Episode #10 Self-Directed IRA’s with Scott Maurer

 

Show Notes:

Episode #10 Self-Directed IRA’s with Scott Maurer

In this episode of Real Estate Investing Made Simple, Scott Maurer talks about how to use your IRA to invest in alternative assets, like real estate.

Scott Maurer is the Director of Business Development for Advanta IRA, a nationwide self-directed IRA administrator. Scott has worked for Advanta since 2006, helping thousands of people invest in alternative assets (mainly real estate) using their IRAs and old 401ks. Scott is a frequent speaker and lecturer on the topic of self-directed IRAs and has also appeared on many
real estate and investment podcasts. Scott is also an attorney and a member of The Florida Bar, although he does not give legal advice to Advanta clients.

 

Contact Scott Maurer:

Website

https://www.advantaira.com/

Phone #

727-581-9853 ext. 1123

Email

smaurer@advantaira.com

Book recommendations:

Traction by Gino Wickman

 


Podcast Transcription: 

Introduction  0:02  

Welcome to The Real Estate Investing Made Simple podcast, the show empowering and educating people on how they can grow, manage, and protect their wealth through real estate investing. Now, here’s your host, Bailey Kramer

 

Bailey Kramer  0:23  

Hello and welcome back to the real estate investing Made Simple podcast. The goal of this show is to break down complex real estate investing topics that you can use to grow, manage, and protect your wealth. I’m your host Bailey Kramer, and today we are joined by our very special guest, Scott Mauer to talk with us about self-directed IRAs. Scott Mauer is the Director of Business Development for Advanta IRA, a nationwide self-directed IRA administrator. Scott has worked for Advanta since 2006, helping thousands of people invest in alternative assets, using their IRAs and old 401 Ks Welcome to the show. Got

 

Scott Maurer  1:01  

Hey, Bailey. Thanks for having me on. Look forward to sharing some good knowledge with you with your listeners.

 

Bailey Kramer  1:05  

Yeah, absolutely. So why don’t you go ahead and tell our listeners a little bit more about your background and what you do?

 

Scott Maurer  1:12  

Sure. Yeah. So I started in this industry, the self-directed IRA industry back in 2006. It’s been close to 15 years now, I’ve been working with self-directed IRAs. I’m an attorney by degree and that’s my educational background, but focus primarily really on self-directed IRAs since 2006. And really helping people who have money in either an IRA account or an old 401k account. What we do is help people invest in other types of assets outside of the stock market. A lot of people are familiar if they have a 401k or they have an IRA account, they can invest that into various stocks, mutual funds and other publicly traded assets. What they don’t know what we’ll talk about today is that you could also use that money to Invest in various real estate projects, you know anything from single family homes to multifamily syndications tax liens. The list goes on and on. So what our company is we facilitate that investment and we act a little bit like a Schwab or fidelity, but with much different investment options.

 

Bailey Kramer  2:31  

Okay, so let’s start by defining what an IRA is and touch on the differences between a Roth IRA and traditional.

 

