Here are the books Michelle referenced in today's podcast. Note, these are Affiliate Links.
[00:00] Over the last two centuries nearly 90 percent of the world's millionaires have created their wealth through real estate. Here to tell you how you can ride this wave, with less risk and less capital, while creating greater income, is your host, Best selling author and speaker, Michelle Russell
[00:21] Hi this is Michelle, the master of money mindset, and I'm here with the short term rental revenue podcast and in today's episode we're going to talk about using your self directed IRA to invest in your short term rental revenue business. This is one of my favorite subjects. I have a website called the Prosperity Process and actually it's the parent company to the short term rental revenue. And when you go to the prosperity process dot com you'll be able to look up all kinds of articles and we're actually putting out one specifically to help out with people understanding what an IRA is and how to use one and how to get it self-directed. You'll be able to go there. It will be out the same Friday that this podcast comes out and drops. So how we're going to do that is first I'm going to explain a little bit about what IRAs are how to sell direct them.
[01:18] So if you don't have an IRA yet, don't worry, if you don't have a self directed IRAs yet, don't worry. And if you're young - I just want to quickly touch on why you need to start investing in your retirement right now. So I pulled up... Dave Ramsey has this trusty little example that he uses in his books and in his seminars, and I love Dave Ramsey. The first books I ever read on money were Dave Ramsey books. I'm trying to remember what it was (Financial Peace) but he's had some really great books. Now, obviously I don't agree with him completely 100 percent because I was trained by Robert Kiyosaki who is a real estate investor. And Dave Ramsey does not like real estate investing and he does not like having a credit score. He doesn't believe in having credit cards or anything like that and I totally disagree with that, and why is because I had Robert Kiyosaki teach me how to invest so it's a little bit different. Plus Dave Ramsey lost a lot of money investing in real estate and actually had to file bankruptcy. So he's got a bad taste in his mouth about investing in real estate. And I would too if I had to file bankruptcy. Yeah I'd probably be a little bit more hesitant than I am but as a woman I've got to say, women, we like security and we don't like taking chances.
[02:47] We're not the gamblers that men are. We're not, you know, the Kenny Rogers sitting on a train kind of people. We're the ones, you know, blowing on the dice and going, "Dude, you better win, because if you lose all our money, I'm going to be so angry with you." You will, you will rue the day, right? But Dave Ramsey has this great little chart that he has. And like I said, he uses it in his books and I'm going to just read to you a little bit from it.
[03:14] So in Dave's example he uses two brothers, Ben and Arthur. And Ben begins investing at age 18 when he starts earning money and he puts two thousand dollars away every single year for eight years and then he stops.
[03:33] So at age 26 he stops putting two thousand dollars away. He only does it for eight years. So he invests from the time he's 18 to the time he's 26 putting away in total. Sixteen thousand dollars. So that's what he's saved. Now that $16,000 invested I believe Dave's example is at like six and a half percent or something by the time little Ben turns 65 years old. That $16,000 investment for him will have turned into $2.288 Million Dollars. So that's $2,288,996. That's what his little investment made. And remember he stopped - he stopped putting into his investment at age of 26. Now let's take his brother his brother Arthur saw little Ben working his little bottom off and putting 2000 dollars away and he was a little bit older than Ben and he was like wait you know what that's a good idea.
[04:40] I'm going to start putting money away for my retirement. Right. So Arthur puts two thousand dollars away but Arthur has to put two thousand dollars into his retirement every single year from the time he is 26 when he started all the way until he's 65. So what is that. It's close to 40 years of putting two thousand dollars away. So he put in way more time, like more than four times longer. Did he put two thousand dollars away but because he started later at age 26 and he made the same amount, we're gonna say he made the same amount of interest as his brother Ben did, when he turned 65. He will only have $1.5 million dollars put away. So that's $1,532,166. That's it. And he put way more into it, but because he started later, the later you start, the less money you have working for itself and increasing interest on itself. Right. So it's magic. The sooner you start the more money you can make and it really is, like I was saying, If you're young and you think you shouldn't start. This is when you should start you should start. Now here's another deal. If you're in your 50s or 60s and you're listening to this and you're going Well shoot I haven't started yet. Dude better late than never. Right. Like seriously don't worry about it. The best time to plant a tree was 20 years ago the second best time is now and this is now. So you need to start investing now. Now I'm going to tell you about IRAs now. If you're listening and you know what an IRA is please just indulge me for a moment while I explain to everybody else. Now an IRA. Most everybody has heard about it.
[06:45] It's an individual retirement account or individual retirement arrangements. And what those are. You can read IRS Publication 590 and find out all about them. But there are basically two types of IRAs. There's a bunch of different ones ok but there's basically two different types. And that's going to be a traditional IRA and a Roth IRA. And the differences between them are incredible. So you really want to have a Roth IRA that's going to be your favorite favorite IRA. And when you set up your IRAs if you if you make too much money you can't you can't get a Roth IRA or a Roth IRA right now. You have to make any. You have to make lower than a hundred eighty six thousand dollars a year. As a married couple filing jointly. So you're going to have to find out from your accountant or when you form your IRA you're going to have to look and see what you made last year and make sure it's below that amount below, there's a,
[07:52] And it changes all the time. That's why I said anywhere between $186,000 and $196,000. It actually could be more or less. The IRS will change that often and it fluctuates depending on all kinds of different things. So you really want to check it out. And remember, I am not... I'm going to give you that legal warning here - I'm not, I am not a financial adviser, nor am I a CPA, nor am I a tax accountant, or anything. These are all my personal opinions. And this is just, like I said, just how I was trained and what I read in the courses I've taken. And the people I have had throughout my lifetime have given me these opinions. So Dave Ramsey has his opinions and I'm sure actually I think Dave Ramsey is all into IRAs and Roth IRAs and stuff like that. So but everybody has their own thing that they like.
