Get cash for your flip deals - Use a custodian

Do you need unlimited funds for your deals?

If I gave you 10 investors, hundred thousand each, to buy properties at 70 cents on the dollar, how confident would you be writing offers low ball offers?

A stumbling block to investing is not having enough hard cash to act quickly to participate in hot deals.

I read an article recently that there is about $5 trillion in IRAs, 401(k)s, and other qualified programs in the United States. 

What you learn what a self-directed IRA is, you can present to people have IRAs how they can make more money than CDs with real estate collateral, and diversify from volitle mutual funds and stocks.

Here's a concept: you are borrowing money from individuals IRA and not a bank for investments. 

For example investor can borrow money from someone else's IRA to complete investment and pay the IRA and amount of interest that's agreed upon in advance. The interest is earned on the money loaned is tax-free your tax-deferred depending on your type of IRA (traditional or Roth IRA)

Many banks insurance companies and venture capitalists of been using similar concepts to raise money for many years. You can apply this concept here for your real estate investments, allowing you to become more profitable and stay ahead of your competition.

Here's an overview:

Say you find investment property and negotiate 70% loan-to-value to give your investor safety for the investment. 

You build enough gross profit to pay your investors an attractive rate of return. 

I think what's attractive the 6 to 9%.  (Remember CD rates are .5% to 1.5%).

Remember it is the supply of money when you need it is MOST important, not the cost of the money, that's important.

So let's say you have an option to purchase a property at a certain price 70% or less, and you present this deal to potential investors, such as we do business with and local professionals such as your doctors, lawyers, dentists and business owners. 

It's important they offer an attractive rate of return and explain the security they have in the transaction by offering them first position lean on the property. 

Remember to remind your investors in addition their returns will grow tax-deferred or tax-free depending on the IRA type, traditional or Roth.

Let's talk about custodians now. Custodians are entities are companies approved by the IRS to do nontraditional investments like private loans from IRAs. An Equity Trust Custodian or Pensco Trust IRA Custodian will handle the paperwork.

The best way to explain how this works is to talk about a potential deal and how the private lender uses his IRA.

One the real estate investor finds property at a good price. 

Two he opens up an escrow account. 

Three the title company is notified that the loan will come from an IRA loan.

Four the custodian is notified of the open escrow. The documents are prepared by the custodian for the private loan.

Summary: The custodian has specific paperwork to create this loan and wire the money directly to the title company. 

The IRA like a Corporation, it is lending money and signing a promissory note as the lender. 

The borrower, the real estate investor, is borrowing money from the IRA, and the IRA is acting like a bank, as a lender.

What's the paperwork is approved by the custodian which usually takes less than two weeks, the money is wired directly the title company. Sometimes stocks and bonds and mutual funds need to be sold and wired to the Custodian.

Next, usually, there's a title search with title insurance, and everything is just like a regular bank.

Most of the time a loan servicing company is used where the payment goes directly from the borrower's account at their bank, and pay directly to be self-directed IRA account.

A note about structuring the loan: you don't have to make monthly payments, you just need to make payments on regular basis. 

So you could have a loan of 100,000, with quarterly payments made to the IRA.

The bottom line:

Here the advantages for this private bank

• allows you to participate in more deals
• more deals equals more profits
• you are able to offer cash for investments to receive deep discounts
• you can beat out your competition
• you can free up personal money for personal needs

Here are negative hassles that you can avoid using a private lender

• lengthy committee approvals
• bureaucratic red tape
• potential credit risks
• tying up your personal funds

In conclusion, whether you are using IRA lending for private lenders of loans at 70% Loan to Value or helping JV partners use their IRA money to lend for your real estate projects, this is an important aspect to real estate investing. 

If you don't have private money you can't do deals.