Self Directed Investor Talk: Alternative Asset Investing through Self-Directed IRA's & Solo 401k's

ONE TOPIC is irresistible catnip for real estate investors:  the Self-Directed IRA.  This special form of IRA enables investors to deploy their retirement capital into real estate, and to enjoy the substantial tax benefits offered by IRAs.

IRAs can bring such substantial tax savings that it is easy to assume that any investment that can be performed in an IRA should be performed in an IRA.  But the devil is in the details, and real estate may be the only asset class for which the use of an IRA could be a fundamentally poor decision.

Here are 5 devastating traps awaiting the real estate investor who uses a Self-Directed IRA:

Punishing Taxes

It would be reasonable to assume that using an IRA would result in the payment of less taxes than without it.  Alas, that is frequently false.

Users of the “Roth” type of IRA have the best tax advantage ever created:  Your profits are 100% tax-free, and that advantage is impossible to beat.

But what about “Traditional” IRAs, which are merely tax-deferred rather than tax-free?  This is a highly relevant consideration, since there’s far more money stashed away in Traditional accounts versus Roth accounts.  Does the tax deferral of a traditional IRA outweigh the tax advantages of owning real estate outside of an IRA?

Generally speaking:  The traditional IRA is less tax efficient for real estate.

Real estate investments executed outside of an IRA are usually taxed at long-term capital gains rates, which are relatively low at 15-20 percent.  But if the same transaction happens in a traditional IRA, the investor will be hit with ordinary income tax rates during retirement, and those rates reach as high as 39.6 percent!

For the benefit of temporary tax deferral, Traditional IRAs force investors to sacrifice the relatively low tax rates of capital gains treatment and instead pay much, much higher ordinary income tax rates.

Cash Purchases Only… No Leveraged Purchases!

Using debt to purchase real estate is one uniquely wonderful reasons that savvy investors prefer real estate as an asset class.  But in some very tangible ways, debt inside of an IRA profoundly diminishes your tax benefits.

The law does not prohibit your IRA from borrowing money.  But doing so opens up your IRA to current tax liabilities, as the IRS categorizes income that results from debt in an IRA to be “business” income rather than “investment” income.

As a result of this “fine-print distinction,” your account could be hit with a particularly nasty tax called “Unrelated Business Income Tax”, which could chop another 39.6% off of your profits.

Non-IRA Tax Advantages Disappear

Real estate may be the most tax-favored asset class of all.  Even without the benefit of an IRA, real estate offers a plethora of tax-reducing potential that can have an immediate impact on the investor’s current income tax burden.

The two biggest examples are the “1031 exchange” and “depreciation.” The former enables investors to defer taxes on real estate profits indefinitely by reinvesting those funds into other real estate, while the latter enables some investors to substantially reduce their current income tax burden.

Unfortunately, those tax advantages are unavailable to you personally when it’s your IRA that’s doing the investing.  The IRS views your IRA as a distinct entity from you, and even if the activities of your IRA would merit tax advantages if performed outside of your IRA, the execution of your transaction inside your IRA means those advantages are not available to you.

Sweat Equity No More!

One of the greatest opportunities in real estate is the ability to substantially increase value through improving the property, such as making repairs, adding rooms or even constructing entirely new structures.  For real estate investors, it is all about “highest and best use.”

When the owner of a property performs this kind of work him or herself rather than paying a third party, it is called “sweat equity.” and it is an incredibly cost-efficient way for real estate investors to dramatically increase their equity at minimal cost.

However, the IRS sees it very differently, viewing your work on the property as a “service” that is provided to the IRA.  Unfortunately, the law expressly prohibits the IRA owner from providing services to the IRA, under threat of tax and penalties that are utterly devastating.

The Freedom To “Hang” Yourself

One would think that using a “Self-Directed IRA” would lead to profound freedom for the investor, yet the opposite is true.  While you are allowed to invest in nearly any asset class you like, the rules governing IRAs are very strict, inflexible and wholly unforgiving.

What does it take to break those rules?  It is easier than you might think.  Each of the following actions is arguably prohibited for your IRA-owned property:

• Paying any bill connected with your IRAs property with personal (rather than IRA) funds
• Allowing your boss, colleagues or family to use your IRAs beach-front property
• Allowing your granddaughter’s girl scout troop to sell cookies on property owned by your IRA

There is an untold number of ways to unintentionally commit a prohibited transaction, and the IRS has become rather aggressive of late in identifying these transgressions, as the payoff for them can be huge.  It is very plausible that committing any prohibited transaction could result in your IRA value being slashed by 50-100%, and there’s no simple way to fix these errors.

Despite these risk factors, real estate investors should not automatically avoid self-directed IRAs.  There are many excellent reasons for real estate investors to use self-directed IRAs as you’ll see in a future article.  Real estate investors should, however, avoid the common assumption that any investment that can be made in an IRA should be made in an IRA.  That is dangerously untrue, and the ramifications of making the wrong choice can be very negative for your financial security during retirement.

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Do you have an IRA at a conventional custodian – like Charles Schwab or Fidelity or Ameritrade – and wish you could buy real estate inside it?  Well now… because of a new court ruling… you can!  But should you?  I’m Bryan Ellis.  I’ll give you all of the powerful details RIGHT NOW in episode #194.

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Hello SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

What a great day to be alive, people!  Don’t you agree?

So there’s some BIG NEWS on the legal front that you, as a well-informed self-directed investor need to know… particularly for those of you who have IRA’s at conventional brokers and wish you could buy real estate or other assets – other than just stocks & bonds – inside those accounts.

On February 24 – two days ago – a really, really interesting ruling in US tax court came down.  And I’ve got to say a big thank you to attorney extraordinaire Tim Berry – host of the upcoming new podcast SDI Money Law… a GREAT show, my friends – for turning me on to this information.  For you legal beagles in the audience, I’ve posted a link to this decision on today’s show page, which you can find at SDIRadio.com/194.

So here’s the deal…

The IRS decided to pursue a fellow named Raymond McGaugh for taxes, penalties and interest in connection with some activity in one of his IRA’s.

Mr. McGaugh held a self-directed IRA at the big stock brokerage Merrill Lynch.  Now Merrill Lynch is as conventional Wall Street as a company can be.  They offer “self-directed” IRA’s… but Merrill… like virtually every other Wall-Street based custodian… only allows their clients to self-direct to the extent that Merrill will sell the type of product that the account holder wants to buy.  So if you want to buy publicly-traded stocks, bonds or mutual funds, you’re in luck.

But Mr. McGaugh wanted to buy something different from that.  He wanted to buy shares of a privately-held company… in other words, a company that is NOT traded on Wall Street.  McGaugh seems to have done his homework… he knew that such an investment wasn’t inherently prohibited by the tax code, and since he had the available capital to make the investment, he instructed Merrill to purchase $50,000 work of that private-company stock on behalf of his IRA.

But Merrill balked.  Remember… virtually all IRA’s that are billed as “self-directed” are only self-directed as far as the custodian can conveniently profit from the sale of the asset to the account owner.  And Merrill certainly couldn’t conveniently profit from this, even though the tax code clearly allowed it.  Thus, Merrill refused to honor Mr. McGaugh’s request.

Well, McGaugh was determined.  So he instructed to send a wire transfer $50,000 directly to the company from whom he was purchasing stock, which they did.  He also instructed the company to issue his shares so that they were owned by McGaugh’s IRA rather than by himself personally.

There are some other details of course, but the gist of the story is that McGaugh performed an end-run around Merrill’s restrictions for their self-directed IRA accounts.

