Jason Hartman talks with Jeff Astor, VP of Business Development at Broad Financial and author of The Ultimate Self-Directed IRA:: Using Self-Directed IRAs & Solo 401ks To Invest In Real Estate, Bitcoin, Ethereum, Cryptocurrencies, Gold, Private Businesses, Startups, Exotics & Much More, about how to invest in various assets at the arms length that the tax code requires. Jeff explores some unique investments clients have made that satisfy the legal requirements, as well as explaining the difference in the 2 types of self-directed IRAs.
Investor 0:00
life was when the real estate I just didn’t want to deal with tenants and all the phone calls. So I just never got into into what the market really went down in 2008 that’s when I started listening to radio and I heard you on radio. And that’s what I decide to do it because I, your method works with where I have to deal with tenants and, and, and, you know, issues that come up even though I do deal with it was not the same.
Announcer 0:27
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of really estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:17
Welcome and thanks for joining us. This is Episode 1273. Coming to you from charming St. Petersburg, Florida, dodging the hurricane and woke up to some good news today It looks like I can go back home. So I am talking to from our German engineered and radically overpriced studio, the car. But you know, the car has pretty good acoustics actually. So when you’re in the podcasting business, you’re always looking for acoustics and noticing them and, you know, some places are just better than others. It’s good that the hurricane is missing Florida. Let’s hope it misses the Other areas in Georgia, South Carolina etc. up the coast as it makes its way northward. But a tragic what happened in the Bahamas for sure. Of course how do these tragedies good always comes and they will rebuild better and stronger than ever before. As you always see new new structures and techniques and building codes emerge out of all these tragic disasters. So let’s wish them luck and keep them in our prayers in the Bahamas. The Hurricane just sat over them it just didn’t move. It just sat there just dropping sheets of rain for quite a while. Anyway, today we have got a another show on some Well, really more creative than before I’d say ways to deal with your self directed IRA or solo 401k. Our guest is Jeff astir. And we’re going to talk about some things and some common myths or I think risk behaviors that people get into with self directed accounts where they could open themselves up to some serious tax liability. So, you know, account holder beware as the saying goes, not buyer beware but account holder beware. So we’ll dive into that. Of course we’ve got two great events coming up. Really excited. We got all the bookings done for our upcoming venture lions mastermind cruise, and we’ve still got a few spots left. Go to Jason Hartman calm to check that out. That’s going to be just a fantastic time. I’m really really looking forward to it and cannot wait to enjoy the fall colors and that crisp, fresh fall air. You know, when you live in Florida, you really you really kind of enjoy going to places like New England and Canada and the fall it’s it’s great. And then of course profits in Paradise is coming up in Orlando the week after we get back from the cruise. So two great events. You can certainly plan some family vacations around these trips. They will be Great really looking forward to profits in Paradise and we are exploring some potential themes for this year’s profits in Paradise and I think you’ll like those quite a bit. Also, we are planning a side property tour. Yes since we are in Orlando for this event, it is possible to see some properties which is rare at meet the Masters will meet the Masters It’s unheard of. And it prophets paradise at least so far it’s unheard of. But this will be the exception. We’ll be announcing some details on that will probably have an extra day and optional day before the event. I think it will be before the Friday before the event, of course is conference on Saturday and Sunday. We are planning although it’s not firm yet to do a kind of a mini property tour on Friday before the conference. So look for that. Save the dates. We sent out an invitation or save the date reminder that’s in late October 26 and seventh and make sure you get that on your calendar because it’ll be A fantastic conference today conference. Okay, without further ado, let’s go to our guest and talk about some creative things and some myths or at least dangerous practices with self directed IRAs and solo for one case. It’s my pleasure to welcome Jeff hastur. He is VP of business development at broad financial, he’s author of and get ready for this one. It’s a long title, the ultimate self directed IRA, using self directed IRAs and solo 401k ways to invest in real estate Bitcoin, a theory and crypto currencies, gold, private businesses, startups exotics. We’re going to talk about that and much more in plain English. Jeff, welcome. How are you?
