The pleasure of undertaking…
Many investors in the US are finding that their plans for a carefree retirement are in jeopardy due to a lack of funds. Creative investors are looking for more profitable solutions for their retirement plan investments. As more and more investors are learning, traditional financial advisors generally direct investors only to traditional investments. For investors accustomed to having access to a wide variety of investments, the world of retirement investing seems very limited. Limited, that is, until they discover the self-directed IRA. Self-directed IRAs reopen the door to the world of investing that creative non-traditional investors know so well.
Let’s follow in the footsteps of one such investor. Joe, 54, married, two kids, one dog, is a successful businessman and seasoned investor. A few years ago, Joe had it all planned out. He was going to retire at 60 and move to New Syrmna, FL.
Joe’s retirement plan was going well. He invested in a variety of successful funds and stocks. Joe anticipated sitting down and waiting for the monthly automatic deposit to appear in his account. That view changed over the course of a few months, as his secure paper investments lost more than 35% of his value. One morning, Joe realized that he needed to pay more attention. After studying, researching, and spending hours communicating with the Wall Street Journal, Joe realized that he just wasn’t comfortable with stocks. Feeling his dream of retirement fading, Joe turned back to the bottle.
Fortunately, Joe only had a few bottles. He mostly talked to his friends at his neighborhood bar. One of them, after hearing Joe’s story, introduced him to self-directed IRAs. Joe listened carefully as his friend described the investments allowed in truly self-directed accounts. Joe realized that he had been looking for investments in the wrong field, a field in which he felt lost and uncomfortable. Reinvigorated, Joe headed home with new hope.
Joe took an inventory of his investments and other skills. His career as a restaurant equipment dealer had introduced him to a large number of restaurant professionals. He also knew that he had a good eye for people and was usually good at identifying talented people.
Knowing that his retirement plan could invest in almost any asset, including a business, Joe began thinking about how he could use the skills and connections he had to help his IRA grow by investing in a business. Joe, at the same time, took advantage of classes offered by his local Entrust Group office on how self-directed IRAs work. At the end of the class, Joe began the process of opening a self-directed IRA and transferring his retirement funds into it. During the class, Joe learned that while his knowledge and connections could benefit his plan, his work and assets could not. Joe also kept his eyes open for business and opportunities when he met with clients for his work. Within a few months, one of Joe’s clients mentioned a local bar that was up for sale. Joe did some research. He certainly heard the opportunity calling. Not for himself, but for his anger. Joe found that buying and owning a bar involved a lot of paperwork, particularly when it came to a liquor license. Joe decided it would be better for his IRA to have a partner, ideally one familiar with the entire process. Joe discovered that the current owner of the bar didn’t really want to sell, but instead had to due to an unrelated financial hardship. Joe realized that he might have found the perfect partner. Joe negotiated with the seller to have Joe’s IRA buy 85% of the bar, which was actually a corporation known as “The Corner Bar”. The 15% remaining to the former owner was enough to keep the local licensees happy, but he gave Joe’s IRA control of operations. The purchase included conditions that made the former owner happy with his minority position.
Joe’s IRA invested $225,000 and, as a shareholder, controlled significant decision-making power. All the decisions Joe’s IRA made were made by Joe and executed through the IRA, so while Joe couldn’t clean the bar himself, he could use his eye for talent to hire expert bartenders to clean. . Joe’s IRA also provided funds to the corporation to make some improvements to the bar and other improvements that Joe thought would make the bar more profitable. When Joe calculated the investment return on his IRA, he realized that, after taxes, the investment would probably return about 15% or about $35,000 per year. Joe decided to delay his retirement for two more years, giving him 8 years to accumulate profits. He calculated that the cash from the investment in the bar will provide his IRA with about $280,000 over the next 8 years, plus the earnings on those funds. Joe expected the investment to be worth about $400,000 in 8 years.
Joe dreams of the beach again. But he waits. The bar is making a profit, so Joe’s IRA will have more money to invest. Hey friend, have you heard of any good investment opportunities?
