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

The SUPREME COURT leveled a massive attack against REAL ESTATE INVESTORS in a huge ruling from yesterday.  This one is big, folks.  I’m Bryan Ellis, and I’ll tell you how they’re stealing your rights again right now in Episode #90

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It’s a somber time as a real estate investor, and a somber time as an American.

Yesterday, the US Supreme Court issued major rulings that make it imminently clear that the plain language of a law is not the standard by which the court will rule.  Rather, they’ve ruled egregiously in favor of the expansion of federal power, and against YOUR RIGHTS as a citizen of our once great country.

You may think I’m referring to the ruling about Obamacare, the law which is already a disaster from any perspective.  And yes, that case was CERTAINLY an example of ignoring the language of the law in order to expand federal power.  There’s simply no arguing that point.

But the case I’m referring to, which is so huge and so distinctly NEGATIVE for real estate investors, was between the Texas Department of Housing and the “Inclusive Communities Project”.

So here’s what the case was about… and why it’s terrifying for real estate investors.  The question that the court had to decide was this:  Are you guilty of racial discrimination if you have no policies that have racial discrimination as an objective?

Yes, that’s a convoluted notion… as is the entire case… but I’ll give you an example to clarify it:

Let’s just say you live in a neighborhood and you also own a rental property in that neighborhood.  You’ve got kids, and you want to keep them safe.  And let’s say that you have a real conviction that you will not serve certain types of people with your rental property, in order to keep your family, and your neighborhood, safe.  The standard you’re using to filter out dangerous people… well, it’s completely objective.  And it’s not random.  You see, the group of people you refuse to service is convicted sex offenders.  You refuse, in principle, to serve such egregious scum.

Fair enough, right?  Your property, your decision, right?

Of course, there is the issue of the 1968 Fair Housing Act, a law that makes it illegal to discriminate in housing matters on the basis of race and a few other issues.

But that’s not an issue for you.  You’re not a racist to begin with.  You’re happy for any qualified party to rent your property, regardless of their race… so long as they’re not a baby rapist.

Guess what?  You’re quite certainly guilty of racial discrimination.

Yep, that’s right.  And the lawsuit that results from it is going to be very expensive and will likely crush your financial objectives.

So, how are you guilty of racial discrimination, when the parties you’re actually filtering from your rental property are baby rapists?

Well, here’s the thing:  If the universe of people who are convicted baby rapists in your area happen to be mostly of a racial minority, then you are – according to this absolutely STUPID, INSULTING and TERRIFYING ruling – YOU are guilty of racial discrimination.

Yep, you heard that right.

Because you’re trying to protect your family and your neighborhood from baby rapists…

Because you’re unwilling to provide housing to people who sexually assault children…

Because you have standards of behavior which say that you won’t allow your business to benefit people who would rather RAPE your children rather than say hello to them…

Well, you’re a racist.

That’s right.  That’s what this decision from the Supreme Court effectively means for you.

The judges who decided this are:  Anthony Kennedy, Ruth Ginsburg, Stephen Breyer, Sonya Sotomayor and Elena Kagan.

To each one of those justices, I say:  GO TO HELL.  Making bad decisions as judges is one thing.  Making it ILLEGAL for Americans to protect their families is entirely another.  Making it illegal for people to live out their values in their business is REPUGNANT.  Each one of you judges are horrible human beings.

A child rapist… no matter what his skin color… doesn’t deserve one ounce of respect or consideration.  But you people are DEMANDING that the one factor that trumps EVERY OTHER CONSIDERATION is race.  Each one of you is a race bigot.

Of course, I’m assuming that there isn’t a law that protects baby rapists from discrimination.  In our screwed up society, there probably is.  But I’m going to continue on the assumption that there’s not.

Let’s look back to the immortal words of Dr. Martin Luther King, Jr:  “I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character.”

I agree with Dr. King.  I’ll bet you do, too.  But the Supreme Court has just ruled – ostensibly to “protect” minority rights – that the one thing that MUST be ignored about a person is the content of their character, and the one thing that MUST be considered about a person is the color of their skin.

Justices Kennedy, Ginsburg, Breyer, Sotomayor and Kagan:  You’ve just crushed the dream of Dr. King… and of everyone who believes that skin color has nothing to do with the value of a human being.  I’d like to repeat:  You’re all HORRIBLE people.

But… that’s not the end of the bad news, my friends.

The real problem is WHO can take legal action against you.  You see, it’s NOT likely that a baby rapist will sue you based on this particular issue, which is called “disparate impact” in legal parlance.  No, it’s worse than that.