How does Merrill respond?  Not well.  In their tax statements to the IRS for McGaugh’s account, they indicated that McGaugh had withdrawn $50,000 from the account.  And that got the attention of the IRS, who certainly wanted their pound of flesh from that money.

So, the IRS tries to hit up Mr. McGaugh for a bunch of money, but he won’t have any of it.  The issue went before tax court, and the ruling that was issued is VERY good for Mr. McGaugh and very interesting more generally.

Bottom line:  The tax court ruled a few things:

First, that the asset that McGaugh was purchasing wasn’t prohibited.  So they, in effect, re-confirmed the efficacy of investing in alternative assets.

Second, the tax court ruled that McGaugh had NOT performed a withdrawal of his funds because he was never in receipt of those funds.  The funds were paid from the custodian to the seller of the company in whom Mr. McGaugh was purchasing shares, and that company, in turn, issued shares of ownership to Mr. McGaugh’s IRA.  And the tax court blessed the transaction as being compliant with the tax code.

So what does this mean?

On the surface, it looks like it means that you could use your conventional IRA to purchase non-conventional assets, so long as the funds are paid to the appropriate parties and that the assets purchased are titled in the name of your IRA and not your personal name.

But let’s not get too hasty with this.

Here’s the thing… It’s entirely possible that Merrill – or whichever conventional custodian you use – has other language in their account agreement to which this transaction may be subject which could cause trouble for you if you wanted to do so.

But even if they don’t, I’ve got to tell you… I think it’s a HORRIBLE idea to use this newfound freedom to force your IRA custodian to buy assets with which they’re not accustomed to interacting.

Imagine it was you buying real estate instead of private stock.  Do you think Merrill Lynch – or the other conventional custodians – have the first clue about the complexities of buying real estate in an IRA?  Almost certainly not.  Will they know what to do if a property tax bill is sent to them rather than to you?  Will they know how to handle it if – God forbid – you have legal troubles with that property – even as minor as an eviction – and the custodian begins receiving volumes of legal documentation?  I’ll bet the fees you’d have to pay would mount up very, very quickly.

So, is it plausible that you now have the ability to buy unconventional assets through a conventional IRA?  Yes, it’s plausible, as the case that I’ve linked to at SDIRadio.com/194 plainly shows.

But is it wise?  I’d have to say NO.  But this case is likely to be of great benefit for any of you who, maybe like Mr. McGaugh, chose to aggressively push your wishes onto your custodian.  Now, at least, you’ve got some legal cover.

My dear friends… THANK YOU for listening in today!  I have a sincere request for you… please go over to iTunes and give this show a 5-star rating if you like it.  That helps us so very much, and it’s totally FREE for you to do.  You can get to our iTunes page at SDIRadio.com/iTunes.

My friends… it’s good to be alive.  No matter the weather, it’s a beautiful day.  Thank you, God for another rotation of the globe, another day full of challenge and opportunity, another day to live out loud and make the most of this amazing world You’ve made!

And, without a doubt, my friends… invest wisely today, and live well forever!

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The politicians – particularly Bernie Sanders – are talking a lot about FAIRNESS… but here’s the truth:  FAIRNESS is the OPPOSITE of freedom, and it’s a code word for targeting and confiscating YOUR WEALTH.  I’m Bryan Ellis.  I’ll tell you precisely why this is true RIGHT NOW in Episode #193.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

My friends, I hate that politics ever intersects with money.  Unfortunately, it does… and it’s the politicians who insist that it happens.

Case in point:  In his victory speech at the New Hampshire primary, socialist Bernie Sanders proclaimed that “what American people understand is that our great country was based on a simple principle, and that principle is fairness.”

My friends… what utter poppy-cock!  What an utterly foolish, wholly made-up statement!  This is a LIE, my friends… it’s exactly the OPPOSITE of the truth.

This great country was based on a central concept… and it’s a concept that you and I as self-directed investors use every single day.  That concept is FREEDOM.  FREEDOM.  FREEDOM!

My friends, not a single person who fought, bled and died to make this country independent from England did so because they yearned for FAIRNESS!

The Pilgrims who came here so early in the history of this country didn’t come here to seek religious FAIRNESS… they came for religious FREEDOM.

The revolutionaries who dumped tea into the harbor at the infamous Boston Tea Party in 1773 in defiance of English economic oppression… those people called themselves the Sons of Liberty – that’s FREEDOM – NOT the sons of Fairness!

This is the land of the FREE and the home of the Brave… not the land of the Fair and the Home of the Same!

And I’ll tell you one thing for damn sure, my friends:  My grandfather, who fought and bled and was shot and suffered mightily in world war II for the benefit of this country – in a war that had GENUINE relevance for the entire future of the world and of our country in particular:  He did NOT fight – nor did the millions who died in that effort – so that America would be FAIR.  He fought so that we’d be FREE.

My friends:  Fairness is 100% OPPOSED to freedom.  Fairness is an intellectually simple concept that exists solely for one purpose:  to emotionally incite those who unwisely fail to realize that Fairness is a wholly subjective, and thus completely meaningless concept.

And here’s the proof of that:

Fairness to me means that if you, as a self-directed investor, invest wisely and make a profit, you should be able to choose what happens to that profit.

Fairness to Bernie Sanders is that if you invest wisely and make a profit, you should pay a MASSIVE tax to benefit those who – for whatever reason – did NOT make a profit.  Because, you see, it’s not “fair” that you had more money than them.  It’s not “fair” that you had more knowledge than they did.  It’s not “fair” that they were too young or too old or lived in the wrong place or didn’t have the right education or that they didn’t know the right people.  In Bernie’s world… fairness happens only when everybody is exactly the SAME.

That’s right, folks:  Fairness is about FORCING you – and everyone else – to sameness… removing your individuality… removing your ability to be exactly what you were created to be, and instead forcing you to be JUST LIKE EVERYBODY ELSE.  If you’ve got more money than most… you’ve got to give some up.  If you’ve got less than most, you get to collect some free money.

If you need education, you get it for free… so everybody can be educated just the same.

If you don’t have health insurance, you get it for free… at least that was the idea, right?... so that everybody can get health care just the same.

Sounds really good doesn’t it… for everyone to have exactly the same?

Well no, it doesn’t.   And here’s why:

The concept of FAIRNESS – as Bernie and other politicians use it – is wholly and completely opposed to one central concept that we all value dearly:  Innovation.  Innovation is what makes it likely that tomorrow will be different and better than today.  It’s what means that life expectancy was about 47 years in 1900 and is about 80 years right now.  Innovation is why the iPhone in your pocket is such a spectacular device… and more powerful than the computers that occupied entire buildings just a few decades ago.

FAIRNESS is just this:  It’s a tool to rally the ignorant and to control the producers.  And as long as FAIRNESS is the presumed to be the basis of governance, your wealth is at risk.  Because my friends, it is not “fair”, according to Bernie and his ilk, that you are successful.  It’s not FAIR that certain tax breaks apply to you because of your wealth but not to someone else because they’re not wealthy.  It’s not “fair”, they say, that you could have a health insurance plan with all of the bells and whistles, because there are others who can not afford those same plans.

My friends, this great country was NOT founded on the idea of FAIRNESS.  Bernie made that up.  He lied to you.  This country was founded – and exists to this day – because of FREEDOM, and it’s twin value, OPPORTUNITY!  “Fairness” is “sameness”.  Sameness means It’s ok for somebody – with the backing of the government – to take what’s yours, to make you the “SAME” as others.  Sameness means there’s no motivation to innovate… that there is no reason for Apple to create the iPhone; Sameness means there’s no motivation for a person like Sir Alexander Fleming to do the research that led to the availability of the antibiotic penicillin...

