By Jennifer D. Meacham
It’s 2006. With cell phone and wireless laptop in tow, Windermere broker Allan Kuipers makes his way up Seattle’s Northeast Third Avenue. He’s heading to inspect the first real estate investment for his self-employed pension plan (SEP IRA).
“I’m at that age where I could start taking distributions from my retirement funds if I wanted to, but that’s not my intent,” says Kuipers of his newly-discovered IRA purchasing power. Instead he’s keeping his money within the confines of the tax-sheltered IRA, while still using it to finance the real estate projects he craves.
It’s a strategy he discovered while taking a continuing education course from the Seattle King County Board of Realtors in 2004. The 7.5-hour course on “How to use self-directed retirement plans to invest in real estate and other cash flows” was led by estate attorney Mark Hodges, founder of Chelan, Washington-based IRA custodial firm Entrust Northwest.
“Here I had prided myself-with 90 agents and 10 staff as a designated broker-on knowing the real estate strategies out there, yet I had never heard about a self-directed IRA,” Kuipers says. “My eyes were open. There was this IRS-sanctioned tool that had been around for 30 years.”
Kuipers was hooked. The Bellevue, Washington, IRA facilitation firm, Guidant Financial Group, helped him rollover his SEP from Windermere to a new self-directed account with Trust Administration Services Corp. in California. Guidant also set up a Limited Liability Company, Northwest Managers, LLC, co-owned by Kuipers and his wife’s IRAs. Kuipers says Guidant charged around $4,000, and he pays quarterly payments of $50 to the custodian from his personal Visa (a strategy that allows annual tax deductions for IRA fees).
Though he initially wanted to acquire real property, “I really didn’t have enough in my IRA yet to do that.” So he approached one of his Windermere colleagues practiced in flipping. “I told her I’d be interesting in looking at doing an investment with her,” he says “either as a straight loan or as a loan and part of the profits down the road.”
She took him up on the offer, borrowing $80,000 for her next project from Kuipers’ IRA. Kuipers charged 8% annual interest, accrued monthly, with a promissory note secured by the property. Plus he charged another 2%, paid upfront, as an origination fee. A paralegal at the escrow company drew up the documentation, and recorded the deed of trust. Meanwhile, Kuipers kept the originals in his desk and cut a check from the LLC’s account for the loan. Nine months later, the property sold and the agent wrote out a check for the loan plus interest, deposited into the LLC’s bank account.
“If your state doesn’t have a course on self-directing your retirement account into real estate, then sit through ours or ask around for a financial person in your area who’s teaching about it,” Kuipers advises. “This is a strategy you don’t want to miss out on.”