Scott Maurer  2:39  

Sure. So an IRA account. Ira stands for individual retirement arrangement. They are tax special tax vehicles that the government created for us back in 1974. To allow us to save money for our own retirements. They give us our own tax breaks for contributing to an IRA over the year. Over the years each year, and also in growing that account as well, there’s some tax breaks on, on the growth in that particular account. So, the Genesis behind why IRAs were created was really to encourage and enable individuals to save for their own retirement account, rather than relying simply on Social Security, other government programs. So that’s why I came into being there. Again, there’s tradition that there are Roth IRA accounts. There’s even Sep IRAs for self employed individuals. And they work very similarly to a 401k. A lot of people might be familiar with 401 K’s because they work for an employer who offers them that type of plan. So the IRA works very, very similarly to that. Now, the difference between a traditional or some people call a regular IRA and a Roth account is how their taxes are treated, or how tax is treated when dealing with these accounts. With a traditional IRA. You’re allowed to put in up to $6,000 per year out of your Your Pocket to that account on an annual basis. And if you do whatever amount you contribute to a traditional IRA, you get a tax deduction. So when you’re filing your 1040, you’re able to take a deduction for the contribution made to a traditional IRA. Now, as you invest and reinvest the funds you put inside your traditional IRA over time, you don’t pay taxes. As you invest and reinvest, as long as the IRA is making an investment, the account stays what they call tax deferred. So your note that when you buy and sell an asset, you don’t pay taxes at each step. And what that allows you to do is to compound your money more quickly, you have more money to work with as you go into your next investment. And you can build your account a lot more quickly. With a traditional IRA, the IRS will eventually reap tax revenue when you take distributions in retirement. So if you’re 2030 years old, 40 years old, you’re making your contributions to the account. You’re getting deductions up front. You’re not paying taxes. As you invest that money, when you get to 6065 70 years old, and you begin to pull it out, you pay tax at that time. So the benefit, again, is really that tax deferral, and that’s the regular IRA. Now, with the Roth IRA, you get that same tax deferred growth. But the difference with the Roth IRAs, you do not get a deduction up front. So when you put that $6,000 in a year to a Roth account, you do not get a deduction. So people say, Oh, well, that that’s not any good. But the huge benefit that the Roth IRA has, is that ultimately, when you get to 6065 70 years old, and you pull money out of the Roth, it comes out to you completely tax free at that time, so that you’re kind of deciding between a traditional and a Roth. With a traditional IRA, you’re paying a tax plan. But with a Roth IRA, you’re paying tax on the initial seed, and then never paying tax again. Now traditional or Roth IRA or a SEP IRA, which is a traditional IRA for self employed individuals, all of those different accounts, you can choose to self direct and invest in real estate.

 

Bailey Kramer  6:04  

Okay, awesome. And now the subject at hand here, the self directed IRA, can you kind of go into what is a self directed IRA?

 

Scott Maurer  6:13  

Absolutely. And so it’s important to remember I think when when we talk about self directed IRAs, that the IRS doesn’t designate a self directed IRA as a type of IRA. So the IRS has traditional Roth you know, SEP IRA designations, what self directed refers to is simply the ability for you as the IRA owner, to control ultimately what you want to invest in. So if you have an account with a bank or brokerage firm, they’re going to limit you to only those investments that they buy or sell. So you might be limited to mutual funds or to or to publicly traded stocks. But the IRS rules allow for you to invest in anything you want other than you can’t buy collectibles, like artwork or antiques, and you can’t have your IRA invest in life insurance products. So outside of that you as the account owner have the ability to choose what you want to invest in. And that’s what a self directed IRA is, if you are choosing the investment you wish to make, rather than picking from investments that a provider is offering to you. So, again, so if someone says I need a self directed account that can be a self directed traditional, could be a self directed Roth could be a self directed SEP IRA. Again, that’s really what the self direction reversed. So you’re in control to pick an investment that is allowed by the IRS, not necessarily what’s only allowed by your provider and the IRS does not require companies like fidelity or Vanguard to offer real estate as an investment in their portfolio. Each custodian can decide what they’re willing to handle. So you just have to have the right custodian like Amanda to invest into those truly alternative assets like we’re gonna talk about today.