[08:50] And so these are just my opinions. You can take it or leave it honestly but hopefully you'll take and you'll look it up and start investigating on your own. So if you can get a Roth IRA now if you can if you still make under that amount of money and you haven't gotten one please get it. Get it this year because you're going to make more than that really soon. And if you've if you've already missed the boat don't worry. Use your traditional IRA. It'll be the same thing. The only difference is the main differences are just the tax breaks and the advantages that the Roth IRA gives you. Your contributions are always non-deductible in a Roth. But get this, the best thing is all your earnings are tax sheltered so you're earning like nothing you're not going to have to pay taxes on anything you're earning.
[09:42] And actually, I believe and you'll have you have to check me on this but you can take your contributions out of your Roth not your interest earnings but your contributions out without the same penalties and fees and all that stuff that you have with a traditional IRA that you're going to have to pay so a Roth IRA to me is better on a lot of accounts in case something goes wrong but you can actually play with it like you know when you go to Vegas and you're playing in Vegas. If you go to Vegas and you play craps and you're at the craps table I don't know if you've ever played craps My sister taught me how to play. We we went into Vegas. One time we went to a lot of money and I was so ignorant of the rules. But she told me that they had an insurance policy that you know she goes you're going to put down we only gamble like five bucks at a time or whatever it was I can't remember but I would put money down on something and then she said this is your insurance in case they crap out put money here and it's basically the same thing.
[10:45] We started singing this little song to ourselves going. We put the green in our pocket and we play with a red. So anytime we got green chips we put the green chips in our pocket and we were playing with the red chips and whatever and whenever we got the green we put them in there and after a while our pockets were full of green chips and one of the pit boss guys came and he said to me he goes you know you can't put those chips into your pocket. And I was like oh my God I'm really I'm really sorry. And I start taking him out and he starts laughing. And she says he's kidding. And I said well why did you say that to me and he said well how are we supposed to keep an eye on how much money you're winning. And I was like oh man.
[11:29] Because they were what we were doing was we were putting the money that we had started with back in my pocket and only playing with the house money. You can totally do that with your IRA with a Roth IRA. So let's say you have you're putting money into your IRA and you're contributing to it. Whatever you put in you'll be able to take out later on if there's an emergency. So let's say God forbid somebody needs you know a hospital expands or something comes up and you need that money your contribution that you put into it not the interest that it made but the money that you put into it you'll be able to take out if you need to. Now I wouldn't I would leave it in there and I would leave it ride, man, because it's for your retirement. You are the house so it's not like you're you know you're playing in Vegas and they're making money and when you're playing know with the house money in Vegas it means that you're only gambling the money you made from them anyway right.
[12:29] But in this case you are the house so you want to keep the money in the house as long as you can. And so but it's just a nice thing to have. So I like that. Now those rules may change. They may be different. So check it out. Always check it out. But like I said I'm going to tell you why I like investing with your IRA. So now you when you have an IRA there are you have a trust or custodial account. That's what it is. And basically that account is a living breathing entity to the government is no longer you. It is now something completely different and separate from you. So what's really kind of cool and this is where you should always think about it too. When you're self-directing your IRA you're going to have certain rules and regulations that you can do that you have to standby or you risk losing it all.
[13:27] OK. So again let's pretend we're in Vegas. You don't want anybody coming in and go you know you only could use two dice and you were using three and therefore we get everything that's on the table and everything that's in your pocket. That's basically the IRS. If you do something wrong if you invest in a certain thing that isn't legal under those IRS guidelines of a self directed IRA or if you use that IRA accounts or its assets in a way that benefits you personally you can lose it all. Doesn't matter if you only gambled a dollar of it, you can lose everything that you have in there. So you really really want to be careful you have. You want to have a great custodian the person watching over your IRA who is constantly telling you the you know the rules regulations they have them posted and stuff on their websites and you can read them all but you never want to go against it.
[14:27] How most people go against that is in real estate. And let me give you a for instance people will use their IRAs to buy property. They do it all the time they do it here in the U.S. and they do it in other countries. And I've been to Panama and there's some I've seen this like a bunch of countries when you go to Costa Rica and you go to Panama when you go to Fiji when you go anyplace you go that has these awesome amazing resorts that you can you can invest in and you can use your IRA. They're going to tell you oh go ahead use your IRA invest in here and then you can stay here once a year and then rented out the rest of the year. No you can't. You cannot do that. Not with your self directed IRA and I don't believe with your regular IRA either because there has to be, what they call, an arm's length investment. You can't be benefiting you personally so you can't invest in something with your IRA like a house in Hawaii and then stay there yourself any weeks out of a year not even a day out of the year.
