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:
- “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”
- “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.