Jeff Nabers’ Self Directed IRA & Solo 401(k) Blog

“Buying foreign real estate is kind of like buying real estate in the Wild West. 150 years ago they probably didn’t have an MLS, local board of Realtors, or disclosure laws,” says foreign investment specialist Tom Phelan. I had the chance to catch up with him today and pick his brain.

As described by Phelan, the system of real estate ownership transfers outside of the US often differs drastically from what we are accustomed to. “The guy fixing your flat tire in Panama or someone in Italy selling you a bottle of wine is as apt to say that they have a cousin selling a piece of property [as any other person]“. Many countries do not require a license for one person to represent another in a real estate sales transaction for a commission. In some countries, mortgage financing is virtually nonexistent and title insurance may be unavailable. Because of these differences, Tom recommends that you always visit a foreign location before considering purchasing real estate there and also recommends not buying on the first trip.

Probably the most interesting topic of our conversation was the effect of the declining dollar on the prospect of Americans purchasing foreign property. “[Because of the declining US dollar] the window of opportunity is closing in some regions, but remains wide open in others”. One country that (more…)

I previously discussed what a security is and who are accredited investors. Non-accredited investors are typically excluded from most syndicated private placements. This is part of the cause of the investor isolation in the self directed IRA/401k marketplace.

The stock market’s growth has been because it’s easy to invest in it because of fractional ownership. You can’t afford to buy Microsoft outright, but you can afford to own a millionth of a percent of it. Self directed accounts have failed to go mainstream because securities laws get in the way of making fractional ownership simple for the non-accredited investor.

Assuming you are not accredited, so far your options in pooling money are:

1. Ignore securities laws - Very bad idea. Investments are supposed to be profitable. When securities laws are ignored, you could face huge fines and even prison.
2. Regulation D offerings- You can create or find a “Red D” offering. In this arrangement disclosure requirements must be met, and notices must be filed with the SEC and/or state securities agencies for each state in which there is an investor. It’s recommended that an attorney create the disclosure documents, and this can typically cost $10,000 and up. (Again check www.nfhlaw.com for more free info on Red D offerings)
3. Form an Investment Club - If every investor actively participates in investment decisions, then there probably isn’t an investment contract or security. (more…)

There’s a case (the Howie case - can somebody provide me a good link that explains it?) that defines a security as an investment contract in which a person invests their money into a pool and expects to receive a profit solely from the efforts of others. So typically, when a person invests in something it is a security.

You may have violated securities laws in the past without even knowing it. If you’ve invested into your son’s company, it was probably a security and you were the investor. If someone has invested in your company, it was probably a security and you were the issuer. I’ve found a great resource for understanding all of this - www.nfhlaw.com - a securities attorney who has published a wealth of information (on her site, check out “Checklists & Legal Info”).

When you are pooling funds together, it makes things easier if all investors are considered accredited investors - having a net worth of at least $1,000,000 or having at least $200,000 in annual income. When all investors involved are considered accredited, (more…)

These are the primary ways of increasing buying power when putting real estate into a retirement account:

1. Mortgage financing - This has to be in the form of a non-recourse loan, which is typically limited to about 70% LTV. This can double or sometimes triple your buying power, allowing you to have three assets instead of one.
2. Buy cheaper assets - Instead of buying property in San Francisco, consider buying property in the midwest - it will probably provide better cash flow and will be less susceptible to severe price corrections. This may also involve a mental shift away from aiming solely for appreciation. This increases your buying power in the sense that you can afford to hold more lower priced properties.
3. Partner with others - This is by far the most powerful way to increase buying power. There’s no limit to how many partners you can have and how much they can co-invest.

Partnering with others is essential for the self directed IRA/401k investor who has less than $1,000,000 in his account. Here’s where it gets tricky:

Securities

When investing into a venture, the investment can often be a security as interpreted by the SEC. This brings in a whole new set of rules and complexities. My next post will be about how to get rid of the complexities and eliminate the security.

The previous post explained how thousands of isolated self directed IRA/401k investors could all be making the same mistakes. I see that many self directed accountholders are pursuing high returns by simply taking high risks. I believe intelligent investing is about having an extraordinarily profitable risk/reward ratio - getting high returns with disproportionately low risk.

Let’s imagine that Bob sees that older, run down areas of his city are being redeveloped. Bob also sees that gas prices are going higher and higher, and he thinks that suburban sprawl will be reversed and bring people back into the central areas that are being redeveloped. If Bob’s speculation is correct, the demand for such areas will be increasing - hopefully rapidly.

So, Bob wants to buy a home in the centrally located area that is currently being redeveloped. Let’s say he has $300,000 in his IRA and these properties cost $250,000. So he identifies and purchases a home in the target area using his IRA. He may hit a home run with this investment, but what are the risks? (more…)

Most of my product and service development is centered around the theory that for most average Americans, a self directed IRA/401k actually is too risky. The conventional way of investing involves pushing a button or placing a phone call to effect a securities transaction. This new way of investing holds potential power, but for most people simply opening an account and then being thrown out to the wolves doesn’t work very well. This type of balanced viewpoint is not usually spotlighted by companies who make their money in convincing people to open self directed accounts. There is a lot of focus on opening accounts and setting up LLCs, but very little focus on how to actually find, evaluate, and buy profitable alternative assets.

So how well are accountholders doing in isolation? It’s very hard to tell because (more…)

The intent of this blog is to share information relating to:

• Self-Directed IRAs
• Solo 401(k) plans
• Private investments
• Raising capital
• Making your money work for you
• Taking control of your investments

In 2003, I started what grew into the IRA Association of America, an educational nonprofit association dedicated to providing the most comprehensive educational materials on the aforementioned subject matter. Over the past several years, I have been working to integrate all of the relevant information into a format that makes sense and minimizes misinformation.

In a nutshell, I’ve spent 5 years helping some people invest with their self directed IRA/401k. I don’t run 401k or IRA accounts for anyone, I just enable people to run their accounts themselves without limitations on investment choices. The investment decisions are always up to the accountholder, so I’ve done a lot of watching, and believe it or not my conclusion is:

Most self directed IRA/401k investments involve common, avoidable mistakes.

Future posts will aim to to spotlight these avoidable mistakes as well as offer alternative solutions that have helped to make self directed investing safe, effective, and profitable for those who’ve used them.