[15:44] You know honestly some people will go well if I pay you know if I pay myself. Dude don't even don't even risk and don't don't even pay for somebody else's Airbnb while you're there, you can deduct your your expenses for going to check out your place and write it all off on your taxes because you were checking out your investments. But here's the deal. Don't don't ever put your investments at risk. Walking on that thin line because you have no idea what has changed and what has not. You just don't want to play with stuff like that. The same thing goes true for, for instance when we were buying a place up in Flagstaff when our daughter was going to go to school up there. We started looking at real estate investments up there. And then we realized that hey if she was staying there that was illegal too.
[16:42] That was against our IRA so we did not use our IRA to invest in a property in Flagstaff so that she could go to northern Arizona. You can't do that. Because again it's not arms length that's not something is something that your family is benefiting from. Definitely your daughter. You know what my daughter would be benefiting from that. So you don't want to do that. There's going to be rules and regulations that you have to be very careful of because if you break fees it doesn't just take the money from that one investment it takes. The IRS will come down on you. And they will take all your investments. That's it. They will take your entire IRA account. So you do have to be careful. But here's the deal. Just don't do it. It's just super super duper easy like don't play the game with them just play the investment game.
[17:36] You're playing Monopoly. You're not playing you know so that you can go stay on Boardwalk the hell with that. You can pay to stay on Boardwalk later on but you want to play by the rules. So when you have an IRA you have the trustees the custodians and the beneficiaries you are the trustee you are the owner of your IRA and then the custodians are the people who take care of your IRA. That's going to be the bank or the institution or a brokerage firm that handles your account for you. So if you're doing a self directed IRA there are certain companies that specialize in self directed IRAs and they are well my the account that I use is equity trust and I like I like equity trust the they used to have they don't still have them. Now they have most of those things online but they used to have this really cool thing that they did called equity university and once a year they would have an entire weekend, usually down in Orlando, where we could go and they would have like people talking about how they invested in their IRA the money that they made doing those things you know some people invested in horse ranches and some people invested in real estate whatever they invested in and then they would tell how they made money in it and then they would have like all these breakout sessions where you could go listen to different people.
[19:08] And things that interested you. And how to invest there. So I love that. But now they do it online. They don't do it. It's more virtual now. You can still look up anything you want through them. I'm going to say I do recommend personally I recommend equity trust but you'll see a lot of different reviews for different companies on there. And I want you to remember that when people leave reviews it's often because of money that they made or the money they lost. So when you have a self directed IRA it is just that it means that you're the one who tells your money that you invested in the IRA. Where to go now. Most people the majority of Americans out there right now their IRAs are directed by whoever they bought the IRA through or a different company. And they and they are totally in charge of it.
[20:04] They have nothing to do with it. So let's say you bought an annuity through MetLife or something MetLife is the one who takes that all the money from all the people and they put it into a big account and then they invest in different things for you. They're in charge of it so they get like a little bit for running it and blah blah. But you have no decision making ability isn't there. You can't tell them. Well I mean sometimes you can tell them the types of accounts you want to invest and but for the most part you can't pick which companies you're investing in which stocks or whatever they're investing in. If it's reet or something you can't decide that that decision is made by somebody else self directed is just that it means you make those decisions and a self directed IRAs you can actually invest in a company by yourself.
[21:04] So there's a lot of different things you can do. So let's say let's say you have a friend and they've got this great grand business idea and they've they've had other businesses that have made a lot of money that they've sold for a lot of money and you want to invest in that company by all means go ahead. If it's their first company, I wouldn't do it. But I mean if they have a track record of winning, then definitely yeah you can do that with a self directed IRAs you can invest in companies but it's always good to check with your custodian and you tell them exactly like when I call up I say hey this is why I'm going to do. I'm buying this property bubble blah. I'm not going to use it for personal stays. I tell him exactly like you know I tell him exactly what I'm going to do.
[21:50] And then they cut me a check and then I invest in it. Now you just like I said You just have to be really careful that whatever you invest in you do all your due diligence for. Because if you invest in something that's like a stock or something and that stock goes down you can't blame the broker or the brokerage firm or the institution or whoever's got your stocks that they went down. If you are the one making the choices of where it goes it's self directed Ira you can't blame your custodian for you losing money in an investment. The only person you have to blame is you because you made that choice to make that investment. So when you see ratings for those companies keep that in mind these people made their own choices of their own investments and if they're bad decisions what I like to see is I'd like to look and make sure that you can get your money easily within like equity trusts has different levels.
[22:56] And when you pay for one of their top levels they get the check out to you the same day. I mean it's like super fast. And if you don't pay that it takes a day or two to get your money as long as you're doing everything you know the right way. If you find a company it has bad reviews and they say it took me you know a week or or two weeks to get my money well that's not good. Because a lot of times when you invest in something you have to make the move quickly especially with real estate because somebody else is going to make a move on it. So you want to be able to get your funds as quickly as you possibly can. So do when you look up a place to have yourself directed IRA and you look up a custodial account and firms that you look at that I like equity trust.