Remember:  Steve Jobs got VERY RICH as a business man.  And Sir Alexander Fleming was awarded the nobel prize.  Neither of those people wanted to be the SAME as everyone else.  They wanted to something BIGGER and BETTER and GREATER than anyone had ever been before…

But that isn’t FAIR.  Fairness is the enemy of innovation.  Fairness is the enemy of freedom.  Fairness is a rhetorical tool good for one purpose only:  To rally the simple to the cause of the tyrant.  Whether that tyranny is the absolute kind ala Stalin, Mussolini, Hitler, Lenin, or Mao… or whether we’re talking about the softer form of tyranny that exists in so many nominally “free” countries today… the path of society is this:

Freedom.  Fairness.  Tyranny.

Let’s don’t let it happen, my friends.  Let’s not let that happen in America.

I hope you’ll invest wisely today… and live well forever!

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A listener asks: Exactly how can you buy real estate in an IRA? Today, I answer that basic question… and the more important question behind it: SHOULD YOU buy real estate in your IRA? I’m Bryan Ellis. This is Episode #192.

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Hello, SDI Nation! Welcome to the podcast of record for savvy self-directed investors like you!

Today, it’s back to basics day. But the “basic” idea we’re covering is one that many of you have done very, very wrong… and you don’t even know it.

Before I get into the meat of today’s show, may I ask a personal favor of you? Please say a prayer for my daughter Kayla. She’s 18, and tomorrow she’ll be having surgery that we’re hoping and praying will correct some rather severe skeletal and maybe neurological issues she’s having which are causing her really, really great pain. She’s connected to this show by more than just being my daughter… she is the person who edits and publishes this show so that you get to hear it. So please, please say a prayer for her. Kayla, I love you so much and I’m praying for you. And, of course, I’ll be there with you at the hospital constantly. God is with you, kiddo, so take heart and be full of courage!

I received a great question from a listener named Molly who had this excellent question for me: “Bryan, I really love your show, but I’m confused. I want to buy a house in my IRA. When I asked my IRA account people at Charles Schwab how to do this, they told me I couldn’t do it. What am I missing?”

Thanks for the question, Molly. And by the way – I welcome your questions at [email protected]. Molly, here’s the answer:

By law, there are very few restrictions on what kinds of assets can be purchased with an IRA, and there’s certainly no problem LEGALLY with buying real estate in your retirement account.

But different IRA Custodians – those are the companies that set up IRA’s, such as Charles Schwab in your case – different IRA Custodians allow different levels of flexibility in terms of the assets for which they will facilitate purchases.

In the case of Charles Schwab, they’re brokerage for stocks, bonds & mutual funds. In other words – the conventional Wall Street type of assets. And you know, I used to have an account with them. I always liked the service they provided and thought they were a good company.

But I had to move on from them once I realized it was possible to do MORE with my retirement account, and that’s what you’re going to need to do too, Molly.

Your next step is to transfer your retirement account from Charles Schwab to what’s called a Self-Directed IRA custodian. Now I realize that at Charles Schwab particularly, they do use the term “self-directed” to describe their IRA accounts. And to an extent, that’s true. But the truth is, accounts there are only self-directed to the extent that you choose to invest in an asset that they’re willing to sell to you, which unfortunately is limited to stocks, bonds, mutual funds and conventional Wall Street type investments. If you’d like to go outside of Wall Street investments, then you need a TRULY self-directed retirement account.

And never fear! I have a handy list of self-directed IRA custodians available to you at sdi360.com/custodians. There are a few dozen of them listed there from which you can choose.

So Molly, you’ll select a self-directed IRA custodian, transfer your account to that custodian, and then you’re ready to buy real estate in your IRA.

So what’s the process from there?

Well, the most important thing to remember is that it’s your IRA that’s buying the real estate, not you. Technically, it’s your IRA Custodian who is buying it for the benefit of your account.

So here’s how it works. What you do is negotiate the purchase contract just like normal… except that the BUYER will be your IRA custodian for the benefit of your account number. Confirm with your Custodian, but usually the buyer is listed as something like “XYZ Custodian for benefit of Joe Blow IRA, Account #123456”… or some variation of that. Just confirm with your custodian how they should be listed on the purchase & sale agreement.

Next, you’ll send in the contract to your custodian for signing, along with something that’s usually called a “direction letter”. Yep, you guessed it: It’s a letter than tells the custodian exactly what you want them to do, such as payment of earnest money and funding of the ultimate purchase. The custodian will then follow your instructions, return a copy of the signed contract to you, and you can proceed to due diligence and closing.

Note that every single expense involved in the process – including any costs of due diligence such as appraisals or inspections – must be paid by the IRA. To pay for such things out of your own pocket could be construed as a “prohibited transaction”… and that’s a bad, bad thing as you’ll see in a moment.

The benefit of doing it the right way, of course, is that when you sell that real estate, the proceeds of sale lade inside your IRA and you get to enjoy all of the tax benefits that make IRA’s so attractive to begin with!

So that’s how to buy real estate inside of your IRA. But Molly, I respectfully propose that you consider another question: SHOULD you buy real estate inside of your IRA?

Here’s my answer to that: If you can do it in some other way, you should avoid buying real estate in your IRA. Here’s why:

IRA’s are subject to something called “Prohibited Transaction” rules. Those are the rules that you absolutely can’t break with your IRA, and if you do, you’ve got a very, very serious and financially painful conflict with the IRS headed your way. This isn’t something to take lightly. And, unfortunately, the inherently complex nature of real estate transactions makes it not just plausible, but actually very easy, to commit a prohibited transaction.

What should you do instead to benefit from real estate in your retirement account? The absolute best way to do this is to use a self-directed 401k instead of a self-directed IRA. That’s because even though the same prohibited transaction rules apply to 401k’s as to IRA’s, the fact is that it’s far, far simpler and less costly to “repair” a prohibited transaction in a 401k than in an IRA. With an IRA, prohibited transactions are like Armageddon. With 401k’s, they’re more like a simple nuisance.

Another alternative is to structure the real estate transaction differently. Because of the unique tax advantages of real estate ownership, it’s frequently the case that you can do as well, and maybe even better, by buying the property outside of your IRA, while still using your IRA funds to do so. That’s a complex topic, and my advice is to spend a few bucks to hire a really bright attorney who understands both real estate and self-directed retirement accounts. There are only a few lawyers in the whole country with that skill set, and the very best of them is sdi360.com’s very own Tim Berry, who you can reach at sdi360.com/tim.

So there you have it, folks… how YOU can buy real estate in your IRA… and my thoughts on some better ways to do it.

My friends, invest wisely today, and live well forever!

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The best-selling book and movie The Big Short tells the inside story of how Dr. Michael Burry made a huge fortune for his hedge fund clients by betting against the real estate market… and how those clients ultimately didn’t appreciate him despite a HUGE profit.  And I may be the only person in America who thinks so, but I think the clients were right and Dr. Burry was wrong.  I’m Bryan Ellis.  I’ll tell you why right now in Episode 191.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

Have you ever read the book “The Big Short” by Michael Lewis?  If not, it’s a great read… and I really enjoyed the movie too, which is solidly over 2 hours long and felt like it was over in a flash.

So I totally recommend the book and the movie… it’s a really fascinating explanation of what led up to the mortgage meltdown, and how it really was just a function of greed and carelessness.

Part of the story involves Dr. Michael Burry.  He trained as a neurologist and got the degree and was a resident, but clearly his passion was in the financial world.  He had a website in the late 1990’s where he posted information about his stock picks and analysis leading to those picks.  His picks were so successful that he got the attention of some major financial players like Vanguard investments and the prominent investor Joel Greenblatt of Gotham Capital.