You see, this ruling opens the door for supposed community groups – who have not been damaged by your policies in any way, and who exist solely to pick race-based legal fights – to sue you in order to make their vision of the world – the one where the content of one’s character MUST be IGNORED, and where the color of one’s skin MUST be considered above all other factors.

Here’s the next objective for our government:  They’re going to try to make it illegal for you to sell your real estate to the highest bidder.  Why?  There’s a disparate impact against racial minorities who may not have enough money to buy where your property is located.  The time is coming, folks.

None of this is helpful to racial minorities, or to any other people… but it’s wildly valuable for the government.  Why?  It increases the government’s role in your life… and with every additional hint of government involvement in your daily life, your business and your family, the government’s power grows… and yours shrinks.

My friends, I love America.  But we’re getting what we deserve.  By putting politicians in office who nominate Supreme Court justices like Kennedy, Ginsburg, Breyer, Sotomayor and Kagan… we’re getting exactly what we’ve asked for.

I would also criticize our choices of Congress members and Presidents as well because it is they who create these laws to begin with.  But, as this case, and the yesterday’s ruling from the Obamacare case makes clear… the language of those laws don’t really matter anyway.  What matters in today’s America is the pronouncements from on high at the Supreme Court… and in every way, the Supreme Court is showing itself to be a friend of the huge federal government, and the enemy of individual citizens who love liberty and justice for all.

It’s a sad day in America, my friends.

Thanks to the Supreme Court – and to the liberal philosophy they’re pushing – it’s just become much harder to invest wisely toda … and to live well forever.

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What’s better than a Self-Directed IRA?  The answer is, of course, a Self-Directed 401k!  It’s everything that the Self Directed IRA is… but safer and far more financially potent.  But do you qualify to have a Self Directed 401k?  I’m Bryan Ellis… I’ll tell you how to make it happen RIGHT NOW in Episode #89

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Greetings, my friends!  I’ve seen one question over and over in various forms, and it’s time I address it!  The question comes from Nathan, who says:

“I am a self-employed auto dealer in Walnut Creek, California operating as a sole proprietor.  I currently have a SEP IRA with a small amount invested.  I am interested in investing in a Solo 401K or Self Directed IRA that would allow me to invest in real estate rental properties.    Any information you have would be appreciated.”

Thanks for the question, Nathan!  I’ll be delighted to help you clarify that question in this episode.

But first, a quick shout-out to my flipping team in Phoenix.  Another job well done, guys!  They completed a deal on Desert Hills in the Phoenix metro area.  It was another great profit… over $31,000 in net profit, and the total net cash-on-cash return on this project was over 40%!  What’s even better… the deal took only 4 months and 3 days… and that 40% cash-on-cash return… well… that’s NOT an annualized number!  So, needless to say, our client in the Passive Property Flipping program was THRILLED with that result.

Related to that, I’d like to thank those of you who have, so kindly, expressed interest in getting involved in the Passive Property Flipping Program.  I’ll take a quick second to tell you about that, because there’s an opportunity coming up that may be of interest to you.

Here’s the bottom line on it:  Real estate flipping can be both VERY profitable, and VERY dangerous.  When done well, there’s a lot of money to be made.  RealtyTrac recently published a study about real estate flipping in the first quarter of 2015, and the results are that there were more than 17,000 properties flipped in Q1 of this year, and that the AVERAGE gross profit on those deals was over $72,000.

So clearly, there’s HUGE financial potential.  BUT… it’s not a simple thing to do, and it takes a lot of time.  Yet still, there’s interest in real estate flipping from many affluent investors who have the money and the willingness, but neither the time nor the skill.

That’s where the Passive Property Flipping program comes into plays.  My team is EXTRAORDINARY.  We have so many case studies to prove it that you’ll go crazy LONG before you see them all.  But that’s a good thing.  We have a process… a system… and it works… and there’s OVERWHELMING PROOF that it works consistently.  We’ve had exactly ONE losing deal… it was a very small $3,000 loss.  The rest of the deals… over a hundred in recent months alone… well, all of the rest have been profitable.  And I’m not going to tell you the results of a “typical” deal here because… well, your financial advisor has probably told you that results like we produce aren’t possible.  But our process works, and works incredibly well… and you’ll see exactly why we can produce great results consistently when you learn more about what we do.

So… if you’d like to know more, and how YOU can get involved in enjoying real estate flipping profits… but WITHOUT requiring your time or expertise, then I’d suggest you check out our special webinar training RIGHT NOW… you can watch it at SDIRadio.com/flip… and it will tell you all about the program, with a WHOLE LOT of case studies and VERY THOROUGH explanation of our process.