[23:44] I've used them for a long time but again my recommendation it doesn't have to be yours. You can use somebody totally different. Maybe you had a brother in law who had a really bad experience with them. I'm I'm not you know positive and basically that's the only one I've ever used because one of my real estate mentors suggested them and introduced me to a bunch of people with them and I've never had a problem with them. So I've I've never used anybody else so I have no one to compare them to. So you've got to look for that on your own. Now remember there's going to be beneficiaries to your IRAs too. Now if it's just a regular Roth IRA most like it's going to be you but you can set up all types of IRAs IRAs self directed IRAs are so amazingly fun. You can set up IRAs for educational IRAs for your kids for your grandkids and beneficiaries.
[24:35] I mean you can do all kinds of their health IRAs. You can set up for health care for instance if it's an educational IRA for your kids or your grandkids. All the money that's inside of it that's making inside of it. Those kids can use for any type of education and any kind of educational supplies so they can use it not just for their tuition and boarding and room and board. They can use it for computers that they'll need and transport nation and things like that.
[25:00] Anything that has to do with getting them to and from and into their classrooms their books you name it everything. So there are a lot of different types of IRA accounts out there. First of all before you start playing with those you really need to have your own retirement account and get that going. I would max that baby out every year whatever you can possibly put into your account legally through the IRS. You know it'll tell you how much you can legally put into your account. Do it Max that baby out, put as much in there as you possibly can and then start working with that money. So as I said with the difference between a traditional and Roth IRA are basically the tax rates and the fact that the contributions are you can take them out of a Roth IRA but not the not whatever you made on it.
[25:51] Not the interest but definitely the contributions are easier to take out than the penalties and the fees that you're going to take out or get taken out. When you use a traditional IRA but you always want to have an accountant or somebody that you talk to her when you have like equity equity trust guys I love those guys because I can call them for all kinds of advice and say OK what about this account. Which one should I use should I use this or this and they'll tell me they won't they won't always say it straightforward. Here's what they'll say something like. Well I can tell you what I would do. But I can't give you advice and they'll always tell you I can't give you.
[26:29] I know I know. Send me to the article. That's why I'm like. I mean oh I know send me to the article and I'll read it myself.
[26:36] And they'll go read this and then I figure it out on my own. But they're very good at directing you to the information that you need to make your decision.
[26:44] Let's just put it that way and that's all you need. A lot of times you just need the information that gives you the ability to make a decision that you know that's best for you when it's self directed. You need to choose a really good custodian. So like I said make sure that that custodian is somebody you trust or somebody that you know who has a self directed IRA and they trust and they've had a good rapport with them make sure that money is easily accessible as long as you're following all the rules and make sure to that they've got a lot of information online for you so that you can find out what you're. Let's say you want to invest in art. That's usually not. That's a no no. So let's say it's the first time you had a self directed IRAs and you call and you say hey I want to invest in this art gallery or something and some paintings and then they'll tell you you might not want to do that because this is on the cusp of being illegal and here's why.
[27:48] And so you risk your money and they'll tell you exactly that. That's what you want. You want somebody is going to say here's why you might not want to do that. You want somebody that you can definitely trust and and you want to know what all your contribution rules are what you can put in as much as you can put put in. You want to know what you can pull out and what the fees fees and the fines and the penalties are an associate association with that right. Oh there's a really great book on investing actually as one of my favorite investing books. Now obviously I've read a lot of investing books but "the power of zero" by David McKnight is amazing. It's an amazing amazing book. And basically what he's saying with the power of zero is telling you how you can invest and pay zero taxes on your investment. And that's why you want to use your IRA is because especially your Roth IRA. Every amount of money that you make every profit that you make in that business will be given to you after you retire with with no tax needed you don't have to pay taxes on that.
[29:01] And that is a miracle because like most people go oh no we're being taxed at the biggest rate that we ever have and our taxes are outrageous and you're like dude no they're not.
[29:12] In the 1960s we were paying 20 percent 69 percent and 91 percent taxes was the highest tax category. And right now we're paying 10 25 and 35 percent in all three of those. So we're paying less in taxes and if you think we're paying more then you just don't know your history read. Read that book and you'll you'll find out. And know too that if things keep going the way they're going the taxes are going to go up. They have not been lower. And the reason they need to go up is because of the amount of money that our government is putting into. You know they're big four, now. When you read the prosperity process we always talk about our expenses you know the big four expenses and because those are the expenses that you always have to watch right. You have to watch your housing and you have to watch your transportation.
[30:09] You have to watch your food and like there's every every country has the same kind of thing. They have the big four. What do you think the big four are in the United States? The big four in the U.S. are Social Security Medicare and each of those takes up roughly 20 percent of every dollar that goes into the U.S. like that comes in in taxes 20 cents goes to each of those separately. So our big four are Social Security Medicare Medicaid and interest on the national debt. And right now it's close to 80 cents. It's going to be by the year 2020 they expected to be 92 cents on every dollar going to just those four things. And it's a mathematical you know thing. It's math. You can't do that. Imagine you've got eight cents left on every dollar to pay for everything else. And what is everything else. Eight cents on every dollar. Paying for everything else is everything from the Army, Army, Navy, Air Force, Coast Guard. You know the Fish and Wildlife, Forest Service, National Parks, Homeland Securit,y child nutrition, right food stamps, Supplemental programs, the railroads, rural development, drug enforcement agencies, CDC. There's so much stuff, all that other stuff, housing for the elderly, Department of Family Services, Geological Society, all those other programs get 8 cents while those four will get 90 percent like 92 percent of all the money coming in. And it just can't sustain itself.