 

Bailey Kramer  7:54  

Okay, so what’s the process for actually going to set up a self directed IRA

 

Scott Maurer  8:00  

The good news is what the process is, when we talk sometimes to people about self directed IRAs, they feel like this is something I haven’t heard of, it must be complicated, it must be difficult. And it’s really not, it’s simply a matter of filling out the right paperwork to make it happen. So the process starts with establishing the IRA account with advanta. So you’re filling out our paperwork to open up a new IRA. And if you’re moving money from another IRA at another firm, you fill out a form of us called a transfer form, telling us who your other custodian is, what your account number is there and how much you want to move. You know what amount in cash you want to move from that other account. We submit that paperwork then to your other custodian, and then they send the funds to us what’s called by a trustee to trustee transfer. It’s a non taxable event. You can move money between IRA custodians as often and whenever you’d like as long as you do it with the right paperwork each time and that’s something that we work with you upfront when someone’s looking to set up an account, making sure all of that paperwork is properly completed and properly filled out. If you’re moving money like an old 401k plan, it’s a little bit of a different process. It’s called a rollover, as when you move money from a 401k to an IRA, it’s also tax free to move that money over and again, we will assist in the paperwork to get that done. But again, setting up a self directed IRA is simply a matter of filling out our paperwork, and then filling out the documents to get money moved from your current custodian, as I said, we walk our clients through every step of that process.

 

Bailey Kramer  9:34  

And you have to transfer your whole IRA to a self directed

 

Scott Maurer  9:37  

four. That’s a great question because I think Bailey sometimes again, people get nervous, oh, I don’t Well, I want I want to self direct, I want to buy this property or I want to make this investment but I don’t want to move my entire account over I want to keep some of it, you know, maybe in mutual funds or stocks, and the good news is, you can do partial transfers from one custodian to the other again, as long as there’s paperwork go going back and forth each time, you can do as many transfers as you wish, we have some clients who bring money over to make it their initial investment, then they find another investment they move to do a second transfer for additional cash down the road. And even some clients as they accrue cash in their account with us. So they bought a rental property, for instance, in their IRA, the rental proceeds coming back inside their account, building up inside their IRA with us, they may transfer some of that cash back to their brokerage firm or back to their bank, IRA account so that that cash can grow in a different capacity. So there is no limitation on moving money around so you can do as much or as little as you want from one account or to the self directed account.

 

Bailey Kramer  10:44  

And what kind of what type of properties are you seeing most people invest in with their self directed IRAs.

 

Scott Maurer  10:49  

It’s, it can be all over the board. Again, as I mentioned, there’s no restriction on the different types of real estate you can buy and we have people buy single family homes either they are for long term rental for short term like Airbnb situations for people who want to who buy and flip. We see a lot of single family investments. We also see a lot of multifamily investments as well. Well, people are investing 2550, maybe $100,000 into someone else’s larger commercial or multifamily projects. So a lot of it is single family homes, you know, their home in somebody’s neighborhood, or for people who already invest in real estate personally or they’re looking to get started. Just grab that first single family, you know, 232 property. That’s a whole nother IRA, whether again, whether it’s for long term rent or short term rent or not. That’s probably the most common investment. I think we see the single family homes or the multifamily syndications. But again, beyond that, I mean, you could invest in tax liens and tax deeds on real estate. We’ve had people lend money from their IRA to somebody else who is buying a piece of real estate, so your IRA can act as a bank in that situation, and make loans. There’s a lot of different ways you can do it and structure it. And that’s what I think is really great about self directed IRAs is because you can do what you’re comfortable with. Especially if you’re someone who’s getting into something new. You don’t have to understand how a multifamily syndication works. If you understand how to buy a single family home and rent it out, that’s all you need to do, you don’t have to have the full understanding of all the different investments inside of an IRA account that you can make, really you can, you can pick what you want to specialize in. And just stick to that we have a lot of clients who do that. There’s certainly some that do multiple, you know, different types of investments. But we have one client in particular that he owns like five or six different rental properties, just all single family homes. They’re all cash flowing back to his IRA. He has no desire to do anything more unique or, you know, more complicated than that. So it’s really up to the individual investor.

 

Bailey Kramer  12:58  

Okay, how our tax is applied to both the cash flow received from the investment property, but also the gain after the investment property is sold.

