Mike Swenson & Mike Gengler - How To Invest In Real Estate With An IRA

Did you know that you can use an IRA to invest in real estate? This is a secret that real estate investors have been using for years to build their wealth. In this episode we discuss how you can take an IRA and turn it into a self-directed IRA that can be used for real estate investing. Whether you have a lot of money saved up in an IRA or not much, you can unlock this powerful tool today. Download our eBook to get all of the information you need here: https://www.relfreedom.com/invest

In this episode, you will be able to:

• Maximize your retirement savings by unlocking the potential of investing in real estate with your IRA.
• Discover the tax advantages and potential for higher returns with a self-directed IRA for real estate investments.
• Learn the step-by-step process to start investing in real estate and secure your financial future.
• Explore the diverse range of investment options available for your IRA in the real estate market.
• Achieve a well-rounded retirement portfolio by diversifying with tax-advantaged real estate investments. 

The key moments in this episode are:
00:00:00 - The Power of Self Directed IRAs
00:03:08 - Process of Self Directed IRAs
00:06:00 - Long-Term Investment Strategy
00:11:50 - Investing with Limited Funds
00:13:03 - Benefits of Syndication and Investing in Real Estate
00:16:32 - Tax Implications and Withdrawals
00:18:28 - Process of Investing with Self-Directed IRAs 

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Read the full transcript:

Mike Gengler
Is those old IRAs are just kind of sitting there. They've got the money that's invested in them, it's sitting in the stock market, but it's not really doing much. And so that's where you can take control of that money that you've already invested. You know, this isn't money that you have to go put into an ira. This is money that you've already invested. Your employer from before has already matched and now you can take control and say, hey, I want to get into the real estate market, I want to get into know rental properties. And now you, you've got an option to do that.

Mike Swenson
Welcome to the RELl Freedom show where we inspire you to pursue your passion to gain time and financial freedom through opportunities in real estate. I'm your host, Mike Swenson. Let's get some real freedom together. Hello everybody. Welcome to another episode of RELl Freedom, Real Estate Leverage Freedom, where we talk about helping people build time and financial freedom through different opportunities in real estate. I'm your host, Mike Swenson. If you want to get started on your real estate investing journey, go check out our website, freedom through real estate dot com. That's freedomthroughrealestate.com we have lots of great articles, videos, things that you can watch to help you find the path that's going to be the best fit for you. Everybody's different, everybody has different backgrounds, where they came from, what they're looking to do. And so we're excited to help you, wherever your journey takes you to, to build that time in financial freedom through real estate. So today's episode, we're gonna talk about a topic that probably not a lot of people know about. Investing with an IRA to be able to purchase real estate and other things related to real estate. And so I've got my business partner, Mike Gengler here and we've worked a lot together and we've worked with clients who wanna use their retirement accounts to be able to invest in real estate. And so we're gonna talk about that today using a self directed IRA and kind of go through some of the questions, some of the benefits so that you can kind of get thinking about that if that's an option for you or maybe a friend or family member that you know that wants to get started into real estate investing. So Mike, excited to have you here and talk about this.

Mike Gengler
Yeah, absolutely. Powerful tool here for investors to get started in real estate or continue growing their portfolio. And like you said, not a lot of people are aware that this is a possibility. Iras are often just looked at as kind of something that you contribute to through your employer and then leave alone. But there are a lot of options for you available with the self directed ira. So it can be a really great tool to take advantage of.

Mike Swenson
And I should also start by adding your, your parents have used this as a tool. We've had agents on our team and their spouses that have used this as a tool and then also friends of ours that have done this and invested in some deals. So we do have first hand experience to be able to help people through this. It really is a, is a powerful tool. So we get started and just kind of talk about, you know, maybe the why behind it. Obviously a lot of people work with their employer, they're putting money away. What would be some benefits of, of doing this way? Or maybe we just kind of talk about kind of the self directed IRA and kind of how that process works.

