Articles

My Two Favorite Deals

By Maggie Polisano

1. $3,000 turned into $53,000 –Selling a real estate contract for $50K

Reviewing the different client investments at the conclusion of the year I was able to identify 2 excellent uses of the “truly” self-directed IRA’s.

 Kate, a mother of five and a real estate agent in New Jersey, was able to grow her Roth IRA from $3000 to $53,000 in three months. The following table summarizes the investment.

Date

Activity

Account Value

Asset

15-Aug

Kate opens self-directed Roth IRA $3K cash contribution

$3,000

$3K Cash

9-Sep

Kate Finds a Property to buy for $200,000

$3,000

$3K Cash

10-Sep

Kate fills out Buy Direction letter, CamaPlan FBO Kate’s  IRA signs contract with 180 days to close and sends $3000 to  the Escrow agent

$3,000

$0 Cash

$3K RE contract

15-Nov

Kate finds a Buyer for the property for $250,000

$3,000

$0 Cash

$3K RE contract

16-Nov

Kate fills out Sell Direction letter- Buyer sends a check to  CamaPlan FBO Kate’s  IRA for $53,000 and the contract is assigned to the new buyer

$53,000

Cash $53,000 Contribution $3K Earnings $50K

Cash Invested $3,000.00 –Profit $50,000
Return on Investment 1667% ($3K/$50K) in 3 months time
Annualized return 4 X 1667 = 6667%

Kate had only these two comments:

  1. “I didn’t have to pay any taxes, a savings of $15,000 but I wish I would of used my Coverdell IRA because my daughter is going to college next year—Oh well, I will do my next investment with my Coverdell”
  2. “I like the Roth and Coverdell because I am optimistic, and I believe I will have more wealth when I am in retirement than I do now.  I prefer to pay the taxes on the seeds and not the crop. All the money in my Roth is mine, and all the money it makes for me is mine, none of it goes back to the government..”

2. $80,000 turned into $135,000-sheriff purchase and subsequent sale

Chad, a realtor in Pennsylvania, was able to put his IRA funds to great use taking advantage of the power of compounding interest and tax deferred savings.  He essentially is earning interest on his taxes, not paying taxes on his earnings.

Date

Activity

Account Value

 

Asset

 

15-Feb

Chad opens self-directed  IRA  $100K Rollover

 $100,000

$100K Cash

9-Mar

Chad Finds Property for $76,000 @ County Sheriffsale

 $100,000

$100K Cash

9-Mar

Chad fills out Buy Direction letter —CamaPlan FBO Chad’s IRA sends $76,000 to Sheriff

 $100,000

$24K Cash

$76K Real Estate

24-Mar

CamaPlan receives deed—Chad’s IRA hires property manager for maintenance and sends $4k per Chad’s instruction

 $100,000

$20K Cash

$80K Real Estate 

16-May

Chad finds a Buyer for the property for $135K

 $100,000

$20K Cash

$80K Real Estate  

17-May

Chad fills out a  Sell Direction letter- CamaPlan FBO Chad’s  IRA signs the contract and returns it to title company

$155,000

$20K Cash

$135K Real Estate & contract

12-Jun

CamaPlan signs the deed and other papers per Chad’s direction Title company closes and sends a check to CamaPlan FBO Chad IRA

 $155,000

Cash $155K

Rollover $100K

Earnings $55K

Cash Invested $80,000.00 –Profit $55,000
Return on Investment 69% ($55K/$80K) in 3 months time
Annualized return 4 X 69 = 275%
Tax deferred savings in 30% bracket= $16,500.00

Chad only had one thought – ‘This is a great tool, almost too good to be true, I have to do more, and I better get my wife and her IRA involved.’

Although these two investments are great examples of how individuals can use their knowledge and expertise to build their wealth I look forward to following the multitude of investments such as timber rights, condo’s in the Caribbean, tax liens in Florida, etc.

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