To condense the story a bit, Burry quits medicine, starts a hedge fund called Scion Capital using some inherited capital, and continues to excel.  His first year brought a profit of 55%.  Soon, he had over $500 million under management and was turning money away.  But near the beginning, he attracted a large investment from Gotham Capital, who was Burry’s founding investor.

Dr. Burry was clearly a brilliant man… clearly the reason Gotham was willing to give him millions of dollars for value-based stock investing.

But Dr. Burry spread his focus a bit.  He recognized that there was a problem, and the problem was that the booming real estate market was built on a house of cards called EASY MONEY… that millions of people were being given loans they couldn’t afford for more than just a year or two during the low introductory teaser rates.  Dr. Burry recognized that there would be a huge wave of defaults soon after those teaser rates expired.

Dr. Burry’s analysis turned out to be right… very, very right.  So in 2005 – while real estate was still raging hot – Dr. Burry convinced Goldman Sachs to sell him credit default swaps against loans that Burry saw as risky.  Goldman thought Burry was a sucker, sold him the swaps, and 2 years later, Burry had profited by more than $700 MILLION dollars, making his investors – including Gotham Capital – a huge, huge fortune.

Curiously, Dr. Burry quit managing money after that experience.  He made a huge fortune, and doubtlessly could continue to do so as a money manager, because he absolutely has an eye for both risk and value… a rare thing, for sure.

But here’s the thing… between the time Burry bought those swaps in 2005 and cashed them in for a huge profit in 2007, some bad things happened.  At first, the real estate market didn’t decline right away, and so those swaps lost value… very quickly.  Then to compound the problem, Goldman and the other brokerages who were responsible for pricing those swaps didn’t exactly do so in an honest way.  In fact, they aggressively took advantage of the situation by pegging the value of subprime mortgages as being far higher than any reasonable person would believe, thus causing the value of Burry’s swaps – which were really just a form of insurance – to sink in value, even though the opposite should have been happening.

Burry held on, and in 2007 made a huge profit.  But in 2006… things didn’t look good.  For the first time, Burry’s fund was losing money… and a LOT of it… and worst yet, he was losing money on an investment – credit default swaps – that was outside of Dr. Burry’s core competency, which was value-based stock investing.

This didn’t settle well with Burry’s investors.  It was a bad time… open revolt… and many of Burry’s investors… including his biggest client and original investor, Gotham Capital, rather forcefully demanded that Burry exit the trades and return their capital.

It was a very bad time at Scion Capital… Burry had never experienced losses, and now he had investors who were losing confidence in him very aggressively, and demanding their money back.

So Dr. Burry took an extreme step – he invoked a provision in his investor agreement that allowed him to delay the right of his investors to withdraw their capital… and that, of course, caused a huge problem as well, with lawsuits flying and tempers flaring and a generally awful situation.

When it was all said and done, it turned out that Dr. Burry was right.  He made a huge fortune, and so did his investors.

But Burry decided to get out of the business of capital management… largely, it appears, because he felt unappreciated.  The movie closes with Dr. Burry sending an unsolicited email to Gotham Capital that said, simply, “You’re welcome.”

Ok, so here’s the thing:  The entire movie is set up to narrowly cast the blame for the mortgage meltdown on Wall Street – and there’s certainly lots of blame there, though it’s ABUNDANTLY CLEAR that the real blame belongs to good ole Uncle Sam.

But the move also makes a point of glorifying Burry and the fact that he was right – and his big evil investors were wrong – and that they profited from his talent and never said thank you.

My friends:  Burry’s investors were right, and Burry was wrong.  The fact that he was ultimately profitable isn’t relevant.

I’ve told you over and over again on this show that as self-directed investors, we must use the S3 standard to judge all of our investment choices:  Simple, Safe and Strong.  Those words have some subjectivity, for sure – after all, we’re not all the same.

But the real issue is that Dr. Burry did something VERY DIFFERENT with his client’s capital than his history suggested he should do.  Dr. Burry was a brilliant stock picker… brilliant is an understatement.  But he had no substantive experience trading credit default swaps.  He was not a real estate or mortgage investor.  And he wasn’t well connected with that world.  In short, he had only purely academic reasons to think that his hypothesis would prove out.

It did prove out, of course, to his and his investor’s benefit.  But even though he was profitable, even though was right on that investment in an astounding, career-defining kind of way, he did something wrong:  He did not respect the capital of his investors.  It wasn’t that he didn’t comply with his legal commitments to them.  He certainly did.  But he quite substantially showed disrespect for their own judgement when he made a major shift in direction… and for an entire year, the objective evidence was the Dr. Burry was very, very wrong… and his fund was hemorrhaging tens of millions of dollars… dollars that belonged to his clients, not to him.

Again, Dr. Burry was proven right in the end.  But that’s not the whole issue.  You see, if an investment causes you to worry… that’s a bad investment.  The financial results just don’t justify that.  It means that EITHER the investment is just a bad idea overall, or maybe that you’re using money in the deal you can’t afford to lose.  Either way… consistent, ongoing stress from an investment means it doesn’t FEEL strong to you… and whether we like it or not, those feelings are what brings stress.  And stress isn’t a good thing.  Take it from a guy who had a heart attack at the tender age of 39… and learned some really, really hard lessons about simplifying life and reducing stress as a result.

To be clear, I admire Dr. Burry.  I wish I had his intellect.  But he didn’t respect his investor’s capital… and he provides a great case study for why it’s so critical that you work only with people who really, truly do respect your capital just as much as you do.

My friends, invest wisely today, and live well forever.

Hosted on Acast. See acast.com/privacy for more information.

Money is flowing out of the stock market in huge waves… but where is it going?  If you’ve made the wise choice to diversify away from Wall Street, here are 3 EXCELLENT options for how to invest $100,000 TODAY.  I’m Bryan Ellis… this is episode 190.

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Hello SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

Welcome to the first day of the second month of 2016!  If you’re a stock market investor, January was a brutal month.  The Dow dropped, in aggregate, over 5% and as of mid-morning, the losses are continuing on the first trading day of February.

A real barometer of the confidence of the public in the stock market is the inflow-outflows question.  In other words, on net, are more investors putting money IN or taking money OUT of stocks?

For January, there’s a definite answer:  There’s a huge OUTFLOW.  People are abandoning stocks in droves.  A report from Bank of America shows that in the first 3 weeks of January alone, more than $25 BILLION flowed OUT of stock market equity funds… and that doesn’t even count people who are abandoning ship on ownership of individual stocks.

Bottom line – a whole lot of money is heading for the exit from Wall Street… and with really good reason.

But where’s that money going?  Those who jumped ship in January will doubtlessly be joined by many, many more this month.  What should they do with their money?

Let’s assume that when you bid adieu to Wall Street with some of your portfolio ready for deployment in other places, what will you do with that capital?

Here’s something you should NOT do:  Don’t put it in CD’s or money market accounts.  Those accounts are guaranteed LOSERS because their paltry interest rates – while guaranteed – are not even sufficient to keep up with inflation.  In normal human language – as expressed by the “loaf of bread” index – what this means is that if you have enough money to buy a loaf of bread today, but instead you invest that money into a CD or money market account for the next year or 5 years or however long – at the end of that time, you won’t even be able to buy a single loaf of bread even AFTER collecting your interest the whole time because the value of your money is decreasing faster than you’re receiving interest.  That’s a GUARANTEED loser.  So don’t do that.

But I’ve got 3 REALLY great options for you, depending on YOUR specific needs.  I’m going to assume you have a minimum of $100,000 to invest… and if you do, one of these 3 options could be a GREAT match for you.