Mike Gengler
Yeah, I'll start with the process. Self directed IRA is slightly different than your standard IRA and the fact that you're directing it self directed. And so what that allows you to do is, is it allows you to make the decisions on what you're investing in. So a typical employee run ira, you have money taken out of your check, they match and then they decide what happens with that money. In most cases it's going to be invested in the stock market, probably some sort of fund or you know, etf, mutual fund, something of that, that thing rather than individual stocks. So that you're just getting an average of the stock market. In a self directed Iraq, what changes is you're allowed to make the decisions on what you invest in. Now there are limits on what you can choose. This isn't going to allow you to buy that fancy sports car and write it off as an investment. But real estate is one of the things that you can choose to invest in as a investment option. You're not going to be able to purchase your home to live in. Your primary residence is not an investment, that is your primary residence. But within the, within the rules and limitations of the self directed ira, you will be able to choose real estate as an investment option. The nice thing about that is you can use either a traditional IRA or the Roth IRA to do that. So you're either getting to pull your money out tax free or you've put money in tax free and getting to take advantage of that. So either way you don't lose out on the tax advantages that you have accumulated with the IRA contributions. Yeah. In addition, when you're investing in the property, you're also not going to be able. You're also, in addition, when you're investing in the real estate properties, you're also not going to get hit with those taxes later on when you're either making profit, whether it's cash flow or appreciation, because again, you're investing within this IRA and that's already a tax shelter for you for that money and for that profit. So a lot of good advantages to investing through the ira. I wouldn't, or I would say that it's a great way to diversify. Most of the time, what you're going to be able to do is you're going to be able to use old IRAs from former employers. Your current employer is generally not going to allow you to turn your IRA into a self directed IRA. But what we found is those old IRAs are just kind of sitting there. They've got the money that's invested in them, it's sitting in the stock market, but it's not really doing much. And so that's where you can take control. That money that you've already invested, you know, this isn't money that you have to go put into an ira. This is money that you've already invested. Your employer from before has already matched and now you can take control and say, hey, I want to get into the real estate market, I want to get into, you know, rental properties. And now you, you've got an option to do that. And there's a couple of companies. Well, I'm sure there's more than a couple, but there's a couple of companies that we've worked with. So we can help you get a self directed IRA started so that you can take advantage of this powerful tool.

Mike Swenson
And I think for a lot of people, what's really nice about utilizing an IRA to invest in real estate is it's money that they're not planning on using anyhow in the near future. Right. So if, you know, sometimes the challenge with people, if, let's say you were going to Invest, you know, $25,000 into a real estate deal, it's $25,000 of liquid cash where it's like, okay, if I put it into estate deal, it's now going to be held for, you know, let's say three to five years, whatever that deal timeline looks like for an ira, you're not planning on seeing that money till retirement age anyhow. So the nice thing is, is it can build and grow and build and grow over the span of, you know, 10, 20, 30, 40, years depending on when you start. And so it's money that you're not planning on seeing. And just like an ira, it follows all the same tax rules. So think of it just like if I'm rolling over a company IRA to, you know, let's say I have a financial advisor and they have an IRA set up and they do a transfer. This is kind of the same thing. I'm just doing an IRA to IRA transfer. So there's not a taxable event there. And so now I'm transferred into this self directed IRA. We're still following all the same rules of traditional IRAs. You're not going to be able to get that money out without tax penalties, however, because you're not planning on seeing it next year or two years or five years to pay down debt or whatever that might be. You can just let it continue to build and grow. And so that, I mean, in my mind is a really great tool to be able to use versus liquid cash because you're not planning on seeing it. And so that's where we've experienced a lot of investors have enjoyed, feel good about doing that and they're not sitting there looking, wondering when that money's going to come back into their bank account.

Mike Gengler
Yeah, absolutely. Like you said, non taxable events. You know, moving the money from where it is to the self directed Iraq. And yeah, this is just another way to build your portfolio of building financial freedom through real estate.

Mike Swenson
And what would be some reasons, Mike, that people like investing in real estate through their IRA versus the stocks? You know, we've talked about that in the past, but reasons that you've seen from people of like, hey, maybe why would I choose to do real estate versus investing in my favorite stock or my favorite mutual fund?