We are not ALWAYS able to take on new clients, but we do have an opening right now.  And this opportunity is only suitable for you if you have at least $75,000 of liquid capital.  If that’s you, and you’re interested in strong results for your portfolio from flipping go ahead and check out SDIRadio.com/flip.

Now, for our question of the day!

So… Nathan is a business owner and wants to form a self directed IRA or 401k and invest in real estate rentals.  Nathan:  Welcome!  You’re getting into a really exciting area of personal finance.

Let’s start with the IRA vs 401k question.  Nathan, a Self Directed 401k is better than a Self Directed IRA in every way.  As in, EVERY way.  Not even close.  The biggest difference, to me, is that if you accidentally commit a prohibited transaction – in other words, if you break any of the IRS rules concerning IRA’s – then you’ve got a disaster on your hands if you’re using an IRA.  With a 401k, it’s still a problem… but a pretty easy one to fix.  There are many more reasons a 401k is superior.  Check out Episode #3 of Self Directed Investor Radio for a complete discussion of the differences.

Nathan, I’m recommending a 401k to you because you qualify for it as a business owner.  If you didn’t own a business, you’d have to use a self directed IRA, which is still far better than any other non-self-directed retirement account option.

But… I’m guessing you have employees.  If that’s the case, then you can’t use a Solo 401k, which is what most people think of when they think of a self directed 401k.  A solo 401k is basically a 401k that’s intended only for businesses with no employees except the owner and the owner’s spouse.  But no problem… you can still have a fully self-directed 401k even though you have employees… you just have to use a “regular” 401k that isn’t a solo.  It will cost you slightly more, but it’s what the law requires.

Now… as for investing in rental property through your 401k… think hard about that, ok?  The fact is this:  There are a LOT of tax advantages to be had by owning real estate OUTSIDE of a retirement account.  Assuming you’re planning to hold your rental property for a long time, then it’s pretty likely you’d benefit from performing the transaction OUTSIDE of your 401k and depreciating the property, then later taking advantage of a 1031 exchange to defer the taxes forever.  Talk with a tax advisor to get the full story.  It makes sense to hold just about any kind of allowable investment asset in your ira or 401k rather than outside of it, but for long-term real estate holds, the tax advantages that exist for real estate specifically may outweigh other benefits you’d receive through your 401k.

And one more thing, Nathan… if you have your 401k set up CORRECTLY… and believe me when I tell you that they’re NOT all the same… then it’s possible for you to borrow a rather substantial amount of money from your own 401k, so that you can use that money to do your real estate deals outside of the 401k!  But again, that’s subject to your having a 401k that is set up correctly to begin with.

So Nathan, if you’d like a referral to the very best source for getting your Self Directed 401k established correctly – whether you need the solo 401k variety or the variety that allows for employees – just drop me a note at [email protected] and I’ll be happy to hook you up.

That goes for the rest of you, too, my friends.  A self directed 401k is an AMAZING tool… and if you’re saving for retirement and you qualify to have one, you’d be unwise to use anything else.

That’s all for today, my friends!  For you affluent investors who are interested in profiting from real estate flipping be sure to check out our special webinar training on The Passive Property Flipping Program over at SDIRadio.com/flip.  You’re going to love it!

My friends… Invest wisely today… and live well forever!

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How stupid do they think you are?  It’s the favorite lie of real estate marketers and turnkey rental property:  “Real estate in market X is at the same price it was 5 – 10 – 20 years ago… it’s on sale… it’s time to BUY, BUY, BUY!”  My friends, I’m SICK OF IT…  I’m Bryan Ellis, and I’ll tell you how they’re lying to you, why the lie sounds so reasonable, and exactly why your portfolio is being SCREWED as a result… RIGHT NOW in episode #88

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I just heard it on a radio show… yet again.  It’s a huge lie… but it sounds SO GOOD…

I’ll bet you’ve heard it, too.

It goes like this:  “In my market, houses are selling for the same price they were selling for 20 years ago… it’s time to BUY, BUY, BUY!”

DEAR LORD, people!  That may be the STUPIDEST justification for making an investment I’ve ever heard!  You’ve heard the old line “what goes up must come down”… a condensed version of the laws of gravity, and also a warning against getting involved in investments that are too hot for their own good?  Well, this argument – “houses are at 20-year-old pricing, so you should buy, buy, buy – well that one is the opposite:  They’re saying what goes DOWN – the house they’re trying to sell you – must come back UP.

Insane!

