and the IRA holder’s negotiating that transaction, working with a realtor, getting a title company involved, getting an appraisal done inspection, et cetera, et cetera. You don’t have all of those steps involved. So when you don’t have all of those steps involved, ultimately that puts the investor and the client in the position of having to do less and getting more of their time back.
John Bowens: So, and, and I look at that from my own perspective as well. Being a busy professional. I speak all over the country. Um, I don’t necessarily have the time to be able to go out and find deals and put up bandit signs and buy properties for sale by owner, get ’em for cheap, fix ’em, rent them out and collect the cash flow and do all the management. I don’t necessarily have the time to do that, but what I can do is go out and find prospective borrowers, individuals that have a track record that have been in real estate for a number of years, that need financing for their renovation projects and I can make loans with my self-directed accounts. And so the process is very straightforward. The paperwork is simple and straightforward. The IRA and us as custodian is just holding a promissory note and a mortgage.
John Bowens: So the IRA, the asset of the IRA is a promissory note and a mortgage. It’s very similar to individual investors buying corporate bonds, buying bonds with their IRA. It’s the same concept. With a bond that’s an IOU. It’s a promissory note, essentially. When I’m lending secured by real estate, it’s not backed by a company. It’s not backed by Wall Street. It’s backed by physical property. So my IRA makes a loan, I get a promissory note and a mortgage in the name of that IRA; Lender as Equity Trust Company, custodian for the benefit of John’s retirement plan. And the interest and principal payments are going back into the IRA. And you brought up taxes. That’s something that we haven’t talked about, but it’s important for folks to understand that their IRA is generating tax advantage profit. So what you’re doing is you’re leveraging compounding interest in the absence of taxation.
John Bowens: So particularly with the Roth IRA. If I’m lending with a Roth IRA and let’s say I make $100,000 loan and I charge 12 percent, and in 12 months I make $12,000. That $12,000 goes back into my Roth IRA and it’s 100 percent tax-free. That $12,000 doesn’t hit my ordinary income, doesn’t hit my 1040 as ordinary income. If I’m at a, let’s say 40 percent tax rate, that could be potentially $5,000 and some change in taxes that I would pay if I had made that loan outside of my IRA. So the best way to look at it is, okay, ease of use, security is important as well, you know, doing the due diligence, making sure that you have a promissory note and a mortgage that’s filed with the county recorder and then look at it from a tax perspective by using IRA to do these types of transactions. Am I able to grow my retirement planning in excess of what the stock market’s making and be able to take advantage of the tax advantages associated with an IRA?
John Larson: Right, and you’re preaching to the choir. I look at the same thing. It’s not just the rate of return. If my rate of return is going to come with a lot of problems, like I’m an active real estate investor, flip homes, obviously we flip homes to sell to our investors as rental properties and manage them. There’s a lot of work that goes into that to see, you know, on a good year, six, seven, eight, maybe 10 percent rate of return. That’s if you have no problems with the rental property, no evictions, no vacancy, no big maintenance problems. So you know, with the private lending model, it’s just so much easier. It’s so much more passive. So when I look at my return and we talk a lot about what’s your return on life here on the Real Estate Cowboys, so you know, I don’t want my investments to stress me out, I already have a job. I already have a family that I need to take care of, so on and so forth and so I don’t want my investments to cause me problems.
John Larson: I’m looking for ease of use as well. So if you’re able to get double-digit returns in a truly passive manner where you can go about living your life and working at your current job or even when you’re in retirement and you want to vacation with your wife and do what you want to do, you don’t want your property managers all the time with problems and so on and so forth. So I love this model just for that reason that you just explained, as well. Very easy to understand, very easy to generate income and you don’t have all these extra variables out there that can cause negative returns on your investment. And so my final question would be, you know, I’d like to talk a little bit about your personal investment methods, if that’s okay. What are you currently self-directing and, and what’s the process you follow?
John Bowens: Topic is obviously, as you can tell, I’m very passionate about it. My primary focuses is private lending. Uh, as I shared earlier, I don’t necessarily have the time to go out and find properties and get them under contract. And quite frankly, even though I’d been in real estate for well over 15 years now and worked for commercial real estate companies, residential real estate companies, know a lot about real estate, grew up around it. Um, I don’t really have all of the acumens to be able to do that. And I don’t have 100 percent confidence that I would be successful in going out and buying rentals and managing rentals and doing everything properly, at least at this point in time in my life. And so in my earnings years, as someone that’s looking to accelerate the growth of my Roth account particularly, which is again a tax-free IRA, one of those powerful financial tools afforded to us by the federal government, didn’t come about until 1998, 1997, 1998. And so my strategy is increasing the velocity of my money, is what I call it. So what I do to my best ability is I make loans and I’ll make with any one basket of money, let’s call it $50,000. Any one basket of money, I will try to make, if I can, two to three loans a year with that one individual basket of money. So loan one, $50,000 goes out. Let’s say I charge eight percent, I get my money back in four and a half months because it’s a short-term transaction. It’s a flipper loan, I call it. And then following up on that, I have another deal queued up already. So I’m constantly working with borrowers. In fact, just on this call, I got a text from a borrower that’s got a property over in Parma, Ohio and he’s looking for funding for the transaction. And I can’t make this stuff up, right? So, um, I’ll jump on a call after this and I’ll have the opportunity to be able to look at lining up more funding. So what I’m doing now is I’m, let’s say in loan two, now making another $50,000 loan at eight percent, so my annualized return now goes up to 16 percent. And so my focus is lending, going short-term financing to real estate rehabbers and doing as many as I possibly can a year, constantly getting deals queued up and things fall through. The last loan that I had, um, I had the expectations of it paying off in about three months and it was under contract and everything was going good and I had another loan lined up and guess what? Complications came up. And as a result of that, the property didn’t end up closing for about another 60 days. So I missed out on another lending opportunity. But guess what? I had another deal queued up right when that 60 days came, the money came back in, and within 48 hours I had the money right back out the door. So the key is to keep the money working for me. Now, this is just me. The key is keeping my money working for me, keeping it out on the street, so to speak, increasing the velocity of money which ultimately is increasing my yields over that period of time.