Option #1:  The SDI Secured Loan.  Imagine this scenario:  You lend your $100 grand to some real estate investor who needs the money to buy and renovate a house.  He pays you a really nice interest rate – maybe 8-12% – for a period of 6-12 months.  And during that time, your money is secured by a lien against a property worth $200,000!  That’s right… you’ve got collateral worth literally twice as much as your investment, so that if that investor doesn’t pay you as promised, you can take that house back and sell it for an even greater profit yourself!  The SDI Secured Loan is an incredibly predictable, profitable way to generate strong returns… and a great alternative for your money seeking a superior home.

Option #2:  SDI Passive Property Flipping.  If you’ve working in a strong market and have the right team, real estate flipping – which is just the purchase, renovation and resale of real estate for profit – can generate some astoundingly strong returns.  But let’s face it:  Finding a great deal and renovating a property can take a LOT of time, and it requires substantial skill and strong connections.  But there’s a variation of that idea – called the SDI Passive Property Flip – that enables affluent investors to PROFIT from real estate flipping without doing any of the work themselves.  Done correctly, SDI Passive Property Flipping can be very safe… while generating exceptional returns on investment.

Option #3:  SDI Turnkey Rental Properties.  What if you could own rental properties… but never be hamstrung by being a landlord?  What if your monthly payments of rent were GUARANTEED?  What if your net income was very high – nearly always 10-12%+ per year?  And what if you could generate really attractive tax breaks simply by virtue of owning the property?  What if you never had to worry about property management, because there’s very experience, highly competent property management already in place… and the tenant is already in place on the day you purchase the property so that you’re cash-flow positive from day #1?  And hey… what if you could actually buy TWO houses like this for your $100,000 investment… just because we’re able to get such great prices for you?  That’s exactly the promise of SDI Turnkey Rental Properties.  It’s all the great things about owning rental real estate… with none of the hassles.

Now here’s the thing, my friends:  All of these are great options, depending on your circumstances.  And I’d be honored to tell you more about each one of them if you’re ready to adjust away from Wall Street and into something that makes much more sense.  In fact, you can set up a consultation with me right away by visiting SDI360.com/consultation.

And yes, that is a NEW website address… SDI360.com/consultation.

Furthermore, this week, we’re going to focus very strongly on the 3rd option:  SDI Turnkey Rentals.  I’ve got to tell you:  I love the idea of turnkey rental properties whenever they fit wisely into your portfolio.  What makes it fit WISELY into your portfolio?  First:  Equity.  Be leery of buying real estate without having a solid equity position from day #1.  In other words:  Don’t pay full retail for your investments. 

Second:  Choose your markets WISELY.  Don’t look at a market just because it appears to be a “boom town”.  Don’t use silly justifications for buying into a market.  The only thing that matters is this:  Do you have substantive reason to believe that buying a property will be profitable right NOW… and will be profitable 15 years into the future?  Hot markets are inherently short-term… you have to look no further than Williston, North Dakota… the oil boom town that’s been red-hot in recent years, but appears headed for a hard, hard bust because of the implosion of oil prices.

What’s better?  Long-term predictability… and ideally at high net returns-on-investment.

And that, my friends, is exactly what I’ve got for you this week.  In fact, later this week, I’m hosting a special FREE webinar where I’ll tell you all about one specific market that I really like… where you can get into great real estate rental properties around the $50,000 price point… and the key words are RELIABILITY and HIGH-YIELD.

Think of it… instantly yielding a 10% or better net cash-on-cash return… with guaranteed payments every month – so no twists and turns based on the finances of your tenants.  Imagine if your tenants TYPICALLY stay in the property for 3-4 years or MORE… and thus eliminate one of the biggest risks of rental property ownership… TURNOVER!  And on top of all of that… it’s totally turnkey… property management is in place.  Tax benefits readily available.  And high income to boot.

I’ve got a few properties that match that description, and I’ll tell you about them on a special webinar THIS WEEK that you can access at SDI360.com/webinar.  Again, that’s SDI360.com/webinar.

So if you’re one of the millions of stock market refugees looking to put your capital somewhere SMARTER than in the roller coaster of Wall Street, stop by at SDI360.com/webinar right now to learn more about an approach to investing that will prove – to yourself – that you do truly respect your own capital.

My friends… invest wisely today, and live well forever!

Hosted on Acast. See acast.com/privacy for more information.

Did you hear?  Barrack Obama is targeting YOUR RETIREMENT ACCOUNT in his proposed budget for 2017.  I’m Bryan Ellis.  I’ll tell you what he’s saying, what it actually means… and why this is a HUGE ISSUE for self-directed investors RIGHT NOW in Episode #189.

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Hello SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!  Welcome to another dose of predictably profitable thinking!

Well, well, well my friends… another day, another proposal to regulate and overtake your control of your money from our good buddies – overlords, anyone – in Washington DC.  Today, you get another episode of the unfortunate intersection of politics with your money.

That’s right my friends… Obama’s new budget proposal for Fiscal 2017, released in the last 24 hours, squarely targets something called “Retirement Security”.  Right there in black and white on the White House’s OMB – that’s office of management & budget – web page is a nice little paragraph that says, and I’ll ask for your indulgence as I – very dramatically and with entertaining flare – read this delightful citation about Obama’s take on the retirement situation in America:

“Millions of working Americans lack access to a retirement savings plan at work. Fewer than 10 percent of those without plans at work save in a retirement account on their own. In 2015, retirement security will be one of the key topics of the White House Conference on Aging. The Budget would make it easy and automatic for workers to save for retirement through their employer – giving 30 million more workers access to a workplace savings opportunity. The Budget also ensures that long-term part-time employees can participate in their employers’ retirement plans and provides tax incentives to offset administrative expenses for small businesses that adopt retirement plans.”

Ah yes, my friends… Obama… the white knight riding into save the day for the poor and downtrodden… those without the basic fundamental right of a big retirement account.  That’s a right somewhere in the Constitution, isn’t it?  Oh… no it’s not.  But hey, that doesn’t matter to this crew.  So we’ll just use some simple reasoning to figure out the REAL motive.

So Obama’s OMB tells us that millions of Americans lack access to a retirement savings plan at work… and that virtually nobody who doesn’t save at work saves on their own.

Mr. Obama and team… the truth isn’t familiar to you, is it?  You see, there’s this thing called an IRA.  The IRS says that stands for Individual Retirement Arrangement… most of us think of it as an Individual Retirement Account.  And here’s who is qualified to have an IRA:  ANYBODY who earns income and is under age 70 ½.  That’s it.  Those are the qualifications.  You’ve got to earn money – meaning you’re employed – and you’re 70 ½.  There’s nothing about minimum income requirements… so it’s available to the poor, too.  There’s nothing about minimum number of work hours… so it’s available to those working part-time, too.  And oh yeah… anybody using an IRA can take that bad boy from one employer to another as many times as they want… because it’s not connected to the employer at all.  It’s all about the INDIVIDUAL… and it ALREADY does everything you’re proposing.  What you’re proposing will NOT, as you said, give 30 million more people access to saving for retirement in the workplace.  That opportunity exists already… and all of the proof is right there on the IRS website for all the world to see.

Remember:  All you need is to earn income and to be 70 ½ or less.  That’s it.

So, my friends… maybe there’s another agenda here?

Of course there is!

To detect it, we need to read just a bit further, like so:

“The Budget also ensures that long-term part-time employees can participate in their employers’ retirement plans and provides tax incentives to offset administrative expenses for small businesses that adopt retirement plans.”

Ah-ha!  So what the actual plan is NOT to give more retirement savings options to the unwashed masses.  The actual plan is to further CENTRALIZE retirement savings under employer-sponsored plans.  Doesn’t sound so bad, does it?

