Course 4: Business Credit

Transcript:

Hello, and welcome to another edition of Wealthy and Wise, I'm your host, Cort Christie. And today we're going to be talking about how to untap your retirement money. How to use it for investments, other than the traditional investments that we're all quite familiar with, with our 401’s and our IRAs, where we get to invest in the stock market, or a bond fund, or just put it in a money fund, we're gonna get into how you go about unlocking the power of your retirement money, to invest in real estate, to invest in precious metals to even invest in your own business that you want to start.

I've got an expert with us, one of our top consultants at NCH, David Chafkar has been with us for 20 years and has been working with investors and small business owners, helping them unlock their retirement money to help them really maximize the output and the value of that money. So let's talk about it broadly, David, thanks for being here.

Pleasure Cort, thank you.

So you have worked with thousands and thousands of people, and I know that one of the specialty areas that you have is working with them in their retirement accounts, and how to unlock their retirement account, so they can use it for real estate investing, and even investing in their own business. Can you talk about what that is? And what some of the terminology is that goes along with it?

Yeah, that's always a question a lot of individuals have. I mean, so many folks, individuals made me myself or anyone else have worked for corporate America for so many years. We dedicate our lives to really creating something substantial for ourselves or our family, and then all of a sudden comes time for retirement. 30 years in the organization. Time retirement and we start to realize there's not enough really, in this day and age based on rates of return that we get from the market to really support the retirement the way we thought we were what we were hoping for, anyways.

And so, we had to start looking for different alternatives, different concepts that a lot of individuals started looking at self-directed retirement accounts, which are just amazing vehicles, especially for those that are C D either supporting a business or going into investments, whether it be trading a real estate, a type of investments or growth you're looking for, to be able to tap into past retirement dollars monies that I've put aside in corporate America, 401K's, IRAs, to be able to take those dollars and roll them over into an event into a vehicle that I can now use leverage borrow against, to hopefully get the kind of gains that I'm looking for. So they're absolutely incredible vehicles, but they're limited. And you've got to really understand how to use them properly.

Interesting. And so when you talk to somebody about this, what kind of like, is there a fear? Like, whoa, we're talking about my retirement money? And am I going to be risking it? How do you explain it to them in a wave so that they understand that it's no more risky to untap the power of their retirement funds than invest in the stock market.

I think there's always a fear. When you're an individual that works so many years for a company, and you've worked really hard or put a lot of diligence towards really creating some formal retirement account for yourself. And family, there's got to be a fear and tapping into it. I mean, if you're like me, I grew up, my father served 32 years in the Army, and he was one of those, those guys that always taught me goes, you never touch your retirement no matter what in business, use your own capital, use your own cash. So that's how I was I grew up, and most of us were raised in the same manner. And when you start thinking about using retirement, it's a little scary process.

So sometimes we end up falling back on cash reserves, we have savings accounts and credit lines, which can sometimes put us in a very heavy bind and over-leveraging our Personal Capital, or over-leveraging our personal credit, which could then really cause a real hardship on our overall credit. When we have this amazing dollar amount that we worked hard to build in this retirement account. The old concept of not tapping into retirement worked well. When retirement accounts, you remember back in the day when they were actually yielding high dollar mountains, it was common to get 567 percent in the market nowadays, what's considered good is 2 to 3% rate of return if you're lucky. So we've acted as business owners, we've had to learn how to adjust we've had to learn how, and looking at different options not only to raise and grow our retirement, but what can we use him for? What can we do to not only support our endeavor, whether it's investing or growing a business, but really put our retirement in a mode or manner that can actually outgrow our game that we're national market that we're all accustomed to investing in without the volatility that we see in the market today?

Well, I think for some people, it's like, I don't have any control over that. It's outside of my ability to redirect the stock market or impact the interest rates on bond funds, that might be just your ending right now. And when do you think of investing in real estate, or funding your own business startup, now, suddenly, it's I can manage that that's now in my hands. And if it succeeds, fantastic, if it fails, that's horrible, but less likely to have a decline if it's in my own hands that I can control.

So let's talk about a self-directed IRA, which is a certain type of term, I guess, versus a solo 401K, and how they differ, and what some of the functionality is between the two.

Okay. Yeah, that's a great question. Because I think if you are talking to a lot of financial professionals out there, many of them will direct to to use a self-directed IRA, why not? Because it's the best vehicle to use because that's what they're commonly used to recommending, maybe they're working for a company that isn't doesn't offer any other vehicles or options out there. And their license requires that they stay with sort of the inventory or recommendations of the company that are currently working, does it mean that that's what's going to be the best for you as a client? Especially when we understand what your objectives are when you're looking to invest. What's our growth potential, and what type of investing we're going into? Those are a lot of considerations, we have to really look at. One of the benefits of the solo? Okay, because really, you have two primary retirement types of self-directed retirement accounts. You have your self-directed traditional IRAs, sometimes there is a Roth or you have a self-directed solo, okay? In my opinion, of course, solo K's are superior across the board. Well, the way I look at that, especially when we use the term self-directing, self-directed, what does that really mean? It means that I have, I should have the ability to control my retirement dollars to go into investments that I really want to go into and be able to leverage them in the manner I need to. The problem is the custodians who we're with, don't really look at the term self-direction in the same manner we do, they look at the term self-direction as that you get to make a decision as to what traditional investment, you want to go into stocks, bonds mutual, typically, those are the basic investment types in the market. And we will allow you to pick and choose what you want to invest in.