Jeff Astor 5:48
Wow, thank you. That’s that is a mouthful now that I think about it, but it is in plain English in the end, so yeah. Appreciate the being patient with the title that Yeah,
Jason Hartman 5:56
so we were talking OFF AIR about exotics and I’d like to start with that. We’re going to talk about real estate investing and all that stuff, because that’s most of our audience. But we have had guests talk about self directed plans before, whether they be solo KS, or IRAs. But on the exotics, I want to ask you, first, we’ll start off with exotics and precious metals, because there’s some controversy around really both of these things, you know, the self directed plan rules say that things have to be arm’s length. So maybe you can just speak to how you define arm’s length and the gray area here that some people feel they can they can do and some people may not want to avail themselves of it, but speak to that if you would.
Jeff Astor 6:43
Sure. Jason, excellent question. So firstly, you know, the IRS says that you can invest in anything but collectibles and life insurance, which does leave pretty much a pretty wide open field. True real estate is the most common type of investment. But I’ve been doing this seven years. We’ve been as company doing this 10 years and had maybe almost 20,000 people I’ve spoken to or had emails with. And some people have come up some very interesting. That’s why I call them exotic type of investments. So one of them, the classic one that I’ve always mentioned to people is Arabian resources guy, you know, I remember spending a couple of days, he made him explain to me how the business worked. But basically, he’s buying an Arabian racehorse Well, it’s actually a full it’s very young. It’s an arm’s length transaction, because he’s not the one who’s raising it or feeding it. It’s not on his farm and his property. Now he’s investing in a an animal, that if things go right into three years, he’ll make a huge return on his investment. Very often it doesn’t, but the arm’s length here is that he’s not actively or in a really way engaged with it other than telling others to raise it, which also actually leads to an interesting point. You know, I think one of the things that distinguishes our company broad financial is outstanding customer support and knowledge. We can talk more about that later, but the the short of it is is that we’ve been doing this 10 years we haven’t a plus we retain two of the leading irisa firms that sell firms that specialized retirement plans. Rare that as it happened that we can’t answer a question on the spot. But if we do, we can refer to our attorneys on behalf of the customer at no cost to them. So that’s a great option. So when when I get this call about the Arabian racehorse and so I did confer with our compliance department and people and you know, we hammered it out with the customer, you know, what exactly what he could and could not do? That’s an example of exotic there are a lot of lots of them. You know, we have people investing in in a treasure island in a zoo. I mentioned that is
Jason Hartman 8:37
a treasure island. What do you mean,
Jeff Astor 8:39
chooses one of my colleagues? I
Jason Hartman 8:40
mean, if I’m gonna buy an island, I want to buy the one with the treasure, I guess.
Jeff Astor 8:43
So maybe was a part. But I guess people came to I don’t know if it’s an island. It could be maybe it was maybe it’s a small island in an amusement park. It wasn’t really my client, but basically they were people would come there to pay to look for treasures or things that were buried in the ground on the emesis whoever thinks that such a thing when you’re right, the IRS code, you know, I had another fellow that was investing in an LLC that tracks the social media value of 360 leading supermodels. You know, that’s something that would think of I quote that that fits into the exotic character.
Jason Hartman 9:15
What is the name of that company? I’m curious.
Jeff Astor 9:20
Even if I remembered it, I wouldn’t be able to get my share with you. But he was an interesting fellow he they will also inviting him to be on some beauty pageant contest. So you know, he had some perks and along with the investment,
Jason Hartman 9:29
yeah, so you may maybe that’s not arm’s length. I don’t got it might get an audit. Yeah. Yeah, that’s
Jeff Astor 9:35
right. I could be
Jason Hartman 9:36
talked to us about, you know, there’s basically two different types of self directed IRA companies out there in the marketplace, right.