Well, upon further research, it’s revealed that Obama clan want to offer TAX INCENTIVES – yes, Obama, the most tax-happy president EVER… I mean EVER… THAT Obama wants to offer TAX INCENTIVES – for companies that adopt MANDATORY retirement savings accounts.  That means employees have NO CHOICE about whether to use the employer plan… it’s the only choice.  They’ve got to do it.

Now why would dear old Comrade Obama want to do that?

There are two reasons that your politically incorrect but SHOCKINGLY PRESCIENT host can see for this:

First, it’s incredibly easy to envision regulations from the government dictating where those MANDATORY CONTRIBUTIONS will be invested.  And where might that be?  Very simple, my friends… all we need to do is look at ANOTHER Obama plan… the virtually worthless “MyRA” account Obama originally proposed in a budget a couple of years ago.  The MyRA is an IRA… but less.  It lets a person save for retirement without the pesky need to actually invest.  Why?  Because there’s one and only one choice for the money put into a MyRA… to invest in, essentially, U.S. Treasury Bonds.  That’s the only choice.

Oh yeah… Treasury Bonds… those are the things used to fund the astounding budget deficits that exist right now.  So, basically, the MyRA is required to be invested in such a way to fund government debt… and there’s no other choice.  And that, I predict, will be where much or all of the funds placed into these MANDATORY retirement accounts will be required to be placed, under penalty of law from good ole Uncle Sam.

Which kind of leads to the SECOND reason that the Obama regime would want to do this.  And this one, I admit, is a bit conspiratorial, but ABSOLUTELY NOT without precedent.  The more money is consolidated into EITHER or BOTH government-issued investments – like Treasury Bonds – and/or into government-regulated retirement accounts – like the new proposed MANDATORY employer-sponsored programs… well… all of that means all of the money is basically in one place, and makes it far easier for the government to do something AWFUL with that money that none of us would ever approve, up to and including the possibility of government confiscation to some degree.  I don’t think that plan is on the table… but what I do ABSOLUTELY believe is that the government is in the business of doing one thing:  Making itself MORE POWERFUL at the expense of you and me as individual citizens.

And while I don’t think we’re necessarily on the precipice of a confiscatory action by the feds, it’s difficult to deny that this consolidation makes that much, much easier.  And it’s absolutely not without precedent, as this has been done in some countries with substantial economies in recent years, including Poland, Bulgaria, Hungary – and the big ones – Greece and Argentina, where the government stole $30 Billion in pension funds to shore up government deficits.

But maybe this is just good-hearted concern for the common man from the Obama regime?

Let’s not kid ourselves, friends.  This proposal does NOTHING for income earners in the lower-end… the clear target of this proposal… that isn’t already available to every single one of them right now in the form of a traditional IRA.

This, my friends, is NOT about helping people save for retirement.  It’s about giving the government more control over your retirement.

Here’s hoping that Congress will reject this outright.

So this is target squarely at the lower-earning people in America, to be sure.  So it doesn’t affect you at all as an affluent self-directed investor, right?  Well, my friends… political choices have consequences.  This is what your children and grandchildren will face.  And this type of overbearing control of retirement savings… well, you can be sure if it’s instituted at the lower levels of economic production, it will creep up the ladder in the form of that shapeless, intellectually dishonest justifier called “fairness”… and then, it’ll bite you, too.  That’s the way these things work.

And that concludes today’s edition of the unfortunate intersection of politics and your money.

My friends, invest wisely today, and live well forever.

Hosted on Acast. See acast.com/privacy for more information.

There’s a moral component to self-directed investing… and the gravity of that component outweighs every other factor of success.  I’m Bryan Ellis.  I’ll tell you about that overlooked dimension of financial success right now in Episode 188.

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Hello, SDI Nation.  Welcome to the podcast of record for savvy self-directed investors like you!  Get ready for another dose of predictably profitable thinking!

Folks, I can tell you right now… some of you will be offended by the content of this show.  I regret that, but I’ve got to share this with you anyway.

There’s a concept that’s long been popular among business people and self-motivated types:  Clarity.  Clarity, they say, is the key to making your hopes and dreams come true.  Without clarity about your goals, you don’t really have a goal.  Without clarity about your strategies, you can never implement those strategies.  Without clarity about your purpose, you have no purpose.  But with clarity comes true purpose… and an amazing alignment of intent and interest and focus happens to create the results you seek.

All of those things are true.  Absolutely, 100% undeniably true.

But my friends, there’s something that matters more… a logical level up from “clarity”…

That level up is MORALITY.  That level up is realizing that there is such a thing as right and wrong, and that making wrong choices has impact far beyond the narrow circumstance where the wrong choice is made.

What kinds of moral choices am I talking about?  Well, I’m glad you asked.

Look… it’s EVERYTHING.  From the choice among absolute honesty to little white lies to outright deception.  It’s everything from the choice among perfect faithfulness to your spouse to the questionable wink, nod or kiss all the way to downright infidelity.  It’s everything from the choice among being a good steward of your capital to the occasional splurge all the way to utter theft.  Every moral choice has a continuum ranging from ideal to absolute wretchedness.  And the older I get, the more I’m convinced that there’s just not room for gray areas.  The only right choice is the one that’s entirely right… the one that would stand up well in view of your loved ones… it’s the choice that would stand you in good stead if you’re standing before God.

Lest you think I’m preaching against you, I’m not.  To be very clear, I’ve made many, many poor choices myself and am not suggesting otherwise.  I’m speaking to you as a profoundly fallible human just like you, not as an exalted saint, which I am not.  Today’s commentary is not about judgment of anyone… except maybe myself.  But today’s commentary is my encouragement, even my imploring of you to get it RIGHT morally… and do it day in and day out. 

Why are we discussing morality on a show for affluent self-directed investors?

It’s very simple, really:  Remember that “clarity” thing?  You can NOT have clarity with morality.  Morality opens your field of vision.  Morality allows you to see things as they really are.

And seeing things as they really are… that is the very essence of clarity.  And clarity is the basis upon which sound decisions are made.

If you’re not absolutely committed to doing the RIGHT THING in your life… both related to and totally apart from your investments, you begin to have FALSE CLARITY.  Your mental faculties become clouded.  It’s not that you can’t make decisions or be certain… it’s that your decisions and your certainty are based on a TINY SUBSET of reality because at the end of the day, moral failings make our scope of vision much narrower and shallower.

There’s a TV commercial for the allergy medicine Claritin that illustrates this very well.  The commercial opens with a shot of a lovely nature scene and all seems well.  You could see that there was a lovely mountain and some mountain climbers getting ready for their ascent.  You could see that the sky was blue and it was a beautiful day.  You could see people smiling and happy.  And you’ve got a clear picture of what’s happening… and it’s all good.  But then a film is ripped away from the screen… and it’s clear that your vision has been obscured the entire time… only you didn’t know it.  You could see only a shell of what was actually there, with all the important details thoroughly obscured.  You could see the mountain, but you couldn’t see the contours of or crevices in the mountain.  You could see that there were mountain climbers with ropes, but you couldn’t see the stitching on the climbing ropes.  You could see the faces of the mountain climbers and their equipment… but you couldn’t really make out any of the details.

And here’s the thing… you didn’t even know those details were there… that you had missed the entirely… until that film was torn away.  It’s not just that you missed the details… it’s that you didn’t know those details existed.  Those details were wholly invisible before than film was ripped away.

That film is like the residue that accumulates from a life filled with immoral choices.  It clouds your vision, leaving you able to see less… while giving you the impression that you’re seeing all there is to be seen.