So let me get this straight…

When a person makes this claim… invariably to convince YOU to purchase a property from them… what they’re hoping you’ll hear is this:

“You should buy this house.  This kind of property could be bought 20 years ago for $100,000.  It appreciated a lot in the last 20 years, but now it’s back to $100,000 where it was priced 2 decades ago… and so it’s very undervalued and when you buy it, it will go back up and you’ll become wealthy!”

Yep, that’s what they want you to hear.  And that’s absolute horse manure, for 2 really big reasons I’ll tell you in just a minute.

The astute investor will hear it differently.  The astute investor will hear:

“Hmmm…. So, this property has the same price now that it did 20 years ago?  What’s wrong with this property, or this market, that the price of this property is the same now as 20 years ago?”

Would you ever buy that kind of logic in any other market?  Oh yes… I forgot… you can buy real estate indiscriminately because real estate always goes up, right?

PLEASE!

The same thing happens in stocks, too, right?  Remember:  If you ask any financial advisor, what will they tell you happens to the stocks of large, high-quality companies over time?  You guessed it:  They go up!

But Kodak didn’t get the memo on that one.  Neither did Blockbuster Entertainment.  Or Sears.  Or Sun Microsystems.  Or Radio Shack.  Some of those companies are still putting along at their “undervalued” prices, where they’ve been trading for years.  Some of those companies are totally out of business.

Yet… all of these stocks were once high flyers.  They were all market leaders in years and decades past.  But now… well… not so much.  But using the valuation logic that the real estate marketers are pushing on you, every one of them would be clear “BUY’s”.  Absolute caca, my friends.

So would you be willing to buy a big old share of Blockbuster Entertainment because it’s stock is so cheap compared to past levels?  Sorry… no can do.  That company is a shell of what it once was, and isn’t even listed on the stock exchanges anymore.

Yet… the EXACT SAME ARGUMENT – what comes down must go up – could have been made for buying into Blockbuster… or for any of the others…

Well… that argument is for the simple-minded… and for those who are willing to take risks with their portfolio by using logic that FEELS plausible, yet is totally and completely irrational.  Foolish, even… though it certainly doesn’t sound foolish when the charming real estate marketer tells you it’s time to BUY BUY BUY!

When you hear someone say to buy real estate today because it’s trading at the same prices as 20 years ago… they’re implying (or maybe outright saying) that the real estate they’re offering you is undervalued.  So, you should ask two questions:

Question #1:  If the property you’re trying to sell me is UNDERVALUED right now, what is the CORRECT VALUE… and how do you determine that?  The ugly truth about this, my friends, is that the correct value of the property is whatever it’s selling for on the open market right now.  Past pricing simply doesn’t matter.  And for you to buy the property below value – as they’re suggesting you should do – the only way to make that happen is to purchase at a price that’s BELOW the market price.  So if a property is selling for $100,000 and you pay $80,000 for it… maybe that’s a good deal for you!  But if it’s selling on the open market for $100,000 and you pay $100,000 for it… well, there’s simply nothing that’s undervalued about that.  You’re paying full retail pricing.

And Question #2… you should ask them this:  “I understand that this property is selling at $100,000 now and it also sold at $100,000 20 years ago.  But what is the price of the property today… using the value of money from 20 years ago?”  My friends… the answer is pretty brutal.  If money was still worth now what is worth 20 years ago, that house you’re about to pay $100,000 for would only cost $64,000… and that’s according to the nifty little inflation calculator over at the website for the Bureau of Labor Statistics.  That’s right, my friends:  That property they’re trying to sell you because it’s “undervalued”… well, the truth is that in real dollar terms – you know, the money it costs you to buy food at the grocery story – well, the property they’re pushing you to buy has actually DECLINED… SUBSTANTIALLY… in value.  Only you don’t see it, because it’s hidden by inflation.  But you feel it in higher prices now than 20 years ago… and the difference is STARK.

Now I’d like to be clear with you:  It IS possible to buy property at undervalued pricing.  It’s done every single day by savvy real estate investors.  And it’s certainly possible for you to buy a piece of real estate that’s on an uptrend, and which will be worth more in the future than it is now.  No doubt, this can be done.

But what I do NOT want you to do is to make investment decisions based on an absolutely asinine standard like the one that suggests that just because a property is selling for the same price now as 20 years ago… or even 5 or 10… that that alone means it’s a good deal for you.

The dirty little secret is this:  Most real estate investment marketers sell their properties to people like you at FULL retail value, and some of them sell for much more than that.  You are inherently NOT getting a good deal when you pay full retail value for a piece of real estate.  But they don’t want you to know that.  So instead of telling you the real truth – that you’ve got to buy it below the CURRENT retail pricing to get a truly “undervalued” price – what they do instead is “shift the goal posts” and have you compare the price you’re being asked to pay to historical pricing levels.  Their argument is:  It’s been higher in the past… it’ll be higher again… and you should BUY BUY BUY!