[32:00] So yes, our taxes are going to go up, and if taxes go up where do you want your money in a place where they cannot be taxed legally. Right. Legally this is all legal and it always is funny when you see people on on television going I can't believe you made that much money and didn't pay any taxes on it.
[32:20] It's like dude he did it legally. If you can pay zero taxes legally why wouldn't you. Who in their right mind wants to open up their wallet and go You know I know Uncle Sam only wants eight cents of every dollar that I've paid here at Target today but I'm willing to pay twice that. Give him a big 16. I'm not that person if you're that person and you are that generous with the government. Go for it man. But these guys, they don't know how to spend money now they are trillions and trillions of dollars in debt. I don't think you should ever give anybody money if they don't know how to spend it Already. It's just let's not go there. Right. So when you were investing in your IRA you want to make sure that everything that you do is on the up and up because you're going to protect yourself so that you pay zero taxes at the end. When you turn 65 and you start drawing on that income you're not going to have any taxes to pay and hallelujah.
[33:23] Hallelujah, I should get like a button where I can just push that, because hallelujah! You don't want to pay taxes and you specially don't want to pay them once you're 65 because God knows are you going to be working or are you going to have you know what are you going to have coming in. You're not going to have a lot of money coming in you'll probably be on some sort of fixed income when you retire. So yeah you want to pay no taxes. And what's really cool about the Roth is you pay taxes most likely beforehand because you pay taxes before it goes in not when it comes out. Now the government's going to want the opposite. They love traditional IRAs. Why. Because oh well we'll give you we'll let you put as much money in there and you don't have to pay taxes on the on the you know thousands of dollars that you're putting in there but we'll tax you when it comes out. Dude what did I just tell you in the beginning of this podcast about those kids investing in their money. Right. So what did what did little Ben invest. He invested $16,000. And at the end he got $2.2 million dollars. Let's see.
[34:30] Do you want to be taxed on the $16,000 going in or that $2.2 million coming out? Duh! Tax me to death on the $16,000 going in. Hello. That is a no brainer. You don't want to be taxed on the money coming out. You want that money to work for you.
[34:51] And that's exactly what it's going to do. That's why they started forcing people to take their their earnings out anyway because people are living longer and longer and they said you know what we're never going to get these taxes if these people don't start withdrawing from their their IRAs and from their retirement funds. We won't get the taxes so they started forcing people to withdraw so that they could get the tax money. That's why they did it. They want the taxes. So if you have a choice between paying before or paying after what are you going to do. Ya wanna pay before I don't give a crap what anybody tells you, they're wrong.
[35:34] Just think of that scenario with little Ben $16,000 in - $2 million out. Do you want to pay on the $16,000 going in or the two million going out? Definitely see. Do you see and understand good now when you get your first short term rental. That's most likely going to be in your private name you probably didn't create a business entity. Now I think I did have that in one of the first episodes on how to do that. But when you start investing in your IRA you definitely want one of those and you need one of those. And I would have probably like an LLC specifically for my retirement account. Anything that's in that is doing the same exact thing. And I like to do it that way it just keeps everything keeps keep said the paper. Clean your paper trail always needs to be clean.
[36:31] And so you don't want a lot of different investments and a lot of different things. Let's not confuse the people who work for the IRS Not that they're all stupid. I like my IRS office here in Mesa. Those guys are super sweet because I've had to go in there and sit there a couple of times and I've always said to them I go Man I wish you guys were a bunch of idiots and really mean because I'd love to say I had to sit in the IRS office and I hate these guys but those guys are really nice. But some IRS people I would think aren't the most intelligent and those laws are complicated. They don't know everything they mess up a lot. So if we can make it easier for those those yodels, we can make it easier for them, we want to. Right. So create yourself an entity like an LLC that is specifically for your short term rental business that is going into your Roth IRA. We are going to use that as the example. OK so you can name it whatever the heck you want to name it whatever you do name it. Make sure it's easy to write on a check.
[37:37] I know this is stupid but every time the first of the first IRA and the first L.L.C. I had I had these like long complicated names and it was like you know because that's what you're going to have to write to the benefit of that. And it goes on and on forever. Make those names short people make those names short. You can't always use for different states have different laws about the names you can't use numbers and you can't you know you can't use this or you can't use that. But I always make the names as simple as I can because I hate writing out all the checks by hand like it's just the names are short. So now it's nice. So keep the name of your LLC nice and short and you're going to create that LLC and your your IRA is going to invest into your LLC so your LLC is basically a business that you're ira your IRA is investing in. Get it. So it's taking one entity and it's investing in another. Your IRA your retirement account is investing in to a real estate business and that's going to be your short term rental real estate business. Now when it does that you have to keep a paper trail. You have to make sure that you keep track while you do that anyway. But you have to make sure you're keeping track of all your expenses.
[39:05] Everything that comes in everything that goes out all within that little pocket of money. So you may have some that you have are personal don't don't commingle those accounts.