Jeff Astor 9:46
Yeah. Two, there are two fundamentally different types of self directed IRA models, a custodial model, where your money is put into the hands of custodian and everything works through them, and a checkbook model where through the vehicle of an IRA, LLC, The client has the ability to take the money out of a custodians hands and into their own hands at a bank of their choice, thousands potential banks. So those are the two classic types of plans. It’s rare, I don’t know if even exists out there that you’re going to find a company that does both. We have broad financial, we do the checkbook plan. But we have a sister company under the same ownership, it’s actually in the same building. Right in the other side of the wall that does the custodial plan. Their name is Madison trust. And essentially what that means is that if a person calls us up, and has to talk to them, it sounds like they’ll be better served with the custodial plan will direct them to Madison trust. Well, I’ll tell them about Madison trust and or vice versa if it sounds like the general plan is better, but there are two plans to an advantage to find a company that can offer you both because otherwise someone might try to pigeonhole you into a plan that might not be ideal for your circumstances.
Jason Hartman 10:50
You know, I think most of our listeners are going to want to get the plan or if they have one set up an LLC inside of the plan and then have to checkbook control, meaning they can pay the bills and the expenses themselves. They do need to be careful, though, that they’re not running afoul of the rules, you know, if they take that responsibility on themselves, because you know, they always are susceptible to an audit, but tell us who wouldn’t wouldn’t want one plan or the other.
Jeff Astor 11:18
In our case, the custodial plan is ideal for people that want to make a one time lump sum investment. They’re not going to be managing the property paying the bills. They have a friend or the company that’s a development, real estate development, for instance, and they need to give them $100,000 $200,000 one time lump sum and then they’ll get returns periodically. The reason that’s really good for a custodial plan, our sister company Madison trust just charges $100 to set up, they do charge transaction fees, they do charge check fees, but if you’re only doing one one time is the hundred dollar setup. And then there’s a flat yearly fee for IRS reporting,
Jason Hartman 11:54
right so that’s going to be if you’re you know, if you’re investing in some pooled money asset or a funder Something like that in everybody knows what I’m going to say, be a direct investor and buy the properties yourself. So that’s going to lend itself much better to a checkbook control type of situation. Right?
Jeff Astor 12:13
But absolutely the more check intensive you’re investing is like managing the real estate, the more the check will plan will be the and we say checkbook, but that means you know, you can have a credit card attached to it a debit card. Well, let’s stop right there. No. So the truth is, you can’t have a credit card attached to it, you can have a debit card attached to it. But a credit card has a interest. And one of the rules of the IRS is you can’t guarantee alone. And you can only get therefore, if you want to leverage a property, you can only leverage it with a non recourse loan. Yeah,
Jason Hartman 12:42
and I want to ask you about that and talk about that. And there’s very few non recourse lenders out there and the rates in terms aren’t as good. We’ll go into it in a second but finish the credit card thing. So the credit card thing essentially puts the plan. Owner I guess is the right name, maybe beneficial I don’t know, in the position of guaranteeing the loan personally, is that what you’re saying? Yes, it’s interesting. Yeah. ever written the most people wouldn’t even pay attention to that. Right. But But technically Yeah, you’re probably right. You’re that’s got a personal guarantee on that credit card.
Jeff Astor 13:15
It’s one of the five we on our website, we have like the five classic mistakes that people make. And that’s one of them. Yeah, no debit card is fine. So we have lots of clients that will open the account at a like a Home Depot, for instance. And they’ll put their debit card their debit card there so they can buy materials.
Jason Hartman 13:29
Okay, great talk about the recourse or the non recourse lenders, because you know, you can’t guarantee the loan, the plan is the only guarantee for the loan. What does that landscape look like nowadays? I mean, there used to be a lot more of them, and then it really dried up for a while. Is it coming back as the selection a little better, where you’ve got some competition in the marketplace for financing?