My friends… don’t fall for it.  I’m NOT telling you that there are no good deals to be found through real estate investment marketers.  But I am telling you to be EXTREMELY EXTREMELY careful.  Because that argument – it’s been higher in the past… it’ll be higher again – well, that argument is a smokescreen, and could hurt your portfolio very badly.

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

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How do you maximize the potential for an inherited IRA… before you inherit it?  And why does this matter for you… even if you don’t expect to inherit an IRA?  I’m Bryan Ellis… I’ll tell you right now in Episode #87…

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The inherited IRA… particularly the inherited ROTH IRA… one of my favorite topics… and one of the most powerful financial tools EVER.

I got a great question last week from a listener named Christa, who said:  “I followed your advice in Special Edition #1 from back in February of 2015 where you advised to have a relative create a roth IRA and to specify me as the beneficiary.  My father set up a Roth and deposited a small amount of money into the account as you advised.  What do I do now so I can maximize the benefits of the Roth?”

Great question, Christa… and wise thinking on your part.  My friends, what Christa is referring to is one of my absolute favorite strategies.  Just imagine this:  Imagine an account for which, just by virtue of performing your investments in that account, that all of your profits on those investments are 100% tax FREE – not tax deferred – but, even better than a typical Roth IRA, you can actually take those profits out at any time you want, and not be required to wait until retirement age?

Yep… you heard that right.  A magical financial account that makes income taxes on investment profits just VANISH.  Pretty amazing, right?  There’s only one problem:  The only way to get one of these magical accounts is to inherit it.  And for you to inherit it, you guessed:  Somebody has to pass on to the great by-and-by.

Well, Christa has been smart, and has arranged for her father to create a small Roth account and has specified Christa as his beneficiary.  Christa’s father is not only not dead… but he’s doing quite well and will be with us for some time.  Christa’s question to me is:  What can I do in the mean time to maximize the value of that account when I inherit it?

I love this question, Christa.  And I’ll tell you EXACTLY what you should do.

But FIRST:  Can I take a moment to brag again on my Phoenix team?  We’re about to wrap up another GREAT “passive real estate flip” where we work with a client who wants to take advantage of the hot market for flipping real estate, but who hasn’t the time or expertise to perform the flipping process for themselves.  Now, I’ll go ahead and admit… the deal I’m about to describe to you is in escrow on the resale side.  We bought this property almost 3 months ago and have fully renovated it.  It is under contract to be sold, and escrow will close on that sale in about 2 weeks.  The bottom line on this deal?  Assuming it closes on time, the cash-on-cash return will be 29.6% for a 4-month transaction.  And even if escrow is extended, we’ll still solidly be in the 20% cash-on-cash ROI range on this deal.  My guys in Phoenix are just simply extraordinary… and I’m so proud to be associated with them, and to connect my clients with them.  If YOU would like more information about what they’re doing, and how YOU could get involved in our Passive Property Flipping, please check out my free webinar right now.  You can see it at SDIRadio.com/flip… again, that’s SDIRadio.com/flip.  This particular opportunity is most suitable for clients with a minimum of $75,000 of liquid capital.

So, Christa wants to know how to maximize the benefit she receives from the Roth IRA she’ll inherit sometime in the future from her father, who is currently alive and kicking, thankfully!

Christa, I admire your interest in planning for optimization.

Here’s something I want you to remember:  That Roth IRA belongs to your father.  It will not be yours until you inherit it after his passing.  So the first thing to consider is that you should make sure your relationship with your father is on steady ground, because at any time between now and that fateful day, your father still owns that IRA, and can change the beneficiary at any time… or he could just withdraw the money in it and use it to his liking.

But assuming that your family ties are strong, here’s what you can do:

Consider building the Roth IRA alongside of your father.  Remember – it’s his account, so everything done with that account will require his approval.  Depending on the size of your account, you have various options.  It’s my impression from your email that your father deposited a fairly small amount of money into the account, and do you know what?  That’s ok.  The value of an inherited Roth IRA is not in the amount of money you inherit in it – though more is always better – but it’s in the incredible tax advantages that it offers you… you know, that advantage where all of your investment profits are both entirely tax free AND available for your immediate usage without penalty.

So here’s the thing:  If your father’s account is small, I recommend that you do two things:  First, to the extent it’s consistent with your father’s tax planning and financial circumstances, ask your father to add more contributions to it over time in order to grow the capital base.  The money for those contributions may even be given to your father by you… so long as you do so in a tax-compliant manner.