[39:18] So let's say for instance the first short term rental you had was inside your house. And you just use your personal name on your Airbnb account and stuff and maybe you did another property and another one when you start using your IRA to invest into your company. Number one it has to be a company. So it has to be its own entity. And number two you don't want to commingle personal an IRA ever ever ever. You want none of those properties to be the same. You want none of those properties to touch each other. So when you invest using your IRA into your business remember these are the properties I cannot use ever. My friends can't use them. My family can't use them.
[40:05] No one can use them but strangers. They belong to that entity. Pretend to yourself that you are running someone else's business. Okay. Because that's literally what you have to do when you think arm's length. This is someone else's business and I am just managing it for them. And as a manager if I get caught stealing or putting my hand in the cookie jar, not only will I be fired but they will take everything I own, because the IRS is going to be the one locking down on that. So you want to make sure that you're not touching any of that stuff with friends family or yourself. So those properties are going to be completely separate. Know them and don't use them. OK. It's so so so important that you always look at all the rules and regulations that apply to your self directed IRA because like I said the government wants your tax money.
[41:06] So they created these loopholes basically. I think the rich create loopholes for themselves but the IRS loves to find people who are going against them. Don't be one of those people. Don't be silly and stupid. OK. Be smart. If you're going to do it do it the right way. Don't break the law ever. Don't go around it. Don't do it once. Don't say just this one time nobody will know. We'll find out. Be honest. Always be above the board if you want to stay at a place. If you find a place in Hawaii or if you find a place in Florida it's super close to universal studios and this is the area you love and Dr. Philips or Windermere, and you're like, oh my god, this is the house I want that house does not get invested in with your IRA. That is a personal investment because if you're going to use it it's personal. OK. So let's see. I want to make sure that I covered everything that I wanted to cover here. So I covered the IRS publication 590 is where you can go look up what an IRA is right. I covered you know what a custodian a custodial account is or a trust is basically an entity you create with that Ira it's own complete entity away from you and that you are the trustee the custodians are going to be the financial institution or the bank or brokerage firm that's taking care of it.
[42:37] That I recommend equity trust because I like them. I've never had anything bad happen with them. But check it out. Ask around ask friends and family anybody who you know has a self directed IRA. That's another thing people are going to tell you that self directed IRAs are illegal. Oh my gosh. No, duh, they're not. If you go you're like No they're not. They're totally legal. It's just because people don't know. And what they don't know they think is always illegal and that's why you can go right there and you can look it up under the IRS and when you go into equity trust you'll see they can be illegal. If you're doing them wrong if you're investing in something that you should not be investing in. But there's a whole list there. Just follow the rules and the regulations if you're doing an investment in real estate completely legal completely above the board you can totally do this.
[43:30] OK. And then there are beneficiaries beneficiaries. You can be your own beneficiary to an account or you can have your children be beneficiaries. Obviously if you die they're going to be the beneficiaries after you but you can also set up IRAs for your kids your grandkids and different I mean just like there's a million different kinds for a million different reasons it feels like I mean probably not a million but obviously but there's a lot there's a lot a lot and it's really fun to look into IRAs because like I said it's the power of zero. And again I do recommend that book. It's not a difficult read. It does get a little complicated. It's not like his lirp book that lirp book is really good. But that's a whole different thing and I probably won't cover that on this podcast because it has nothing to do with short term rentals but this does yourself directed IRA can definitely be used for it.
[44:29] And I would highly recommend having maybe you know as many personal account personal rentals that you have enough to get your cash flow every month right to where you want to be to where you retire or where it's supplementing your income. What you want. So let's say you want to make 500 a month to 1000 dollars a month extra and you've got one property doing that. If that's all you want personally that income coming in by all means keep that one account if you want ten thousand coming in let's just say you 10x that. Now you've got ten businesses ten properties that are bringing that money into you and you're making ten thousand dollars a month personal. Those are yours if you want to stay at a property ever and use that property for your own personal use or the use of your children or the use of friends and family that needs to be personal. Then draw a line in the sand boom. Now you create an entire own separate company separate LLC and that company is going to be funded by and run by your self directed Ira.
[45:38] Hopefully your Roth IRA. So you're going to pay the taxes on the money that goes in to your IRA but no taxes on the money coming out. Right. And so every let's say you use that for your first five thousand dollars to start a rental property in that all the money that is made in that rental property goes into the IRA. It does not go into your pocket. Remember it's a company and you're running the company you're helping manage the company for them would if you went to work for McDonald's would you. And you knew that like every burger I sell they make a profit of you know 50 cents or whatever it is and you're putting that money in your pocket.
[46:23] I don't think McDonald's will be happy with you. So don't do that. It goes back into the company and you do nothing with those properties but run that business. That's all you do. You never get any money out of there until you retire once you retire then it's going to be completely different you're going to shut it down shut down those rentals and do something completely different. OK. But believe me by the time you're going to have that money working for you and you'll or you can keep it running as long as you're not staying in them right. You can keep it going as long as you're not staying in those properties. So you can keep making that money over and over and over again as long as you're not you know like if you bought a house in Hawaii maybe you don't want to use it until you retire. You can totally do that. But then you got to shut it down before you do. OK. So let's see. I want to make sure that I haven't seen any of these things. And remember again not a tax professional.
