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Joes IRA...The Banker

Joe kept his eyes and ears open for new investment opportunities. He realized that the choice was his and although he considered the stock market as a source, he still remembered the sick feeling over those months of the 35% decline.

By: Bill Humphrey

IRA Insights

You may recall Joe, 54, married, two kids, one dog, successful business owner dreaming of retirement in New Smyrna, Florida. Review the previous article titled "Eat at Joe's IRA's Bar and Grill" for the full story of Joe's IRA's purchase of a business. Joe had found, after opening his IRA's last mutual fund statement, his retirement dream fading due to questionable performance of his stock-based retirement portfolio. Joe stepped up and took charge of his funds via a Self-Directed IRA.

Joe's IRA's first self-directed investment, Joe's IRA's Bar and Grill, continued prospering beyond expectations, primarily due to Joe's skilled oversight. Cash was accumulating for Joe's IRA's and Joe quickly realized that his IRA once again needed him to come up with another investment option. On an intermediate basis, Joe directed the accumulating cash to a money market account he selected. Joe's IRA's administrator opened the account for the IRA. Unfortunately, Joe was disappointed with the returns on the money market account; he stepped up his search for better investment options.

Joe kept his eyes and ears open for new investment opportunities. He realized that the choice was his and although he considered the stock market as a source, he still remembered the sick feeling over those months of the 35% decline. Joe dreamed of retirement in his beachfront bungalow, watching the sunrise over the Atlantic and listening to the surf rolling in. The laid-back Florida beach town of New Smyrna with its "World's Safest Beach" continued to call to Joe. He knew that his hope of realizing the vision was up to him. His self-directed IRA provided the key, but it was up to him to make his dream a reality.

The next week, Joe was having coffee at his local corner bakery with some friends. Retirement was far from his mind as they debated the upcoming Super Bowl. Having grown up in the northeast, Joe had some strong opinions. Hank, a friend from the west coast was a lot less adamant about who was going to win, but he was excited to be hosting the game in his new recreation room. Hank exclaimed, "This new HDTV could show the lacing on the ball as it flies through the air.” Hank continued, "Although I should get the bank to provide the beer; with the interest I'm paying them to finance it, they should be able to.”

That comment came back to Joe late that night as he was watching a preview of the game. Joe sat up straight...."I wonder how much the bank is making.”

First thing the next morning, Joe had Hank on the phone peppering him with questions about his new recreation room. And the financing for it. $15,000, 9.75%, 5 years payments. Sixty payment of $316. Over $4,000 of interest.

Later that morning, Joe's IRA slipped on a pinstriped suit.

Monday morning, Joe's IRA funded a new loan for Hank. Joe and Hank had worked out the details. Joe directed his Entrust Self-Directed IRA administrator to send the bank the payoff of Hank's loan. At the same time, Joe directed that Entrust record a new note from Joe's IRA to Hank. The new loan was at 6.75% plus one and a half point, which was added to the loan. 60 payments of just under $300. Hank was ecstatic since he would save over $1,000 in interest. Hank was happy to provide Joe's IRA security for the note in the form of a lien on his antique 1968 Super Sport Cherry Red Camaro. (Joe knew Hank loved that car and would never risk losing it). With the point charges, Joe's IRA's loan would return around 7.3%. Joe realized that his IRA's return on the money was just about twice what it had been earning.

Joe likes the picture of his IRA in banker's clothes. He realized that he had been thinking of IRA as an investor, but not as a lender. A completely new opportunity opened up for Joe's IRA. Joe could hear the surf at his retirement home a little louder. Once he put his mind to it, he came up with several other friends who often get bank loans. Joe remembered his friends complaining about how long the loans took to get and how much the bank always charged. Joe realized that with him making the decisions and his Self-Directed IRA making the loans, the whole process could be very fast and less expensive. The next Saturday at the coffee shop, Joe would make sure to mention his IRA's new lending program to his friends.

Now Joe's IRA has as many investment opportunities as Joe can find for it. He continues to learn about new investment possibilities, but has discovered that they may be as close as your neighborhood bar or coffee shop. If you keep your eyes and ears open, you will find them in unexpected places.

Bill Humphrey, a Colorado CPA, is President of Entrust New Direction IRA, Inc. serving Colorado, Wyoming and Montana.

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