 

Scott Maurer  13:08  

So again, that one of the one of the benefits of investing with an IRA, there’s a slight drawback to it too, as well, is that what happens with the IRA and buying and selling an asset is tax neutral. So if we step away from say, the real estate for a minute and say your IRA was invested into a stock, or a mutual fund that issues dividends, you wouldn’t expect to pay any taxes on the dividends coming back into your IRA or if you sold the stock or mutual fund. inside an IRA. One of the benefits of an IRA is that all of the gains, all the profits on the sale, come back into the IRA. Again, either tax deferred or tax free if it’s a Roth, so applying that similar principle to real estate, the monthly cash flow back to the IRAs is not taxable to you, not taxable to the IRA. When you sell the property and you make Profit because the property appreciated all of that profit back to your IRA. Again, either tax deferred or tax free, the only time your IRA is gonna, you’re gonna have you’re personally gonna have a tax consequence is when your IRA, when you get to that retirement age, and you want to pull a distribution from your account, that’s the point at which it’s taxable. So the gains of the profits in the interim are not taxable to you, it just all comes back into your IRA account.

 

Bailey Kramer  14:26  

Okay. And do you know, off the top of your head, what percent of IRAs are actually self directed?

 

Scott Maurer  14:33  

The best estimates, there’s, you know, there’s a study done every two or three years really to try to figure that number out. They’re usually the best estimates are only around four to 5%. So when you consider that, in IRAs alone, there’s close to $9 trillion in IRAs, and when you lump in, you take into account 401 K’s 403 b plans, other retirement plans that are sponsored through an individual’s employer. There’s another 16 or 17 trillion on top of that, so you’re about 5%, roughly 25 or $26 trillion. That is being self directed. And obviously, our mission and what we try to do as a company, is really make more people aware that they have this option. I’m sure there are plenty of individuals out there who would have no interest in self directing their retirement account, it just doesn’t fit what they’re looking to do. But I got to think that a lot more than 5% would be interested in at least exploring and exploring self direction, you know, not not as not as their only strategy but as part of an overall strategy and finding certain assets to really get that proper diversity.

 

Bailey Kramer  15:38  

And why don’t you? Why do you think that most people don’t set up a self directed IRA? Do you think people just don’t know about it?

 

Scott Maurer  15:45  

I think that’s the biggest reason. I think why there’s not more why that number is so low is most individuals when they have retirement accounts. A lot of people’s retirement accounts start with that plan they get through their employer, so they go To work for a company or go to work for the government, they’re offering a retirement plan where they differ some of their salary and the company or the other government matches that contribution. Those larger 401k plans with your current employer, they’re almost universally held with a bank or brokerage firm, so you’re not able to self direct that while you’re still employed there. And so for that reason, I think a lot of people just figure Okay, well, I have to invest in mutual funds, I have to invest in stocks. And they’re kind of conditioned to think that way. And even if that once they leave their employer and they could take the money and self direct, you have a lot of people just being I’ll just leave it where it’s at, or I’ll move it to an IRA with that particular brokerage firm. And certainly that brokerage firm is not going to advertise, you know, to their clients that they could buy real estate or they could invest in notes and mortgages and things of that nature. So, unless someone is looking for it, or is looking to explore, they’re probably not going to be told about it certainly, but not by their IRA or their 401k custodian, so it’s really all about lack of exposure to it. Again, there’s going to be some people that get to get exposed to it and decide it’s not for them. But even so, you know, we talked to people who say, Hey, I’m not interested in investing in real estate, but then their friend, or someone they know, is has a startup company that’s private, and they need capital, and that can be their investment, you know, with a self directed IRA. So it doesn’t have to always be, you know, a real estate or doesn’t always have to be a private placement type investment. But it’s really awareness. And the fact that most people’s retirement account starts with a brokerage account through their employer where they’re not exposed to this as an option.

 

Bailey Kramer  17:39  

Right, that makes a lot of sense. And are there any other important things listeners should know about self directed IRAs? Any key things that they should be walking away with?