Jeff Astor 13:52
Well, certainly it’s not a common type of thing we actually have some of our clients are the ones that are making the loans the bridge loans and non recourse recourse if they have, they can. But we’ve we’ve over the years. So we’ve collected a few people that have have helped worked with our clients. And we found, you know, one or two, I’m not necessarily mentioned on the air here, but you know, we’ve got a couple that are really very good. And if there’s a non recourse opportunity out there, now these guys to do it, I always tell people that you don’t necessarily need a national non recourse lender, if you can find one yourself very often you can do is work out something with the seller, or sometimes this is one of these people like just making hard money loans, they’re easier to get the non recourse conditions in there. But if you need a non national lender, there are a few there’s a handful. We don’t know all of them. We have a few good names that we could, you know, share with people that are interested as a coming back I think so I think in general real estate has been coming back the past couple of years. So these are becoming more less uncommon. Let’s put it that way. Oh, that’s a total understatement. Come on. Real estate is booming. last couple of years, for sure. So look more choice out there feels a little better in that marketplace, right? Yeah, of course, there’s a disadvantage. Obviously, if you get a non recourse loan, that’s great. And I think that’s not so much the issue. The general non recourse lenders want about 50%. Down, they’re not going to be happy with 10 or 20%. And can I’m only making general rules. Yes, I agree. Well, yeah. But the interest rate maybe only be a point we found only to be a point or two higher if that. But when you engage in a non recourse type of situation, you’re triggering something in in the IRS cool that you the EFI unrelated debt finance income.
Jason Hartman 15:33
Tell us about UDF I
Jeff Astor 15:34
basically our taxes you. Well, you see, Chris, when you’re when you’re investing in a property, the IRA is tax sheltered, but the Polone is not so the IRS is going to tax you. And it’s a tiered tax, but basically, there’s a pretty hefty tax on the loan portion of your investment. So if you have $100,000 investment 50,000 as Ira 50,000 is with a a non recourse loan that 50,000 the profit from the 50,000 will be subject to this tier task will do the ephi. Something worth looking into important to be aware of, as also interesting to note that the UDF is only in a leveraged property purchase with an IRA, but not with a solo 401k, which is a nother product we offer but solo form case for self employed people. If you have a solo 401k and you leverage a property, you don’t have to worry about you the EFI.
Jason Hartman 16:26
Okay, something I think that people often miss, is they set up an LLC inside their plan, and then they get the checkbook control, and then they start doing things. They might have the entire plans, assets owned by that LLC within the plan, right. So the plan has a bank account, the plan has a couple of properties, and so on. And when they do that, it’s important to remember that even though the overall Plan and I’m assuming you’re not a lawyer, I’m certainly not. So, you know, seek out good legal advice, because you’re not going to get it here. But just conceptually, these are the things to think about, okay? The plan might be protected from an outside creditor, but it’s not going to be protected from an internal creditor. In other words, if you have a liability that’s created out of one of the properties in that plan, in that LLC, they can go after everything else in the LLC. And I think this is something that people miss a lot. So do you see any people setting up multiple LLCs within their plan inside of it?
Jeff Astor 17:41
Yeah, that does happen. So just to be clear, so what we create, what we would create is what we call an IRA LLC, an LLC, specially structured to hold IRAs otherwise, LLC is try and move money into a homemade LLC or a zoom, Legal Zoom LLC. It’s going to be considered a prohibited transaction and we do get enough people call Sup that think that they can do it? Yeah.
Jason Hartman 18:02
And I want to ask you about that to come back to that mo Yeah, so
Jeff Astor 18:04
we have to but the bottom line is so we create this IRA LLC. That’s really what they’re paying us with the expertise to create it and maintain it. However, you’re correct. If you have a multiple properties inside this IRA LLC, and one of them is subject to a liability, the others are exposed potentially because it’s under one LLC. So what number of our clients do they will create what we call the sub LLC, which is a regular LLC, they don’t have to pay for another IRA LLC. But they’ll get the local their state LLC and put each property inside what we call the again the sub LLC to cordon off its liability to the other properties. So you could have one IRA LLC, and then unlimited amount of sub LLC is one for each property. And that does give you an extra shield of liability, you know, to protect the other properties, some exposure to a court case,
Jason Hartman 18:48
talk to us about an IRA LLC, is that something that, you know, lawyers sort of say, hey, look, you got to do all this stuff so they can charge more or is there What’s the difference?