John Larson: Right. And that’s what we do here. So our terms are typically, because we do, like for example, we’re doing a four unit office building. We’re asking for a loan to purchase lot. We already own the land. We’ve already developed the land. We’re ready to start building seven buildings that are going to go in this office park; we’re raising funds for the purchase of one of the lots out of the development and the construction of the four-unit building. That’s pretty much an 18-month term for our investors. And then our plan is to obviously pay our investors their monthly dividend and then when that project is completed and we either sell it or just refinance it as a company and hold it in our portfolio, that’s how we will pay our investors back. We will have another opportunity that they just can roll their initial principal investment into and just keep the money working for them. It’s basically a private money lending program. And as I alluded to in the beginning, you know, if you find the right team to work with, that’s part of the problem, right? You have this money, you want to loan the money out, you want to start earning double-digit returns at a fixed rate, right? But you gotta find the right team to actually lend to. You know, people that are experienced developers. People are that are in the right markets. I do think we are on the cusp of another market correction. Not as bad as we experienced in ’08, but it’s coming. So if you’re loaning on projects that are in markets with a lot of jobs and a lot of population growth, there should still be that demand for development and new development, which is why we’re positioned here in the Dallas market and the Houston market. But yeah, that’s our goal to just keep our investor’s money working for them and uh, you know, so that’s why I put them in a good safe opportunities that I believe are very low risk for failure or default and we can just build that long lasting relationship with our investors or lenders.
John Bowens: Yeah, absolutely, and you know it’s guys like me, folks like me, need folks like you and there’s gotta be that ecosystem in order to keep liquidity in the marketplace and allow investors to quickly access capital. One thing I didn’t mention, John, is there’s over $8.5 trillion in IRAs, just in IRAs alone. When we account for 401k’s, 43Ds, thrift savings plans, which are essentially government-sponsored 401ks, various other tax-qualified accounts, you’re looking at well over $26 trillion, and I’m citing some statistics from the employee benefit research institute which can be found@EBRI.org for any viewers that wanted to do more demographic research on the retirement system. But that goes to show that there’s an available marketplace there and I know that, from speaking with you, working with a lot of investors and some of those individuals having an interest in IRAs, it’s a great opportunity for your organization to be able to find streams of capital and be able to quickly turn around the process. Um, coincidentally in the same call, I got another push notification that a wire transfer just went out for my Equity Trust account. I sent the paperwork early yesterday morning and the wire just went out to my borrower to fund a loan in Ravenna, Ohio, which is about 45 minutes from where I live, our home base is right outside of Cleveland, Ohio. And it’s a $43,000 loan. Uh, I’ll have about 10 percent interest on that loan, and it should pay off and in four and a half to five months. The collateral, it’s a 42-acre lot. It backs up to a state park and a lake, and uh, it’s essentially a farm. Uh, there’s actually still as we speak, there’s horses that are running around in the pasture, so there’s stables and there’s a four bedroom, two and a half bath, uh old farmhouse. It was bought at a county auction for $41,500 and I’m financing $43,000. So the house, the collateral appraises right now to about $160,000 as is. The borrowers intend on putting a little bit of money into it and selling it for a profit. I get my interest, I’m happy. They make their significant profit and they’re happy too, and they have more capital to go out and do their next deal. And you know, it’s interesting, I didn’t mention this before John, but how I’m funding some of these transactions is not just with one account. So I have a tax-deductible traditional account, so it’s tax-deferred money, and then I also have my Roth money. So on this last transaction, I actually funded the $43,000 loan, $21,500 from my traditional. $21,500 from my Roth. So the lender on the promissory note and mortgage I have listed as Equity Trust Company custodians and the benefit of my Roth account, undivided interest, 50 percent, and my traditional account undivided interest 50 percent. So when I get my principal and interest payoff, I’m going to split that check 50/50. And the reason why I bring that up is because investors that are listening to this call might encounter some of the same challenges that I’ve encountered, which is I may just not have enough money in one account or the other. So I might have to split it up.
