Being a “self-directed” investor doesn’t mean you have to go through your financial journey alone. In fact, very few high-net worth individuals would tell you that they reached their level financial success by themselves. Making sound financial moves consistently requires a high level of financial literacy and it’s difficult to master a multitude of investment, tax and legal strategies by yourself. If you are going to excel at the money game, it is essential that you identify an effective group of professionals that can add value to your retirement planning by sharing their knowledge and experience in their area of expertise. Let me be clear, I am not suggesting that you delegate your financial decisions to third party advisors. What I am stating is that you should surround yourself with a team of experts that can help YOU make the most informed decisions with your savings. You should still maintain total control at all times. Subject matter experts and advisors should be by your side to provide knowledgeable input, information, insight and options for consideration. Ultimately, they report to you and then you make the final decision based on your level of comfort, understanding and confidence resulting in the most suitable direction for you and your family. You may be thinking “I already have a CPA, Financial Advisor and Attorney, so I’m set. I have my team established already.” Wrong. That isn’t sufficient. You must go deeper…much, much deeper.
For example, let’s assume that you have decided to open a Vantage Self-Directed IRA to invest in real estate. Your dream team should include, but not be limited to, the following list of knowledgeable professionals.
1) Registered Investment Advisor (RIA)/Financial Planner: This individual is responsible for ensuring that your real estate IRA strategy is in line with your comprehensive financial goals and that the expected rate of return will help you achieve your defined retirement objectives. I encourage you to seek a fee-based or fee-only advisor that can prove that they embrace the methodology of incorporating alternative investments, such as direct real estate investments, into a well-diversified investment portfolio. If your Advisor seems allergic to alternative asset strategies, it’s probably a good time to re-evaluate his or her role on your team. You may have out grown them.
2) Certified Public Accountant (CPA): This individual is responsible for confirming that your real estate IRA strategy will not increase your tax exposure and that you’re prepared to cover any current and/or future tax liabilities. Should your real estate IRA strategy include leverage or active fix and flip transactions (i.e. potential for dealer status), your CPA should be able to educate you and analyze the potential impact of Unrelated Business Income Tax (UBIT) and Unrelated Debt Finance Income Tax (UDFI) to your IRA.
3) Real Estate Attorney: Having a family or general business attorney won’t cut it. You need legal counsel that specializes in real estate. Someone that can provide guidance on real estate contracts, debt instruments, eviction rules, leases, landlord laws, deeds, ownership structures, etc.
4) Self-Directed IRA Attorney: Identifying an attorney that specializes in Self-Directed IRA legal strategies is also critical. This individual is responsible for educating you about prohibited transactions, disqualified persons for your IRA, appropriate investment ownership structures (i.e. Limited Liability Companies, Limited Partnerships, Private Placements, Syndications, Investment Funds, Private Stock, etc.) Working with attorneys before you make an investment to help you minimize your potential liabilities is much more cost effective than hiring them to fix problems after the fact, so please do yourself a favor and don’t skimp in this area. A great attorney in this area is worth their weight in gold. I suggest you follow my personal mantra about attorneys… “If you can’t afford hiring the appropriate attorney(s), you can’t afford the investment.” Meaning, if you are seeking to save yourself $200-1,000 by not engaging an attorney to evaluate your investment legal strategy, you probably shouldn’t risk directing any higher dollar amount into any investment!
5) Estate Planning Attorney: A third Attorney? Yes, a third attorney. This individual is responsible for ensuring that your IRA investment is aligned with your overall estate plan. They will counsel you on your various IRA beneficiary options and suggest the most tax efficient structure given your wishes upon death. Even if you are not married or have children, you still have an estate and I suggest you make certain that your hard earned savings are inherited by your loved ones and not the Internal Revenue Service.
6) Real Estate Professional: This individual is responsible for identifying and negotiating the best investment property for you. Be sure that your chosen Realtor® specializes in investment real estate and isn’t a generalist. If investment real estate doesn’t make up at least 50% of their business, you should move on until you find one whose business reaches that minimum threshold. Many agents claim to work with investors but don’t truly have expertise and knowledge in this area. It is also preferable to work with someone that has Self-Directed IRA experience and has worked through an IRA funded real estate transaction previously. Visit Vantage’s home page to search for a Certified Real Estate IRA Agent in your area. If you are an experience real estate investor, you may be able to do this on your own.
7) Title and Escrow Officer: The title company and escrow officer plays a critical role throughout the real estate transaction so be sure you select a financially strong and credible company that can help you avoid delays, unnecessary expenses and pitfalls. There is a lot of paperwork involved in a real estate transaction. You need someone that has the patience to explain the purpose of each document and the responsibilities you are assuming by signing each dotted line. Yes, reading the fine print is super annoying and painful, but it must be done to avoid surprises later.
8) Property Manager: This individual or company is responsible for helping you protect and hopefully increase the value of your real estate asset. This is done by ensuring you identify a great tenant (if your strategy involves obtaining rental income) and providing credible service and maintenance providers (i.e. landscapers, pool maintenance, plumbers, handy men, home warranty insurance, HVAC specialists, insurance agents, etc.) for your investment.
9) Loan Officer: This individual is responsible with helping you analyze if using leverage with your real estate IRA strategy is viable. Be sure that this professional is knowledgeable about how non-recourse IRA loans work, has access to non-recourse loan programs and can educate you about the potential for tax liability associated with leveraging your IRA account savings (i.e. Unrelated Debt Finance Income Tax).
10) Insurance Agent: This individual is responsible for ensuring that your investment property is adequately insured for all potential risks. Be sure you work with an insurance specialists that has vast knowledge in investment protection policies. Just because a company or agent offers various insurance policies and products doesn’t mean they have the expertise and experience in providing sound advice for real estate investors. Again, be sure you read the fine print of the policies you purchase and that your insurance advisor has the patience to go over all the relevant policy language, terms, contingencies, exclusions, financial obligations and protections.
You may be looking at this list of ten professionals and thinking “OMG, that seems like a lot of work, meetings and costs. I don’t have enough time to meet with all of these advisors.” There is no denying it, it is a lot of work and there are various costs involved. No one said building wealth was quick or easy. The truth of the matter is that these are the steps needed to invest prudently. There are no shortcuts to attaining true wealth. Remember, this list is relevant to someone making an IRA investment in real estate. If your alternative investment appetite is something else, there will be a slightly different list perhaps but taking the step of drafting a dream team of experts in each key area shouldn’t be overlooked. As you gain more investment experience and you identify a group of experts you trust and feel comfortable with, this process will increasingly get easier and more proficient. Most investors already have a head start with this and already have a short list of these professionals on their side and only need to draft a few more to complete their power team. Regardless of whether you have a few or you are starting from scratch, you may be wondering “What is the best way to find the right professionals?” The best way is to get a referral from trusted source. Find someone that is already at the financial level you are seeking to obtain and ask them who they use. If they are wealthy, chances are, they have already built their dream team and can share their contacts with you.
The great news about being an Midlands REIA member is that you have many of these professionals, if not all, at your fingertips during monthly meeting. Good luck in drafting your real estate dream team and happy investing!!!
For more information about Vantage Self-Directed IRAs, please visit By J.P. Dahdah, Vantage Self-Directed Retirement Plans
By J.P. Dahdah, Vantage Self-Directed Retirement Plans