Jeff Astor 19:00
It is a difference. So the law that the IRA law began 1974. And the school the Riza. And their er is a and Alyssa is a specific branch of law of the IRS law code. And I spoken to many high powered attorneys. And I’m not attorney either. But they’re asking me all the questions about a risk was they didn’t really learn about it. Some of them do, but it’s it’s actually pretty rare. I remember guy tax attorney, made major tax attorney was and I felt sort of a little humbled. He was asking me, but the truth is, I knew because this is all we do. I you know, we talked about this here, we have a very good structure here of information, institutional knowledge, and as I said, access to a couple of teams of a risk attorneys. So yeah, you really need to know how to make an LLC that’s compliant to the IRS code and that, you know, main is maintained going forward. It’s not something
Jason Hartman 19:51
right. What’s the real difference? I mean, it’s the operating agreement has a special clause in
Jeff Astor 19:57
the operating agreements that the language you the operating agreement is Part of it and then there’s a structure to include the custodian and so forth.
Jason Hartman 20:04
Okay, what else? Do you want to say what it may be a question I haven’t asked you. What else do you want to share with the listeners as we wrap up?
Jeff Astor 20:11
Well, it’s such a big field, I can’t even begin to know where to go with that. Again, it’s very important, I think for our listeners to not only look for a plan, the easy part is finding a legal plan, a, you know, a plan that conforms and is compliant. And unfortunately, we’ve I’ve had experiences many people that sent me plans that thought they got a legal plan when I asked him listen, you know, send me your article, send me your LLC, we’ll look at over compliance. And if it’s compliant, you know, we’ll just set you up with a custodian part of our business. And how many times have we told you that they set up something that really wasn’t so they didn’t think they, it turns out that they couldn’t do it. But that leads to a bigger point, which is that it’s not enough just to get a great plan. I really think it’s very important. To get a great company, you need a company that has a track record. A lot of people don’t know how to research things, they look it up and they see a company and they think there will The same and they’re not. Some are I’m not saying you know, broad financial is the only great company out there. I believe we are great company. But you know, you have to do your research. Look up the Better Business Bureau Don’t be happy with just a pluses are look at the actual testimony millennials. What are people saying? And the reason is, is because here’s a person that spends his whole life building up an IRA retirement plan, and he’s got a great investment. He’s got great ideas, and because of lack of advice would be quite someone gives him wrong advice. He now risks the tax shelter status of maybe hundreds of thousands, millions
Jason Hartman 21:30
of dollars. It gets worse than that. I mean, yes, you risk the tax possibility. But also, you know, some people like in every industry, these IRA companies have just ripped people off. They’ve just stolen the money. And that’s why I think that the checkbook control where you have the LLC, you control the bank account is better, because, you know, if you leave it to the custodian, you know, they could just take the money, right? Exactly.
Jeff Astor 21:57
There’s no potential of a company like bro financial being targeted a lot of a class action lawsuit for fraud because we’re not holding your money for, you know, for any type of theft, we’re just giving the vehicle to take your money to a place that you feel comfortable with. Right, right. But your
Jason Hartman 22:10
sister company is a custodian that does hold the money, right? So do you know people should know? That’s why I started out with understand the difference. There’s two main types of companies. There’s the company that with checkbook control, where you have the money in that bank, LLC bank account, that you’re essentially controlling, right? And then there’s the custodian company where they you’ve got your money, and you know, that company goes under and someone’s reaching into the cookie jar there, you know, you really can lose your money and I don’t know what type of you know, this happens with exchange accommodators escrow companies, you know, lawyers, of course, anybody who keeps your money right can run off with it. So be careful.
Jeff Astor 22:50
Yeah, yeah, absolutely. buyer beware costs, you know, then there’s, you could put your money at a bank that’s not FDIC insured and also be into a problem and such a thing. I mean, every bank has a credit unions people are involved in credit unions and stuff like that. And then you haven’t the 2008 crisis which so that banks aren’t always as solvent as you might think. And and
Jason Hartman 23:10
sometimes people are over the FDIC limits too.