[47:21] Find somebody who you can trust and who you know. This is just my personal advice. These are the things that I've learned. These are you know everyone who has trained me every book I've read. These are my experiences all coming together in this podcast. Obviously not an expert. I don't have a doctorate in short term rentals. If there was one though I probably could get one. Remember traditional or Roth if you're making over the 186 thousand right now you're not going to be able to get the Roth IRA set up. But a traditional work but then again remember what I said and traditional that's where you're paying the taxes on what comes out not what goes in. So that's why you like those roth ones. But if you get that book by David McKnight then you'll see he's got a bunch of great ideas on how to use.
[48:17] You can use insurance accounts you can use in a Roth IRA as you can use all these different things you have zero taxes due when you when you pull this money out when you retire so do get that book. It's a really great book it will show you the power of zero. Meaning the power of pain zero taxes legally. And you want to set all of this stuff up because a lot of times to what you can set up now might be totally illegal. How many years from now. And you want to be grandfathered into any of those things.
[48:51] We had a couple of really big scares when Obama was president because he was trying to take people's accounts their IRA accounts if they had made over a million or two million dollars if they had over that in them then he wanted the difference. And that's just not right. And that was your money you put in there that was your money you make and also that money would go to your beneficiaries like your children if you earned that money and you invest correctly and you make that money why the government would think that they could deserve that money or could take that money. They definitely could if they made a law. But you'll be grandfathered in. Get this get the stuff taken care of now. You want to protect yourself. You want to protect your children your beneficiaries whoever you leave your money into. You know it could even be an organization or something you want to protect them from things like that and you want to be grandfathered in before any of these laws can take effect.
[49:47] Now some times they make those laws were they aren't grandfathered in. But as soon as you hear tell of things like that happening that's when you split those things. You're like I'm going to pull out my investment whatever I invested in and go into something else and let that interest you know those that money ride. So you need to always watch what's going on with your accounts. Always watch what's going on with politics and the things around you. Make sure that you are aware oh when you have an account like an account with equity trust they have newsletters and stuff that they send you out.
[50:22] Anything that is going to affect you in any way you want to be aware you want to be aware. You want to know what's going on. Same thing with your short term rentals. You've got to know if the city that you have your short term rental and makes it illegal to have short term rentals. If that happens to you you're in trouble. Right. So especially if you own the property then you're going to have to turn it into a long term rental or you know sell it whatever behooves you to do. But if you're renting you'll have to get out of that lease as soon as you possibly can. Some people hint hint even put it in their lease that if they make it illegal in a town that they can give them a 30 day notice to get out. I wonder who's smart enough to have that in their contracts.
[51:07] Me Yeah. Because, Dude, if they change that stuff. It makes a huge difference. I don't want to be renting a property in the keys if I can't make money from that property legally.
[51:19] You got to make sure that you always have these ways out so check yourself before you wreck yourself right. Isn't that what the kids always say. Check yourself before you wreck yourself. Make sure that you're following these rules. Make sure that you're staying ahead of the game. Make sure that once you start doing these things that you're in different groups you know there's only a couple different places where I have to check stuff because I know the best ones and I should start putting links up to some of the newsletters and some of the agencies where I get my information. But a lot of stuff I get from equity trust and from Stansberry those are my two favorite places because they're on it man. They're on the changes and they know what you invest in and if you are an investor what you invest in is very important and who you invest with.
[52:10] So they take care of you. They make sure that you're ahead of the game. You want to know if any of these rules change right and you want to protect yourself. So it's very very important. It's important to me too that you're not just making cash flow because cash flows cool. Don't get me wrong I love Cash Flow. I love the money coming in every month. That's a lot of fun. But what I really love is knowing that as a woman knowing that money coming in when I get older or when I retire. God forbid if anything ever happened to my husband or something that I've got money coming in and then I'm not going to be bunkered down with a bunch of taxes on it. Right. Because you know I look at my mother in law. It's really sad. Here she is living on this small retirement that she got a small pension from my father in law's account a little bit of Social Security which who knows probably won't be there right.
[53:10] I mean we all know the story of Social Security and what's going on with that. And you know she's living on this tight fixed income. She's not having the retirement that she dreamed of. She's she's. It's tight for her. And I feel sorry for her. I mean she's got she's got us and she's got you know my husband's other brother to take take care of her too. I mean everybody loves her and we're not going to let anything happen to her. But she doesn't want to be a burden on anybody. Do you want to be a burden on anybody. No. We don't want to be a burden on our family. You know we want our kids sitting by her bed waiting for us to drop. You know when we're sick, going, who's going to get the money. I'm going to keep my kids guessing for like ever.
[53:54] I'm never going to tell them who I left this stuff to because I want them to treat me nice you better be treating me nice, you don't even know, right now you don't even know. No my kids I'm sure I always tease that my daughter my oldest daughter if I sneezed she would put me in a home because she's like you can't take care of yourself. You got the cold again. You know I go. We're leaving the everything to her but she will never be in charge. We're going to have like a custodian who's in charge of my health going yes she is still in her right mind. Nicole will be arguing going. She's got a cold. She went outside again and just her socks. I always go outside in my socks. I don't know why because I don't like wearing shoes but I do like wearing socks. So. But anyways you want to make sure that you're not a burden on your family right.
[54:43] You love them. You want to take care of them. You don't want them to take care of you. And that's why you need a self directed Ira. So I hope I didn't babble too long. I hope I didn't bug you. But I hope you took a little bit of notes and I hope you go and check out equity trust.