But the other thing… the far more consequential thing… that you should do is this:  Begin to learn some investment strategies you can use that require less money, and probably more effort.  For example:  Many people will flip one or two real estate contracts each year in their IRA.  While I do fear that the IRS could change it’s stance on that particular activity in the future, in recent years, it appears that they’ve been pretty liberal about allowing that strategy.  And the strategy is simple:  You find a property that can be bought at an attractive price and get it under contract in the name of your IRA, and pay the earnest money deposit using your IRA’s funds.  You then find some other party who is interested in the property, and “assign” the contract to them for a fee, thereby getting back your earnest money and a nice profit.  It’s frequently possible to earn nice sums of money – making $5,000 to $15,000 per assignment transaction is not uncommon.

BUT… it does require work.  That’s the tradeoff… if you’re dealing with a small amount of money in your Roth IRA when you inherit it, you’re going to have to focus on deals where you can substitute effort for money, to the extent that such is allowable in your IRA.

There are other methods too… there’s a lot of flexibility in note investing, for example… particularly with the use of partial notes.  But that’s a topic far too big for our remaining time.

And something very important, Christa:  You can NOT contribute more money to the Roth IRA after you inherit it.  No more contributions are allowed after inheritance.  You can make all of the profit you want in that account, but you can’t contribute more money to it.

Bottom line, Christa:  You should spend your time right now LEARNING how to do these types deals where you can substitute effort for money in an IRA-compatible manner.  This will allow you to quickly build up your Roth IRA capital base to a point where you can do other, more substantial, deals… and really enjoy the astounding tax advantages that an inherited Roth offers.

And to the rest of my listeners:  A Roth IRA… even one with a limited amount of capital… coupled with education about how to use it… is one of the most valuable things you could leave to your children and grandchildren.  Please take a moment to listen to Special Edition 1 of this show, published on February 15, 2015 for more information.  It’ll blow your mind.

Have a great day my friends… and remember to check out my webinar about Passive Property Flipping for affluent investors over at SDIRadio.com/flip.

Folks… invest wisely today… and live well forever!

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What happens when the SEC accuses one of the biggest self-directed IRA custodians in America of helping to promote a Ponzi scheme… a scheme which wiped out many MILLIONS of dollars from the accounts of that custodian’s clients?  I’m Bryan Ellis… I’ll give you the latest RIGHT NOW in Episode #86.

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It’s an ugly, ugly situation, my friends.  And I hope you’re not one of the many unfortunate investors who were victimized.

Before I give you all of the sordid details, it’s important that you understand that everything I’m about to share with you is allegation on the part of the SEC.  This has not yet gone to court, though it’s heading there presently.  It’s entirely possible that the huge Self-Directed IRA custodian involved in this situation could be fully exonerated.  They have denied the charges.

But I’ve got to tell you… it doesn’t look good for Equity Trust, one of the largest – if not the very largest – self directed IRA custodian.

I’ll give you the ugly details about that in just a moment.  But first, I’d like to give a heart-felt thank you to:  EVERY ONE OF YOU.  I just love doing this show… I love that you listen to this show… and I’m truly, truly grateful for you.

So, back to our story:

Here’s my reading of the situation from a layman’s point of view.  Equity Trust is in trouble because the SEC believes that they, in effect, helped to promote an investment that turned out to be a fraudulent Ponzi scheme… and they did nothing to alert their clients, even though there were some very clear red flags.  That Ponzi scheme – promoted by Ephren Taylor and Randy Poulson – resulted in the loss of a total of about $5 million dollars across about 100 accounts at Equity Trust.

Why were so many Equity Trust clients involved in this particular scheme – which they all believed to be a legitimate investment?  Apparently, Equity Trust representatives participated at events hosted by Taylor and Poulson, where the custodian encouraged attendees to transfer their retirement savings from traditional IRAs to self-directed IRAs at Equity Trust so they could invest in the Taylor or Poulson offerings.

But the real crux of the matter, according to the SEC’s allegation, is that there were some red flags that should have tipped off Equity Trust to the potentially fraudulent nature of the transaction.  And apparently, those red flags were ignored by Equity Trust.

What were the red flags?  Well, possibly the biggest one was that even though Taylor and Poulsen were providing investments in the form of “notes” – basically just a loan – those guys apparently never provided investors with documentation about the collateral for those notes.  And this is a problem for Equity Trust, as the entity who seems to have both PROMOTED the investment and served as a custodian for accounts that purchased the investment.  What does the SEC think about that?  Well, Andrew J. Ceresney, Director of the SEC’s Division of Enforcement says it rather bluntly:

“We allege that Equity Trust failed to protect the interests of its customers when it acted as more than a passive custodian.  When custodians like Equity Trust are aware of red flags suggesting an ongoing fraud, they must take action to try to prevent it.”