Jeff Astor 23:13
Yes, that’s also true. So you gotta you have to be smart about it. Yes, there are advantages and disadvantages, but certainly the advantage of the checkbook plan is and you should look this up because there are some companies out there that are had have been and still are the the target of class action lawsuits losses. So these types of things, if you’re going to go custodial, and I do think the custodians are generally honest, and they’re certainly very regulated. But if you do with a custodian make sure you dig in and look for you know, signs of this this really they legit and I’ll do they have a track record that reflects, you know, integrity and honesty, right?
Jason Hartman 23:46
Yeah, absolutely. give out your website. So broad financial is our name we like broad like and board soul shoulders and financial broad financial. com www that broad financial. com and Yep. Jeff, thank you so much for Joining us in filling us in a little bit more about the world of self directed IRAs. And of course, we didn’t really talk about it, but solo 401k is another option as well. These are some some good vehicles. Thanks again,
Jeff Astor 24:13
pleasure. And we didn’t even talk about the gold and precious metals. Maybe we can you know what?
Jason Hartman 24:16
Well, you know what, let’s talk about that real quick. Good point. Good point. So here’s the thing, let me just tee that up. So there’s this rule about arm’s length, right? Where you’ve got to have everything arm’s length, all the investments. And some people even though we have that arm’s length rule, are investing in precious metals inside of their maybe checkbook controlled IRA. And they’re actually taking possession of those precious metals. And what are they doing putting it in there? you’re sticking it burying it in the yard, putting a safe deposit box, whatever. Is that arm’s length or not?
Jeff Astor 24:50
Well, the question is, does it conform with the code and as you might not be surprised if you know about these things. The code is a bit gray to code is not so clear about that and There are attorneys are firms that say that there is some leeway for a person having an IRA LLC, for instance, to actually take possession of that. Maybe I’ll come back another time, we could talk about more than detail. When people ask us about these things, you know, we’ll gear it. Essentially, though, the bottom line is, is that what no one disagrees with was completely agreed upon is that you can use your IRA LLC and buy the metals and put it in a depository. And we do have a lots of clients, you know, using our plans for precious metals. The question is taking physical possession, and that’s a longer conversation. You know, look, listen, I
Jason Hartman 25:37
don’t think precious metals are a very good investment. They don’t produce any income, they have no tax benefits, etc. But if you’re going to do it, and you feel that it’s better than the dollar and the dollar is going to collapse, blah, blah, blah. You know, I’ve heard all those arguments. I’ve argued a few times myself, then take possession of the metals, you know, inside or outside of a plan, but just tell us briefly What is that gray area about how you can take possessions of them? And you know, even if you were audited, you might be okay.
Jeff Astor 26:07
Well, firstly, let’s just say that one of the reasons that people want to take physical possession, as opposed to to, you know, putting it like the Delaware depository, is the fear of an economic collapse where currency is completely worthless. And what’s really worthwhile is actual metals. So it doesn’t pay to these people to people to think this way, or, you know, worried about this, that they have the economy collapsing, the banks will be closed in the Delaware depository will also be closed and you can well and they
Jason Hartman 26:33
can steal your gold. So how do you take possession of
Jeff Astor 26:36
it? That’s the way so many people want to take possession and they take possession outside of an IRA. That’s their strategy. Now inside of an IRA. There are some specifics in the code. Again, it’s it is a longer conversation. We can we have some PDFs and stuff like this, that goes into some of these details. We’re looking at being a little vague about it, because it’s not as simple as discussion. But there are gray areas in the code, we can look at Some of your listeners aren’t too bored. But bottom line is, is that there’s controversy and it’s unclear exactly about it. We’re not necessarily going to decide either way. But we do have clients that probably as far as we know, might be using it for taking possession because they have an attorney that’s told them listen, here’s the code. I’m ready to back you up, take possession of it. If that’s their choice, then that’s their choice.
Jason Hartman 27:22
All right. Well, Jeff, thank you so much for joining us.
Jeff Astor 27:25
Very good, Jason. Let’s do it again.
Jason Hartman 27:28
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