 

Scott Maurer  17:48  

Yeah, I think so. So when we talk when you talk about investing in real estate with an IRA, it’s important to remember that if you’re if you’re looking to use your IRA, to buy a rental property or to invest in a Project, it does have to be strictly for investment purposes only you cannot use your IRA or 401k to buy a vacation home for yourself or to buy your principal residence or buy any type of asset that you and your lineal ascendants and descendants, basically your parents and grandparents, your kids and grandkids, neither you nor any of those individuals can live in the property, use the property, vacation, even if it’s for a short amount of time, it’s got to be strictly for investments. I think that’s one of the number one things we see on the on the real estate side when we’re talking to potential clients is when they that issue comes up that, hey, I want to buy a property that I’m going to then run out to my mother or my child, that’s not going to work. But if you’re dealing with third parties, there’s really no restriction on what you can invest in how you can structure the deal. There’s no limit on the profits that come back into your IRA. So as I mentioned with a traditional IRA and a Roth IRA you can only put in $6,000 out of pocket each year as a contribution. That’s only out of pocket limitations, there is no limitation on how much your IRA can earn in a given year. So if you’re flipping properties and making 3040 grand on a flip, that’s all coming back into your IRA, if you’re cash flowing, you know, 1500 $2,000 a month, that’s all cash back to your IRA, subject to no limits at all.

 

Bailey Kramer  19:25  

All right, awesome. So now we’re going to move on to our next segment of the show, which is the big four where we ask all of our guests the same four questions. So number one, Scott, what is your number one habit for success?

 

Scott Maurer  19:39  

I think the number one habit for success and I’ve seen it I definitely can say this has happened over the last several years is that and this will dovetail a little bit, I think with one of your other questions that you’re going to have for me in a minute. But in our company, our management team, I’m included in that. We meet weekly and we meet quarterly So we have big quarterly meetings and then we meet on a weekly basis. And at the quarterly meetings, we establish goals and things that we need to accomplish within that next quarter. And then at the weekly meetings, we hold each other, we hold each other accountable to that meeting, we have updates, you know, Hey, where are you in this goal. And then again, having that weekly accountability with fellow colleagues keeps you on task and keeps you working towards what you said is your goal. So that each week when you when it’s your turn to report, you have something to report. And I found that to be very, very key to success, especially for me, but also in our business as well as a whole is just simply setting out goals that are attainable. unquantifiable is the key thing. You don’t just say, hey, I want to do better next quarter. It’s got to be something you can measure. And when you do that, I think you’ll find you have a lot more success.

 

Bailey Kramer  20:52  

Great, right. And that can be really applied to anything.

 

Unknown Speaker  20:55  

Yes,

 

Bailey Kramer  20:56  

absolutely. All right. So number two limiting beliefs. Are thoughts in our head that hold us back from realizing our full potential? What is one limiting belief that you were able to crush? And how did that impact your life?

 

Scott Maurer  21:09  

I think it kind of in the business world. One of my limiting beliefs early on, in the job I had was that in what we talked about, I mentioned, you know, we’ve talked about is only 5% of your self directing. So sometimes I think I had this thought that, you know, maybe if I’m addressing a crowd of people, that what I’m talking to how I’m how I’m delivering that speech, because a lot of what I do is public speaking, like, like this type of an event on your podcast, I was I assume, maybe people thought what I was talking about was either boring, or that I was boring or uninteresting as you’re addressing a group of people. And so even though I would go out there and do what I needed to do and do my job, I kind of had in the back of my mind that like, Oh, it’s, you know, no one really cares, or this group isn’t really paying attention. And in reality, what I found over time is talking to people after the events. They’re like, no, I really enjoyed That that was fantastic. I learned a lot of good stuff. And you realize, you know, if I’m interpreting myself as being this maybe being uninteresting, uninteresting, to some are boring, but an act, in fact, as people are actually very much engaged, and so is able for me to move on now, when I do presentations, you know, I engage more with the audience, I don’t just get up and just talk for, for 2030 minutes or an hour, I try to have some back and forth with them. Because I know that even though they’re not talking back or asking questions all the time, that they are engaging and are engaged, and that’s the way to bring that information out.