[54:59] I hope you start putting money away if you haven't yet and if you have any questions about this stuff you know feel free to ask. Like I said I'm not an expert but I do know a lot and what I can do is send you. I'll be just like my guy at Equity Trust, going " I can't give you the answer to that" but I can tell you where to look for it and I can send you to the place you want to go so that you can make an educated decision for yourself right because that's all you need. You just need the information enough information that you can make a decision for yourself. That's all you need. So if you've got questions please ask them remember. Keep those things separate. That is actually the most important thing never ever ever.
[55:43] Always arm's length remember that's not your your IRA and the business that it will invest in neither of those are any longer yours. Once you start doing business with them. OK. Those are now a business company that you work for and they're not going to want you to take any of their money. And they're not going to want you to let your friends or family or yourself stay for free in their company. You know whatever. So don't do it just keep your arm's length on those things. That's pretty much the most important thing that you can remember is just follow the rules that are there. And any any custodian that you find there their Web site their custodians their people their employees are going to they'll direct you to all the things that you need to know all the publications from the IRS and everything so that you're following the letter of the law. That's what you want to do. That's going to protect you. That's going to protect your family is going to protect your investment.
[56:43] OK. So that's today's episode.
[56:47] I am so looking forward because we've got the 30 day challenge going on and the we've got the Web site I guess all those those videos and stuff of me were taken and downloaded in a different format. And we have to instead download them to YouTube or Vimeo and then link them to the website so once we get that working that'll be fantastic.
[57:10] But actually I'm more excited because Thanksgiving is coming up and I start the prosperity process has a really cool thing that we did last year and it's so fun, it's so amazing. We call it "the Prosperous Christmas Academy" and that is, like, We had less than a hundred people last year and we started it, this Christmas Academy to help people save money that is not what it morphed into. It morphed into something so much more fun. It was like really cool. We had people you know doing everything we had shopping buddies going on and they were everybody was sharing games and sharing recipes and it just turned into this good old time. This year we have even more information. We have really built it up and we made it a lifelong thing so that if we even invited the people who are in it last year to be back in it this year and every year.
[58:03] So once you get in, you're in for life. But it turned into this experience, this Christmas experience where everybody just, you know, created their their best Christmas ever. And we just had fun doing everything. I mean we thought it was going to be all about shopping. And here is how to save... And here's how to not get taken by the stores... And that stuff is all still in there. But now it's more about, you know, people were talking about how they relax and we started doing these float things, and I'm still doing the floats every couple of weeks I go in for a float. Have you guys ever done that? It's so much fun. They've got them here in the valley. There's a whole bunch of them. But you go into these float tanks and they're filled with saltwater and you go in for like an hour.
[58:50] You get naked put on some music and you can have it completely dark in there. Like all these mood lights. You're going to have it completely quiet or you can have music playing. I love it completely quiet. It's like just take everything away because I have five kids and you know grand kids and like my house is always loud dogs everybody is like. Right right right. So when I go in there I just have it dark and quiet for an hour and I just sit and meditate. And I'm telling you it's like it's magic. And so we got that last year from the from the Christmas program. But we have all these different things that we do. I don't know how I got on that tangent. You'll see - pretty butterfly - right? But everything we do is so much fun and we just created this really great program.
[59:39] So the 30 day Challenge, we will get that up and running as soon as we possibly can. Chances are, during this time of year, you know, I told the guys, if we've got to wait till January to do this thing right, let's just wait till January. And let's just focus on the Christmas program. The Christmas program is so much fun. I know, I'm a Halloween person. But next is Christmas. So these next few weeks are going to be a lot of fun. So if you find yourself, you want to, you know, check it out. Go to https://www.theprosperityprocess.com or go to Facebook and there's links from the short term rental revenue to the prosperity process. So Facebook.com/theprosperityprocess or facebook.com/shorttermrentalrevenue And that's where you'll find us. Check us out because we've got a video coming up Friday and we're going to tell everybody all about the new stuff that we've got going on.
[01:00:32] And just the fun that you can have during the holidays and it really has a lot to do with the people you hang out with. And even socially, on a social network. I mean, some of these people, it's so fun because they'll be like in the same town. They're like, "hey, we should get together" and WE should get together so we had some meet ups out here. So, we'll probably be doing that. I'm going to be in Phoenix the rest of the holiday season before I go back out to Florida. But you know if you want to meet up with us. Hey put your name in there and we would love to meet up with you. Bring your questions bring your hot chocolate or your hot toddies whatever you are hot chocolate or a hot toddy person, I don't care, but come and join us and meet us.
[01:01:15] I want to thank you again for listening and subscribing. And I just want to tell you how grateful I am that you're here, our listeners. More and more subscribers every single week. And my heart flutters every time I see them so leave us some comments, leave us some feedback. You know, we want to know what you want what other questions and things that we can do for you. So have a great day. I know that this is before Thanksgiving, but if you're listening after Thanksgiving, I hope your Thanksgiving was great. Have a Merry Christmas, wherever you're listening. This is the best time of the year. And if you've got any questions find me on Facebook. You know e-mail me at [email protected] We want to get to you and we want to get to your questions and we want to help you invest smart, invest wisely, so have a great day. God bless you. Go and grow.
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