This is not a suggestion that immoral people cannot be profitable as investors.  That’s certainly not the case.  Anybody can be lucky.  And frankly, immoral people have a proclivity towards being – or at least appearing – very successful in the short term.  Bernie Madoff, anyone?

But at the end of the day, I believe sincerely, and believe more every day, that morality… which I define as doing the obviously RIGHT THING… well, I am pretty sure that the more fundamentally moral a person’s life is, the more likely they are to be able to make wise decisions… including wise decisions about their money.

You know, this requirement to DO THE RIGHT THING is particularly true for self-directed investors.  That’s because you and I get more involved in our portfolios, and thus there’s more opportunity to be fast and loose with details, or to maybe take advantage of a counter party or an endless number of other things that, while maybe even wholly legal, are also clearly wrong.

Do the right thing, my friends.  Always do the right thing.  And when you don’t do the right thing for whatever reason, go back and make it right, right away.

Doing the right thing, the GOOD thing, the MORAL thing… and doing that every day… it’s that which leads to the clarity to allow you to see the contours of the investment landscape, the crevices in your asset selection and the real opportunity – or the real danger – lurking just around the corner.

My friends… invest wisely today, and live well forever.

Hosted on Acast. See acast.com/privacy for more information.

What do you do to protect your 401k when the stock market is in free fall, and your retirement savings are disappearing like ice under heat? I’m Bryan Ellis. I’ll tell you exactly how to PRESERVE, PROTECT and GROW your retirement savings RIGHT NOW in Episode #187.

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Hello, SDI Nation! Welcome to the podcast of record for savvy, self-directed investors like you! Get ready for another dose of predictably profitable thinking!

In the last 30 days, the Dow Jones Industrial Average – that’s the stock market – has been slashed by nearly 9%.

Let’s think about the gravity of that for a moment. One way to look at is this: If you’ve been working and saving for the past 30 years – and your money is in Dow-type stocks – it’s almost as if 9% of that time – that’s 2.7 YEARS – it’s almost as if 2.7 YEARS of your life has now been erased… just wiped away… as if you never put in the blood, the sweat, the tears of those years… as if they never happened at all… and now there’s a financial chasm that has to be filled… but no matter what you do, you can never, ever manufacture another 2.7 years, no matter how badly you’d like to do so.

What to do, what to do?

Well, my friends, here on SDI Radio, we don’t moan and groan, we take action… action that results in positive, impressive, even enviable results. So let’s discuss a plan right now to help YOU during the in-progress market route…

…and make no mistake: I expect it to continue. It could be ugly for a while.

Now to set the stage for you, I’ll be primarily addressing those of you who have 401k’s. But fret not, my loyal IRA-using listeners! Everything I share with you today applies almost exactly to you as well… only you automatically have more flexibility than the 401k users because most of you can, at any time, make almost any adjustment to your account that you like, but the same isn’t necessarily true of 401k users. So no matter whether you’re a 401k or IRA user, this show is for you.

My friends, conventional financial planners consistently say one thing: Don’t panic. They’ll tell you the market goes up, and the market goes down, and it’s all part of the natural cycle. And they’re right. It is part of the natural cycle. But allow me to ask you this simple question: When there’s a hurricane coming your way, inevitably, you can see the signs before it happens. And you know how horrible the damage can be. We all know about hurricane Katrina in 2005… over 1,200 people died, much of New Orleans was laid to ruins and was left under 20 feet of water. The recovery for that city still isn’t 100%... and residents there suffered MIGHTILY for many years following. But as bad as that one was, it’s nowhere near the worst of all times. That has to belong to the great hurricane in Galveston, Texas in 1900… that one KILLED over 8,000 people and utterly destroyed the area. It was destruction through and through… the raw power of nature on display for all to see… and which nobody could do anything to stop.

But it was NATURE. It was predictable. In fact, we could all see those storms coming before they came. And if you wanted to do it, you could get out of the way. That was an option. That way, your life, your family’s lives, and whatever you could take with you could be saved and gotten out of the way.

But that’s not what your financial advisor suggests that you do with your money. Not at all. Instead, he suggests that you just wait it out, that things will be better in the future, and that the future is always brighter than the past.

That’s very optimistic, isn’t it? But you, my friends, have doubtlessly mocked other people who used that logic in a different setting. Ready for the proof? How many times have you seen a person on the news during the lead-up to a horrible hurricane who says, very defiantly, “I’m not going anywhere. This is where I belong and I’m not leaving!”

That person is insane, in my humble but entirely accurate opinion. And that’s exactly the strategy you’re using with the stock market when you choose to follow your advisor’s suggestion to just “wait it out”. Insanity.

Remember Warren Buffett’s rule #1 of investing: Don’t lose money. Rule #2? Refer to rule #1. I’m not a Buffett fanboy like some, but I’m totally on board with those rules.

Bottom line: There’s a MUCH BETTER WAY that what conventional financial advisors recommend.

So let’s get on to strategy now, shall we?

You’ve got a 401k with your employer, and because of market turbulence, it’s bleeding red. Not good. And you agree that just sitting tight isn’t a good idea. What do you do?

The fundamental answer is always the same: Invest in assets that meet the S3 Criteria: Simple, Safe and Strong.

More specifically?

The simple answer… The simplest of answers… and not necessarily the best answer is this: Consider adjusting your portfolio allocation so that your capital is deployed into more conservative assets… maybe even cash assets, like a money market fund or conservative bond fund. But while those options are certainly simple and safe… they’re anything but strong. Money markets are hovering at or below 1% right now… but the long-term inflation rate is 3.2% per year, so that’s a guaranteed loser.

But what can you do? You’re locked into your employer’s 401k plan, and so the only choice you have is to invest in the relatively small basket of asset choices they make available to you… right?

Yes… but maybe not.

Some employer-sponsored 401k’s have a thing called an in-service distribution. This allows you to take some or all of the money you’ve saved in your 401k and transfer it to another type of account that will allow you greater investment flexibility… in other words… you’ll have access to assets that actually are simple AND safe AND strong.

Now a couple of things to consider about that. First, not all employer-sponsored plans offer in-service distributions. Many do not. But it’s definitely worth asking if yours does, because using that option would give you the ability to transfer at least a portion of your account into a self-directed IRA or, even better, a self-directed 401k.

Why does this matter? Consider this, my friends: What if, during the same time that the market was getting slaughtered… as is now happening… what if you could be reliably collecting 8-10% interest on your money year in and year out? Or maybe even more? And what if your money was wholly protected by COLLATERAL… so much collateral that your investment capital faces a level of risk that statistically near zero? And to boot… you’d be investing in an asset that’s so simple, even your financially unsavvy brother-in-law could understand it?

Well folks, that’s exactly what is TRULY possible using a self-directed IRA or 401k. The potential for growing your investment capital CONSISTENTLY – in good times and bad – that’s what’s available to you by having the right type of retirement account… the truly self-directed variety… and by investing that capital into assets that are SIMPLE and SAFE and STRONG.

Want a little taste of what I’m talking about? One of my clients not long ago purchased a little rental property in Birmingham, Alabama. No, not the most exciting place in the world. But he did it for a couple very simple reasons: The income is very substantial, and the income is SAFE… almost entirely insulated from the broader economic environment.

As for the numbers: He’s netting around 12% on an investment of about $50,000. Yep, you heard that right. And that’s just the cash flow. That doesn’t even include property appreciation or the vast tax benefits of owning real estate.

And do you know how much this investment will be affected by the stock market’s problems, the Chinese economy or even local economic stress? Not one little bit. It’s sold and reliable.