So, the issue here is NOT that clients of Equity Trust were involved in an investment which turned out to be fraudulent.  After all, they sell self-directed accounts, which inherently includes the ability to self-direct into bad investments as well as good ones.  No, my friends, the problem is more fundamental:  The SEC thinks that Equity Trust, in effect, recommended the investment, and stepped out of the role they’re supposed to serve – which is as a passive custodian of assets – and into a role which is not compatible, and apparently legal problematic, for a custodian to be involved in… that role being investment advisory.  And since that investment showed some red flags of fraud, and later turned out to be genuine fraud… the SEC thinks Equity Trust’s role beyond passive custodianship obligated them to protect their clients, which clearly did not happen.  The next step will be a hearing an administrative law judge.

Now my friends, let’s be clear:  I don’t know if any of this is true.  Equity Trust certainly denies it… but it doesn’t look good for them.  I don’t have an account at Equity Trust, so I have no first-hand experience with them.

But I’ll tell you this much:  It’s NEVER good news when a custodian explicitly endorses an investment opportunity.  When you see that – and you certainly will, from time to time – ask yourself:  What’s the quid pro quo?

Invariably, it’s one or both of two things:  The custodian is endorsing the investment because the investors must first set up a self-directed account with the custodian and/or the custodian is otherwise being compensated for promotion of the investment to its clients.

Now, here’s the truth:  I’m not a huge fan of these types of regulations, so even though Equity Trust’s reputation is that they’re somewhat heavy-handed when it comes to pushing their services, still… I’m not a fan of government overreach.  But I’m not really sure that’s happening here.  It seems, on some level, quite reasonable for a custodianship to be a totally separate function from investment advisory.  But on the other hand… I prefer that laissez-faire be the rule.

But that leaves a responsibility with you, my friends.  It’s the responsibility to do the one thing required of all self-directed investors:  To respect your own capital.  How do you do that?  Make sure that you stick only with investments that match the S3 Standard:  SIMPLE, SAFE and STRONG.

This investment that’s gotten Equity Trust in trouble – and far more importantly – has resulted in the loss of MILLIONS of dollars for their clients… well, it CLEARLY didn’t meet the SAFE part of the standard.

You’ve heard me talk about note investing many times here on this show.  I love a good note investment.  It makes sense in so many ways.  And the investment that Taylor and Poulsen were promoting through Equity Trust was a note investment… but it turned out to be fraudulent… and a complete rip-off.

What’s the difference between what they were doing, and a GOOD note investment?  The answer is right there in the SEC press release:  There was no documentation about the collateral for the loan.  NO DOCUMENTATION!  I mean, COME ON, PEOPLE!  What do you think… do you think you should just trust people with your money?  Should you just turn over your money with nothing to show for it and hope for the best?  Jeez… how silly.

Oh, wait a minute… that’s exactly what Wall Street requires you to do with stocks and mutual funds.

Nevertheless, my point stands.  The ONE THING that can make a note investment really safe is to have really great collateral.  You’ve heard me talk about it on this show over and over.  Whenever my investors get involved in a new loan – in other words, a note – we tell them to DEMAND that the collateral that they receive is worth at least 50% MORE than the amount of the loan.  So if they make a $100,000 loan, they’ve got to get $150,000 of collateral.

THAT is a great way to keep your money safe.  You’ve got to have ALL 3, my friends – simple, safe and strong – and you’ve got to have them all DOCUMENTED and in legally enforceable language!

My friends… alternative assets can be GREAT!  In fact… I’d venture to say that it’s really quite simple to totally WHIP the long-term average of the S&P 500… and to do it in an incredibly safe way using alternative assets.  Particularly with well-collateralized notes.

But… make sure you understand what you’re getting into.  If you don’t have a lot of personal experience with the investment opportunity you’re considering, be wise and hire an attorney or other advisor who does.  It just makes sense.

Remember, my friends:  Respect your own capital.  That’s rule #1.

That’s all for today, folks.  Please be sure you’re subscribed to the FREE self directed investor email discussion group.  Just text the word SDIRADIO (with no spaces or periods) to 33444 to join this private group.  Again, text SDIRADIO to 33444.

My friends:  Invest wisely today… and live well forever!