But as we know, as an investor, you start to learn about different ways to really aggressively grow your rate of return, by leveraging into real estate, and even other traditional investments that you can leverage and use, they can be very beneficial for our not only for ourselves but for the growth of our overall retirement account. But to do that, there are three qualities that we want to make sure of whether I'm using a self-directed IRA, a self-directed solo K, or any self-directed vehicle. In my opinion, there are three qualities that you absolutely want to make sure your retirement account has, number one full self-direction, full self-direction means, again, I can go into any type of real estate or any type of investment that I so choose to go into. There's a list of qualified investments that the IRS and the feds have come up with, real estate is on that list, traditional investments on our list, stocks, bonds, mutual private lending, I mean, there's a wide range of different qualifying investments. And I want to be able to pick and choose what I can go into. That's the first thing full self-direction, not just limited to what my custodian says I can do.

The second benefit I want to make sure in and to me, this is one of the most important benefits is the power of trustee. What a lot of folks don't realize, and this is what you commonly see in a lot of traditional self-directed IRAs is I can't make the comment that there's no IRA company out there that will grant your power address to you. I just in the years I've been doing this, I haven't seen one. But typically, when you have a self-directed vehicle, there's a requirement for someone to be named as power of trustee that's commonly your custodian or administrator. They are the ones that will determine what you can and cannot do utilizing your retirement dollars. When they have when your custodian has power trustee, this is why many times you want to go into a real estate transaction, whether it's a buy and hold whether I'm flipping a property, going into a syndication, whatever that is, typically I have to pick up the phone. I have to call my custodian I have to ask their permission if it's okay to do so. And only if they approve it, then I had to literally turn around and wait for them to send me the money to authorize that transaction to be done. That doesn't really sound like self-direction to me, right? I mean, I lose that control.

If somebody's making a decision sort of alongside me, but I got a sort of a person who can stop me from doing what I want, slow down the process,

Absolutely, which can many times diminish my rate of return, I mean, so many times, we go out there and find amazing investments, even for those of you that are real estate, you see opportunities every single day through amazing organizations to find a great real estate deal. What are the things you commonly find, there's a lot of great deals out there. But what you also find, as an investor, especially a new investor, is that all those great deals, don't necessarily sit around and wait for you to find money to fund the deal.

There are 10, other investors that want that same deal. And sometimes whoever comes up with the money first wins. This is why it's important, I'm gonna be able to make a decision quickly. So I want a power trustee so I now can find a transaction or deal I want to do, as long as it's under the qualified list of investments, I want to be able to determine that today's investment for me and actually authorize it myself.

And then the third quality I want to make sure I have is checkbook control. Now the ability to not only go out there and find a great deal. Now I can sit down with the homeowner and negotiate the rate or the deal. And if I liked the deal, imagine me before you even get off the table, didn't want to open your checkbook and physically write the check yourself. Now that's control.

Absolutely. So now, with a solo 401k, you've got full control. And you can also fund it with the success that goes on. Or if you have a side business, you can continue to fund it just from the business operations that you have. Right? Well, so you get to grow it. And I know there's some borrowing opportunity to talk about critical.

Yeah, borrowing is amazing. Because in an IRA, there’s no way to borrow money. I mean, I've heard some people say, Well, you can sort of borrow money from an IRA, as long as I Whatever, let's say I take 50,000 out of an IRA, as long as I can guarantee I will pay it back within 60 days, not 61, 60 days, then they will not consider that to be a distribution. I don't know how many of you out there have ever tried to get money back through an investment and be able to pay it off within sixty days. It's not always easy to do, right?

But what happens when you don't pay it back? Well, it's considered a full distribution, which means many times, I'm stuck with a 10% early withdrawal penalty. And I'm stuck with state and federal taxes, factor state and federal taxes many times can range from 20 to 30%. You throw another 10% early withdrawal penalty now and then a 40% tax bracket. If I borrow 50 grand at 40% 20,000, of that 50,000 is now going to the state in the IRS at the end of the year, which means that 50 grand is only worth about 30,000 To me, not great buddy to use, I'd never recommend that. See, that's the problem with the solo K, I have the ability to authorize myself to borrow money very similar to most standard 401 K plans where if I'm currently employed with a company, I can offer, I can elect to borrow a certain dollar amount for my retirement account, there's a you know, keep in mind, there is a ratio there that we have to stay within typically, the maximum amount I can borrow is about $50,000. But it's based on not exceeding 50% of what my fund value is. But Can that be beneficial, we're sure to imagine this, if I'm an investor, let's say I'm an investor that's flipping properties, I'm going to buy rehab sell.