Mike Gengler
Yeah, I mean, real estate has proven to be a really powerful tool. Over 90% of millionaires own real estate beyond their primary residence. And if that's not an indication of what you should be investing in, then I don't know what it is because you're like, the goal isn't to be a millionaire. The goal is to have financial freedom. But in this day and age, they kind of go hand in hand. And so looking at, yeah, do you want to have some stocks and be diversified? Absolutely. But the bulk of my investments are going to be in real estate because you get leveraged appreciation on your money. I'm investing 20% into an asset, but I get the benefits on the full 100 value. And so that's the biggest key for me is that I can't buy one stock and get the benefits of having five stocks. That's not how the stock market works. So with the, with you know, only having to put down 20 to 25%, having that leveraged value add is just a really powerful tool in building the financial freedom that I'm looking for.

Mike Swenson
We'll give this disclaimer that we're not providing financial advice. It's up to you absolutely to decide what's best for you. However, there is some benefit there of, you know, when we're looking at projected returns of what we think real estate can do, we tend to find that it, it outperforms a lot of assets that a lot of people choose to invest in. And so we believe that we can, we can make a lot of money through real estate. We also like the fact that we have more control over it because it's not just, you know, some high level, c, C level employee making a decision and then all of a sudden they decide to make a change and the stock price goes down or something like that. You feel disconnected from those decisions. Here it's a, it's a tangible asset.

Mike Gengler
Right.

Mike Swenson
I can go touch it, I can go visit it if I want to. I can, you know, control the, the property manager or I can manage it myself if I decide I want to put money in for repairs. Great. I think a lot of people appreciate those benefits as well in addition to the financial benefits of doing that. And then obviously, yeah, it's a diversification. You can still have money in your ira, you can still have money in stocks. This is another way to be able to diversify that. But we obviously, you know, we're not here in real estate working with investment real estate and not believing in what we talk about. So we believe in the value of that. Have you ever heard the phrase you're the average of the top five people that you hang around? Well, real estate agents, I'm excited to increase your five with you. We're launching the Real freedom investor agent tribe to help you get educated and connect with others to build your real estate investing journey and also to help you along the way as you're working with real estate investors. So come check it out on our website realfreedom.com go to the store. We have a membership, we have a mastermind group and private coaching to help you stay accountable to your real estate investing goals and to make sure that you connect with like minded people to accelerate your progress and to cheer you on along the way. Check it out. RealFreedom.com click on the store so some people might be thinking, okay, if I'm investing my ira, maybe I don't have a ton of money in there to where I can buy my own property myself. Can we buy parts of a property or a portion of a property if we don't have enough money to do it ourselves?

Mike Gengler
Yeah, absolutely. You know, depending on the amount you have in your ira, yeah, you may be able to to buy the full thing. You may be able to get a mortgage to purchase the other part and just you bring the full down payment. So you are only in 100% of it. But maybe you can't do that. And so there are a few options for you there. One is find some other people who are in a similar situation as you and pool your money together and go in on a JV deal with them. And now you all own the percentage that you put in based on your different IRAs. Another option would be to do a syndication. So you can invest in syndications with your self directed IRAs. And the nice part about that is now your IRA is really running like an IRA. You're putting money or you put money into it and now you invest in a thing and you're very hands off. You're getting the benefits of investing in real estate, but you're not having to run the deal yourself. So you're not dealing with the phone calls about the broken toilet. You're not having to run the property manager on a daily or weekly basis. You're just having someone else invest in the property and then you get the benefits of that in return. So syndication is a great way of doing that. It also allows you to invest in bigger deals which have generally have better economies of scale so that you get the benefit of, hey, we own 100 unit apartment building. You bought 5% of that. So you essentially own five units. But now you have the benefit of having a full time maintenance person on staff there, a full time property manager, rather than owning your own 5 unit apartment building where you're not going to be able to have those things. So yeah, a lot of different ways to invest with your ira. You don't need to buy the full property yourself. You can put it into a syndication, you can find other people to partner with. You can still get a mortgage with your self directed ira. The one caveat on that is it needs to be a non recourse mortgage and there's a lot of information about those out there. We can help you with that as well. We have brokers who specialize in the non recourse. So A lot of options out there for you to get invested with your self directed ira.