 

Bailey Kramer  22:34  

That’s great. Number three, what advice would you give to someone who is considering investing actively or passively in real estate for their first time?

 

Scott Maurer  22:46  

A couple things I would say one is, get a little education and find out what interests you most again, I don’t think you know, again, when somebody tells me, I invest in real estate, I’m like, you know, how will he be more specific Because there’s so many different ways that you can so I think, get some basic education figure out what interests you the most. And then kind of really, you know, pay attention to, you know, focus all your attention, all your future education in that one area. And then when it comes time to when you’re looking into this different investment, let’s say I decided, you know, I wouldn’t invest in single family rental properties. So do your due diligence, learn, you know, learn what you need to know about doing that. And then don’t over analyze too much. Don’t wait for the perfect deal, the perfect scenario. get your feet wet, go ahead and make an investment. Obviously, don’t go in blindly. But don’t let little tiny things and the things that might derail you feel like oh, it’s not perfect, and I don’t want to do it. You know, there’s experience involved and a lot of the people who’ve invested successfully in real estate have failed a time or 10 probably what they’re doing or had little hiccups, so so don’t have that analysis, paralysis by analysis where you’re just, you know, to focus on making sure you find the perfect deal or the perfect number to hit. Go ahead and wade into it and get your feet wet a little bit. I would obviously when you’re doing that, you know, don’t start off with all your nest egg into this deal and hope it works out. But definitely don’t wait too long to start dipping your toe in the water.

 

Bailey Kramer  24:18  

Awesome. And what is your favorite real estate business or personal development related book?

 

Scott Maurer  24:24  

And kind of tying back to the first question the habit for success. The book that I really like is traction by Gino wickman. And that’s again, that’s something we adopted five or six years ago at our company, where again it keeps you, it tells you how to keep yourself accountable, keep your team accountable. The people that you’re working with setting goals for yourself setting goals for your company, and again, making sure those are quantifiable and attainable goals and part of what that book also will teach you is that you know it’s important to set and I believe very strongly in this to is set you know principles and you know, ethics, so to speak for your business things that you’re going to live by. That’s what we’ve done in our company, we have four things we want to see in any employee, that they’re professional, they have integrity, they’re proactive, and they’re eager to help and eager to learn. And it’s, it’s more important sometimes to find that type of person than it is to find the role you’re doing. So if you’re looking, say, for an accounting associate, you don’t need to, it’s not always 100% necessary to find someone who has that full accounting background, if they don’t fit with your values, it’s not gonna work out, it’s much easier to find someone that fits your values and teach them a task than vice versa. So that traction book, G is traction by Gino wickman. hits on a lot of the different topics, so I definitely recommend it for anyone who’s looking to kind of get a system in place for themselves.

 

Bailey Kramer  25:48  

Yeah, definitely have to check that one out. Scott, it was an absolute pleasure having you on the show today. And thank you so much for adding so much value to my listeners. Where can the listeners get ahold of you?

 

Unknown Speaker  25:57  

Sure, Bailey, they can certainly give us Our website at advanta ira.com and you can reach me personally. My number is 727-581-9853 my direct extension is 1123. So you call that number you’re getting me directly you’re not getting an 800 number and getting bounced around us. You can reach me there. You can also reach me My email address is SMauer@advantaira.com

 

Unknown Speaker  26:29  

Fantastic. Thanks again, Scott.

 

Scott Maurer  26:31  

Thanks, Bailey. Pleasure being on.

 

Introduction  26:37  

Thank you for listening to the real estate investing Made Simple podcast. For more resources or to connect with us further, please visit our website, http://www.bailey kramer.com. We’ll see you next time.