John Bowens: And I could also partner with other family members. So if I wanted my significant other to put in money into a deal, I could do, let’s say 50/50 deal. So maybe they fund 50 percent of it and I fund 50 percent of it. Or maybe I’m partnering with a child’s education savings account or another family member’s Roth IRA or whatever the case may be, and then I’m just splitting up all the profits proportionate with the initial ownership interest. So it’s great to know that you can get creative with these types of transactions. You can create a constellation of tax advantage dollars. Ultimately, going back to your first question, John, the client, the individual is in the driver’s seat. They’re the ones that are making all the decisions on how they’re going to craft these transactions, paper the deal, and actually execute on a going forward.
John Larson: Excellent. Well, John, I appreciate you being on the show. This was a ton of great information. For my listeners out there that have money still in the traditional investment options out there that are interested in potentially self-directing some of those funds, getting the money out of the market and possibly doing a private lending opportunity to where they could see double-digit fixed returns um with all these tax benefits that you’re talking about. Uh, how can they get in touch with Equity Trust? What’s the best way?
John Bowens: Best way to reach out to us is our toll-free number. It’s 888-382-4727. 888-382-4727. My email address, if anyone wanted to shoot me an email, I’d be happy to take any inquiries as well, is J.Bowens@TrustETC.com So that’s J.Bowens@TrustETC.com. Um, I’ll try to answer as many questions as I have from viewers. If I can’t get to those, I’ll make sure that I have one of my associates reach out accordingly. But yes, absolutely. I appreciate the opportunity, John. I had a great time. I always do. I love this business. I’m very passionate about it. I’ve had the opportunity to see individuals in the private lending space and in the real estate space make considerable returns in their IRAs and 401k self-directing it and we’re happy to help out others. We’re happy to share information and education and help out in any way we can.
John Larson: Sounds good. No, I can definitely, your passion definitely comes through. Alright, John. Well, I appreciate you being on the show and let’s continue to do this because like I said, I want to continue to educate investors out there that this self-directed opportunity is so great. Taking control of your retirement account and putting it into options like real estate so you see much better returns. Um, it’s a passion of mine as well. So thanks for being on the show and we’ll speak soon.
John Bowens: Thanks.
John Larson: That was an excellent interview by John. I’m so grateful to have him on the show to educate our listeners on all the great options that are out there with the self-directed process and, uh, you know, becoming a private lender with your IRA or 401k. It just sounds like such a great, great option for our investors today in today’s market. We’re going to take a quick commercial break. And when we come back, we’re going to wrap up this week’s episode of the Real Estate Cowboys. Stay tuned.
John Larson: And welcome back to the Real Estate Cowboys. This your host, John Larson. This week’s guest was John Bowens from Equity Trust. He gave some great insight on self-directing IRAs and 401ks and getting that money working for you in real estate and you know, notes especially. Specifically, uh, becoming a hard money lender and if loaning on a development sounds interesting to you, especially in a market like Dallas or Houston, which I believe are as close to recession-proof as possible. And with a recession looming, you have to be very careful about the opportunities that you’re looking at today, but we have ways that we can get our investors double-digit returns by becoming a hard money lender on a great development opportunity here in the Texas market. And so if you’re interested in learning more about that, you can go to our website RealEstateCowboysDFW.com, or to AREIUSA.com and there’s tons more information on those sites where you can get more acclimated with the options that are available to you if you have not self-directed your account.
John Larson: If you do not have your account self-directed, we can put you in touch with Equity Trust and get that process started. We can also answer any questions that you may have about the self-directed process, but we have a development going on right now that’s going to be closing here at the end of October. We’re projected to close it here shortly. That’s going to pay our investors 10 and a half percent fixed for 18 months. So $100,000 investment will pay them $875 a month for 18 months, which equates to about $16,000 over that period of time. And if you’re doing that through an IRA or a 401k self-directed account, that $16,000 is going to come back to you tax-free tax-deferred. So as John spoke about in his interview, there’s so many benefits to becoming a private lender or hard money lender through the IRA, 401k, and the tax savings is a big one.
John Larson: So like I said, if you’re interested in learning more about these opportunities or how you can get involved on this current project, we are going to be closing this project at the end of the month. So if you’re able to get your funds in by the end of October, you can start earning a return as early as November and you will see monthly dividends paid out each month. Uh, so if you’re interested in that act fast, uh, reach out to our team, go through RealEstateCowboysDFW.com, or AREIUSA.com and inquire and a member of our team will reach out with the next steps and how to secure your position. We also have our Passive Income Guide has been out now for almost a month, a little over a month, and if you’re interested in learning more about passive income opportunities in real estate, you just need to know where to get started. The Passive Income Guide is a great book to read. You can get that on either one of our websites or you can also get it on Amazon. It’s titled The Passive Income Guide: What is Your Return on Life? And that is by John Larson, foreword written by Keith Weinhold of Get Rich Education. Check that book out if you’re interested in learning more on how to start generating passive income. Thank you so much for listening in this week. As always, remember what’s your return on lIfe? This is John Larson signing off. Have a great week.
Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.