Mike Swenson
And just to name that, you know, this is something that we do, we work with investors. An investor that maybe doesn't have enough money to put in to buy a deal themselves through this syndication. And I believe our last deal we had five people that used a self directed IRA to invest in this syndication. And so like you mentioned, it's kind of the benefit of I get the hands off approach. Right. Just because I'm investing in real estate, I don't have to make the calls when the tenants have issues. I get to passively invest in real estate. Now you're choosing to invest with us or whoever you choose. So you want to make sure you're making a good decision there. But it is kind of that benefit of the passiveness of investing, yet you're investing in real estate. And then we're actively kind of talking with you of, of how are things going and what do you want to do? And for some people, they might say, okay, well what, what happens if we sell that property? So you know, we, we help people invest into some of our properties through the self directed ira. We're typically looking to hold maybe three to five years. But when that five years comes up, Mike, what do we do from there?

Mike Gengler
Yeah, just like, you know, if you invested with cash or invested with other assets, you know, when you invest with your ira, you're going return based on the percentage that you purchase the property for. So if you own 50% of the property, you're going to get 50% of the return on that. So let's say there was $100,000 in profit off of this. So you would get 50k of that, that goes back into your self directed IRA. So all the profits from this deal must go, you know, all the money must come from there and then all the money must go back into it. So it goes back into your Iraq and then you're able to invest it again. Or if you're at retirement age, you're able to pull that money out. And depending on whether you invested with a Roth IRA or a traditional ira, you would then have the same tax events happen based on which type of IRA it is at that point. But when you put that money back in there, that itself is not a taxable event. You're just putting your profits back in. So as your stocks would go up and more money would be available based on the stocks. Same thing for the real estate. If you make a sale, we would give you that, that chunk of Cash, you know, it's not going to be actual cash, it's going to be a transfer. But you know you're going to get that, that's just going to go right back into your account. You're going to see your account balance go up, but no event has happened there, no taxable event has happened there. And then you're able to either invest in another deal or pull that money as you would normally out of a, out of an ira.

Mike Swenson
I think there's a ton of benefits there, you know. Yeah. Just to recap, it's following all the same rules of an ira. We should just add the caveat here. If you're talk a financial advisor about this option. Just to be clear, a lot of your financial advisors typically get paid based on a percentage of what they invest with you. And so if you were to move money into a self directed ira, that's now something that they're not in control over and so they would be making less money or would have less of a pool to get paid off of. So for what it's worth, a financial advisor, honestly the, the things that I've heard are they're not necessarily as familiar with a self directed ira even though they are a financial advisor and, or they're not going to money off of money that you move into a self directed ira. And so I would just recommend talk to a few different people about it. Right. You can certainly reach out to us if you have questions. But just know a financial advisor may not be depending on the advisor that you're using. They may not have the knowledge of the self directed IRA or they might not be excited that you're taking money out of assets that they're managing and getting paid on to go do something else. And so just know that if you talk to a couple different people and see kind of their response or see what their experience is working with a self directed ira, the financial advisor might not be like, yeah, awesome, you know, go transfer money out. I'm going to make less off of working with you. Just as a heads up there, you might get that pushback from people which we've certainly heard in the past.

Mike Gengler
Yeah, absolutely. So just reach out. We can help you learn more about the process. We've got an entire ebook on the topic so you can reach out Real.

Mike Swenson
Freedom R E L freedom dot com. This one will have the information on investing or even investing with us. And as Mike said, yeah, we, we do have an ebook out kind of walking through this process but really it works, you know, reaching out to a self directed IRA company. We have people that we work with and they just walk you through the process. So it's kind of, you know, really the step is reach out to them. They'll explain the details, how it works and then at some point you do a transfer from your IRA account into your self directed IRA account. And because of it it's an IRA to an IRA transfer. Like we said, it's, it's not a taxable event. And then from there we work on, you know, placing those funds into a real estate investment. So as simple as it can be, you know, trying to just open your guys minds to different things that are out there. And yeah, we've seen some, some great benefits from people using those funds, putting them into real estate as a way to kind of spark their retirement growth.

Mike Gengler
Yeah, absolutely. Some people, you know, oh yeah, I forgot about that account from whatever company eight years ago and now bam. Easy way to get invested in real estate. Much you didn't even know you had.

Mike Swenson
Well, yeah, if you have questions, reach out to Mike or myself. We're happy to help you and happy to walk through that process with you and, and get you invested into real estate using your 401ks. Thank you so much for listening and check us out and reach out.