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It’s our mantra around here:  Self-Directed Investors should only deploy their capital into opportunities that are SIMPLE and SAFE and STRONG.  In other words, they match our S3 standard.  But what does it mean, really, for an investment to be STRONG… is it just a function of the ROI number?  No, it’s much more than that, and I’ll you exactly why RIGHT NOW.  I’m Bryan Ellis, and this is Episode #85…

What does it mean for your investment to be STRONG?

Let’s get one thing taken care of right away:  Yes, your investment must be profitable.  The STRENGTH component of the S3 Standard can not be satisfied by an investment that yields a profit below the rate of inflation… or, even worse, an actual loss.

And for all of our new listeners… first, welcome!... and next:  the S3 standard is the criteria by which we, as self directed investors, evaluate investment opportunities.  S3 is shorthand for SIMPLE, SAFE and STRONG, which are the 3 baseline characteristics that must be present before an investment opportunity is consistent with the core value of self-directed investors, which is to Respect Your Own Capital.

And during the last couple of episodes, we’ve been looking at the converse of those characteristics in order to identify RED FLAGS to help us avoid bad investment choices.

So, yes… your bottom-line ROI numbers are a key component of the STRENGTH factor of the S3 standard.  And only you can decide for yourself what constitutes a STRONG roi.  That’s a curious thing to me.  For many people, anything below a double-digit annual return is insulting.  But for many people, anything above 6-8% seems aggressive and fanciful.  We all have our unique individual vantage points, and clearly, you know what target ROI numbers are, for you, a “STRONG” result.

But here’s the problem with focusing exclusively on ROI as a measure of strength. ROI measures ONLY the results of an investment AFTER it’s all said and done, and the check has been cashed.

That’s a critical measure, to be certain.  But there’s something else to consider, and that is EVERY SINGLE MOMENT between the time you deploy your capital, until you get it all back and are no longer exposed to the investment.  It’s everything between the first moment and the very last moment.

Do you know the biggest reason that people who have been successful as stock market investors choose to leave the stock market and invest in alternative assets like hard money loans and real estate notes?  It’s not because they weren’t profitable at the end, but because the investment was strong ONLY at the end, leaving nothing but stress in the middle.

Here’s a hypothetical.  Imagine you bought a stock that was at $50 back at the turn of the millennium.  You invested $200,000 into this stock.

And today – that same stock is worth $150, and you now have $600,000.  Good for you, right?

Well, sure… except…

That stock… the one that’s posted a strong ROI for you… well, it’s no been a smooth ride.  It trended up reasonably well for a few years and got to $75 a share… but then there was a terrible earnings announcement and it dropped down to $40.  It boomed upwards back to $80 and then the superstar CEO was fired without much explanation, cutting it back down to $50 and the next day, the SEC announced an investigation into the company, cutting it down to $20 per share.

A few years later, the company is cleared by the SEC and in the meantime, they’ve come out with some great new products, and news of the SEC acquittal causes the shares to roar upwards to over $100 until it ultimately gets to where it is now, at $150.

But in the meantime… your $50 stock has gone as low as $20 per share.  At that point… your $200,000 investment had been slashed down to $80,000.  That difference - $120,000 – is enough to pay for a good college education, a really great starter home, or even a really fancy sports car.

And even when your investment wasn’t at it’s worst point, it was in the losing column for much of that time… and it was very, very volatile ALL of the time.

In other words… even though the stock ultimately turned in a strong ROI at the end of the investment, it’s performance in the meantime was anything but strong.  It was profoundly inconsistent.  It was unpredictable.  Worst of all:

It was STRESSFUL.  REALLY STRESSFUL.

You simply had no way of knowing that the CEO would be fired… or that the SEC would attack… or that maybe something would happen in a foreign financial market that could hurt your investment here in a very painful way.

So strength at the END of an investment isn’t the only consideration.  You should consider strength DURING an investment as well.

And frankly… the best options for having a great result not just at the end, but all the way through an investment in a PREDICTABLE manner.

And what investments are strong, not just at the end, but all the way through as well?

For that, my friends… you’ll have to make sure you’re SUBSCRIBED to this show through iTunes so you don’t miss a single episode.  I’ll delve into that topic a lot in the coming days.

But here’s the truth:  The point of today’s show isn’t as much to drive you into deploying your capital into a particular asset, as it is to understand and factor in the impact of the way that the volatility of that asset will affect your day to day life between the time you enter and exit the investment.

That effect is a very real factor… It creates stress which in turn strains your body, your mind and potentially your relationships as well.  It’s not a factor to be taken lightly.  It’s fundamentally WISE to invest in a way that won’t stress you out.

And so, my friends:

Invest WISELY today, and live well forever!!

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

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