Finance Roll

Joe's retirement plans were coming back into focus as the result of his newly found investments for his IRA. You may remember his IRA purchasing an interest in a local bar and grill as well as the discovery that his IRA's new banker's pinstripe suit fit very well. (For more background on Joe's IRA's investments see links to the articles below).

Joe's IRA, since being moved into a Self-Directed IRA, continued to grow. Dividends from the profits from the Bar and Grill as well as interest and fees from the loans made to friends and business associates continued to flow into the IRA. Joe and his wife Nancy began to see themselves enjoying the sunny beaches of New Smyrna. Joe and Nancy remembered driving through the warm and humid town a few years after their marriage and visiting a homemade ice cream store where they scraped together enough money to buy a coconut ice cream cone. The creamy smooth taste with real coconut and nuts was burned into their minds and even after twenty-five years, they still talked about it. Walking down the beach with the quickly melting cone was memorable as well. They both ran into the ocean afterwards to rinse off the stickydrips.

Joe and Nancy were in the midst of planning this year's spring break for their family. Joe called Nancy during a lunch break and said, "Let's go to New Smyrna beach! The kids have never seen it and we have all those frequent flier miles that we better use before the airlines all go under." Nancy agreed, and a few clicks of the mouse later Joe had arranged for the four of them to be winging away to Florida.

Upon arrival in Orlando, the family arranged their rental car and headed east to the beach. New Smyrna was everything Joe remembered, well he didn't remember the new construction taking place, but it wasn't that much.

After settling into their hotel, Joe, Nancy, and the kids walked up and down the beach and around town, Joe and Nancy reminisced, and the kids rolled their eyes. Joe's ears perked up one night as he overheard a couple at a neighboring table talking about real estate. They mentioned a local property whose owner had passed away. The elderly gentleman had not visited the property in some time and it was going to need some fix-up. Joe leaned over and casually asked where the property was. Surprised but friendly, the couple gave Joe the address and directions to the home.

On the way over, Nancy said, "This is fun to look at, but you realize that we can't afford any real estate, don't you Joe?"

Joe looked at her and smiled. "It's not for us...it's for the Self-Directed IRA!"

Driving up to the house they were a little shocked. The paint was faded and chipped, the yard was a disaster. Joe was disappointed, until he walked around and realized the home had a view of the ocean from the back deck, and likely from the upper windows as well.
The next morning Joe sat in front of his laptop searching real estate records. After a few hours and a number of calls, he tracked down the owner. She was in upstate Pennsylvania and was the 52 year old daughter of the former owner. Joe had looked at the property a little closer and determined that it was probably worth around $150,000 but needed some immediate fix-up in order to be a rental.

After another day, Joe's IRA became a home owner, a rental home owner that is. Joe managed to get the owner's number and told her that he represented a buyer who was willing to pay her an immediate $30,000 and to provide her a note for the remaining $110,000 of the purchase price. To Joyce, the owner, the offer was nothing short of a miracle. Joyce had no time or money to deal with her unexpected ownership of the property and she immediately agreed. However, she really needed a larger payment. She asked for $40,000 now and that the note be paid off in just 24 months. Joe agreed that his IRA would make the purchase.

Joe's IRA didn't have quite that much in cash, but Joe remembered that he hadn't made his annual contribution yet. He quickly sent off a check to Entrust for his contribution, as he wanted to make sure the cash was available for closing in a few weeks. Joe called a local real estate broker to write up the contract. He also checked in with his Entrust office where he received knowledgeable assistance with the titling and the purchase process. The broker also talked to the Entrust office to get some detailed questions resolved and to figure out how he could tell his other clients about Self-Directed IRAs.

Joe then arranged for a note and mortgage to be drawn up and sent to Joyce along with the contract draft. She approved the documents, so Joe directed his Entrust Self-Directed IRA administrator to sign the documents. A local title company handled the closing. Joe's IRA paid the $40,000 in cash and borrowed the remainder from Joyce through owner financing. Joe's IRA, NOT Joe, was the borrower, and Joe realized that his IRA must make the loan payments. Joe knew however, that a couple of the outstanding loans owned by his IRA would be maturing soon and should be able to easily make the payment plus pay for the repairs that he was arranging through a local contractor.

Months later, Joe's IRA was enjoying rental revenue above what Joe had expected. The total repair cost was less than anticipated, mostly being cosmetic. The broker, who also took over management of the property, sent Joe a note mentioning that the property was likely worth at least $135,000 after the repairs. Joe's Entrust office also mentioned that as his IRA was earning what could be Debt Financed Income there could be a tax due for Joe's IRA on that portion of the income. Something called UBIT. Joe made a note to look into how it worked.