Is that what you’re after? Reliable financial results for your investments? Well, good news: I’ve got exactly 3 excellent rental properties in that same locale right now that match the description I just gave you. If you’d like to learn more about them, and if you’ve got at least $50,000 of liquid capital, just set up an appointment to chat with me at SDIRadio.com/consultation and I’ll be happy to tell you more.

Tomorrow, look for episode #3 of Self Directed Investor Success Stories. In that episode, I’ll give you even more details about the example I just shared with you… because my friends, there’s really something to be said for being able to count on consistent, substantial cash flow. And that’s what I’ll tell you about on tomorrow’s edition of SDI Success Stories.

In the mean time:

Invest wisely today, and live well forever!

Hosted on Acast. See acast.com/privacy for more information.

Donald Trump, “New York Values”, Ted Cruz… and a BORING, Profitable Investment Strategy  |  Episode 186.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!  Get ready for another dose of Predictably Profitable thinking!

So, another Republican debate happened last night, and it was entertaining as ever.  Without commenting on anyone’s political views, I have an observation…

Ted Cruz is a brilliant, brilliant man… and a masterful debater.  His skill in that area is without peer.

But Donald Trump really got the best of him in a big moment last night… and I think that moment is instructive for all of us.

The context was simple:  Ted Cruz was making the point that Trump is from New York, and New York isn’t known as a place that’s particularly supportive of conservative, i.e. Republican, values.  The suggestion was that there’s something unattractive about New York values, from the conservative point of view.

It’s a reasonable thing Cruz was trying to do… to tie Trump to a label that wouldn’t be helpful for him in this campaign.

And again, I’ve got to tell you… I think Ted Cruz is just a brilliant, brilliant, brilliant man, and his debate skill is simply over the top.  But Trump ate his lunch in a very un-Trump-like way:  He talked about shared values of a community, he talked about coming together against a challenge as New York did in the aftermath of 911, he spoke as one proud of his community and as a leader among them.

So, Cruz really stepped in it… because the comment came off as him insulting New Yorkers, which I don’t think was the point at all.  But I was really shocked by Trump last night.  He took a solemn tone, spoke calmly and acted as a leader who is personally invested in the reputations and success of “his people”… New Yorkers.  I’ve got to admit… it might be nice to have a President who is PROUD of AMERICA… proud of it’s PEOPLE… and puts the values of America ahead of the values of every other country in the world… that would be a very, very nice change indeed.

No, this isn’t an endorsement of Trump.  I’m undecided still.  But it is a segue into a deeper topic that’s highly relevant to me and you as investors… particularly as self-directed investors.

Politics is an unsavory thing.  I suspect that politics used to be more noble – though I’m not entirely sure that’s true since political rivalries were settled with duels as recently as the late 1800’s.  On second thought… maybe dueling is a more elegant solution.  But I digress…

Still, politics matters to me and you in a REALLY REALLY big way.  Here’s just one recent example:

Last year, President Obama proposed drastically cutting the 1031 exchange, a tax deferral strategy strategy that’s almost exclusively used by real estate investors.  The government claims the impact of that would have been $18B more in tax collections.  But the impact of that is HORRENDOUS.  Here’s a point of comparison… in the entire 3rd quarter of last year, a TOTAL of about $7.9B was spent to buy houses that were flipped.  A lot of money for sure… but far less than HALF of the amount of money that would have been sucked out of the real estate market through Obama’s proposed changes.  With the stroke of a pen, he would have obliterated that capital.  Fortunately, he failed to achieve that goal… and that is to your benefit and mine… even if you’re not a user of 1031 exchanges.

So, as much as I hate it… you and I as self-directed investors MUST pay attention to these things.  It would be so much better if I could just steer clear of these things.  But being a leader sometimes means stepping into dangerous territory, and as your fearless leader of the Self Directed Investor movement in America, I gladly step into the line of fire.

This election happens in a very big year for America.  There’s every indication so far that this could be a very rough year for the stock market, and it COULD spill over into the broader economy.  But even more importantly, there’s a broad, pervading sense in America right now that the economic data we’re all being fed is a smokescreen… an accounting trick that would make the housing crisis look like child’s play.  There’s a WHOLE LOT of evidence to that effect.  As I say these words, it’s 9:57 am Eastern on January 15, and the Dow Jones Industrial Average is currently down by 390 points.

There are MILLIONS of people who are out of work, but are no longer counted as being unemployed because of some accounting shenanigans pulled in recent years that affect how the unemployment rate is calculated.  But the bottom line – the number of people in America who are gainfully employed is right at it’s lowest in MULTIPLE DECADES…

…and because of regulations connected with Obamacare, many millions who used to be employed full time now get to work less than 30 hours a week.

Again… there’s the intersection of politics with you and me as investors… fewer people who are fully employed leads to fewer buyers, fewer renters and bleaker prospects.

So… here’s the thing… wisdom as investors involves NOT JUST analyzing a particular asset and making decisions about capital deployment and exit strategies and tax consequences.  It’s not just about looking forward to profits.  It’s about looking forward to changing environments in which our investments will operate.

Remember:  If you’re buying rental property, for example, that’s typically a very long-term type of transaction… it could LITERALLY be decades long.  So your investment will be subject to the environment today, for sure… but it will be subject to everything that happens in the next 20 years…

...and that future is PROFOUNDLY and DEEPLY affected by politics.  I hate it.  I’ll bet you hate it.  But it’s just the way it is.

The best way to deal with it, I think, is to be informed… and rational.

Set aside names and parties.  Think about the ISSUES that are relevant to you as an investor.  For example:  Taxes are the single biggest killers of profit.  Therefore, it makes good sense to give preference to candidates who don’t default towards tax hikes as the solution to every problem.  Another good example is what’s called “tort reform”… or reform of the way lawsuits are handled.  In that way, it probably makes pretty good sense to support candidates who have a business background because businesspeople and investors – that’s you and me – are FAR AND AWAY the most likely people to be faced with silly, abusive and EXPENSIVE lawsuits… and a candidate who understands how that world works may be able to better represent your interests as a business person or investor.

Here’s my recommendation:  Forget the NAMES.  Forget the PERSONALITIES.  Just think, for a moment, about the real issues at stake… and decide what interests you think the various candidates will represent… and if those interests represent YOU and/or where you aspire to be.  If so, that candidate is worthy of your consideration.

So, in closing folks – in light of the chaos that’s happening in world financial markets, and the potential for that to spill over into the broader economy, Carole – my lovely wife and business partner – are launching an investment fund that will focus on one small town to begin with… and may expand from there.  That town?  Birmingham, Alabama.  Why Birmingham?  Well… it’s not sexy… you’re not going to brag about being an owner of real estate in Birmingham… but the numbers, and the environment, really work well there.  How well?  It’s pretty easy to collect rents equal to 15-20% of the property value… every single year.  That’s a slam dunk.  And because of the unique circumstances in which we can do this, I have profound confidence that that cash flow would be wholly unaffected, even if the U.S. economy was to take a hard dive.

So we’re going to form a fund and make it available to qualified investors.  And I promise you this:  For those of you who want all of the advantages of owning rental property without one single shred of the challenges… this is the answer.

But hey… there is an opportunity to which I’ll alert you.  I’ve got 3 REALLY GOOD rental properties available in Birmingham right now.  Now, in the near future, I’ll not be offering them to you on an individual basis because my fund will be buying them instead.  But for now, I’ve got exactly 3 really solid deals… strong cash flow, fully renovated, tenants already in place.  Total turnkey solutions.  And these houses ALL sell for $55,000 max… many around $50K.  Interested?  If so, stop by SDIRadio.com/consultation to set up a time to chat.

Have a great weekend, my friends, and…

Invest wisely today, and live well forever!

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