Commonly I'm out there looking for a good real estate deal or transaction to take on let this example, let's say I need 200,000 to buy and rehab the property wouldn't be uncommon for me to go to maybe a hard money lender commonly used by investors that are flipping properties, because they're quick to come up with buttons if they liked the transaction if there's profit in that deal, they're the first ones to be willing to lend you money, sometimes the higher interest rate, but that's okay, it's all factored into our dollars, our investment, but let's say they commonly will loan me about 80% of what I need. So, if I need 200 grand that means they typically will write me a check for 160 to put towards that 200. Now, that means I as the investor am then required to cover that 20% difference will be called gap funding, the gap between what essentially the lender covered and what we still need to do the transaction. So I need 200,000 to buy rehab it lender gave me 160 20% means I have to cover the remaining 40,000. Now the question is do I have 40,000 in my bank account, do I have $40,000 of personal credit, that I can tap into you. That may be difficult to come up with and now imagine I have let I'm using sample, maybe I have 100,000 in my soul, okay. And member, I can authorize myself to borrow money who's authorizing it, I am, I'm authorized to borrow money. So I need 40,000 to cover the difference, I'm going to borrow the 40,000 as a personal loan. And remember, if I borrow money, the only requirement is I have to pay it back. IRS gives me up to five years to pay it back. So as long as I pay that back, in a structured payment schedule, that means always pay back within five years. There are no penalties, no taxes on it. So I borrow the money. Now I have the 40,000. I bought it from my own account, I have the 160, and the hard money lender gave me there's the 200,000 I need now I'm now going to buy it, rehab it, and maybe a few months later, I'm going to list or sell the property. Let's say I sell it for 300,000. Well, now I'm going to take off on the proceeds, I'm going to pay up my hard money lender, I'm going to take the 40,000 plus a few dollars in interest. And I'm going to pay back my personal loan, I took my own retirement account, let's say leaves 60 or $70,000 left over. Now the question is what happens to the profit leftover?

Well, now I can actually turn around and keep the profits for myself, through my business to be able to give myself an income for senior year sharing. So I'm starting to generate income in my own investment business to support myself. So what I've done is I've leveraged my retirement account, almost like a personal light.

Yeah, it's like a line of credit. It's like to own your like your own bank. There's a lot of versatility if you set up a self-directed or should call it a 401K, which means one person, but then you get the flexibility of using that money to invest in investments, you can even via franchise with it, there's things you can do along that lines. And then if you need some capital, you can access up to 50% of the value of that as a loan and pay that back over time. That's powerful. People don't understand you've got a half million dollars sitting in a retirement account, you're 60 years old, you're thinking about doing something different with your life, and you want to leverage it somehow. You can use it for investments, you can start your own business with it, there's a lot of things that you can be doing, as opposed to sitting there in a balanced portfolio, let's say with the stock and bonds that you have. And you're making two to 3% right now because somewhat, they're counteracting each other today, the bonds of the stock fund. So here's a way to leverage it. And really set yourself up for the kind of retirement that you expected when you started to fund your own retirement plan. So pretty cool stuff.

Yeah, especially when you factor that money that you're rolling over and now leveraging using it, where's it coming from? Right, it's coming from an account that I just got done working I retired. Now my my current 401k or past retirement account with the old company I'm no longer working for is now sitting there in an investment that maybe is going down, maybe not doing well, but I can't borrow money from it. I can't contribute to it any longer, I can't leverage it, I can't direct it. So it's sitting out there at the mercy of the market, where now I have that ability now take it and move it over to not only help my growth in my current business or doing better investments or be able to control myself so that it's not again at the mercy of the market. So it really puts me in a position where I can control my own retirement without the continual loss that we commonly see in today's day and age. That's pretty amazing.

Awesome. Well, thank you David for enlightening us on how to sort of take control of our retirement monies that we sell preciously have grown over the years and now this is a way to improve the return on it. Plus, get into some things that maybe you've never thought about getting to. Thank you for supporting all of us here today. And for all of you listening to another edition of Wealthy and Wise, I want to thank you for being here with us. Please be sure to like and subscribe. And this helps us spread the word about everything that we're doing here at NCH.

And again, I'm your host Cort Christie, CEO of NCH. And you've been listening to some great ideas around untapping your retirement funds. And if you have any more questions, please feel free to reach out to us. There's a link so that you can learn more about NCH overall. And you could also call us and just talk to one of our consultants like David here who can help you untap the retirement funds that you have so that you can gain control over those funds. So thanks again for tuning in.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.