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Hugh Bromma on Fox Business

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01-15-2009

TIME:               7:00 PM - 8:00 PM

STATION:         Fox Business Network

LOCATION:      National

PROGRAM:      America’s Nightly Scoreboard

DAVID ASMAN, anchor:

My next guest sees plenty of opportunity in today’s housing market.  He is helping investors use real estate to pump up their IRAs.  Joining us from San Francisco, Hugh Bromma, he is CEO of the Entrust Group.  His company provides retirement planning services.

And Hugh, first of all, I wasn’t that familiar with self-directed IRAs that you can actually use to buy real estate.  Describe what a self-directed IRA is.

Mr. HUGH BROMMA (Entrust Group CEO):  Well, a self-directed IRA is one that an individual directs their own planning strategy and kinds of investments that they want.  So they can invest in things like real estate or private placement, stocks, bonds, mutual funds, pretty much everything that they’d like to have and it’s just like any other individual retirement account except that the investment direction is provided by the individual, themselves, and they do their own due diligence--big word these days--on the assets they buy.

ASMAN:  So how do I--first of all, how do I get a self-directed IRA, because I don’t have one, and how do I change my old 401(k) to a self-directed IRA and then how do I go about actually investing in real estate?

Mr. BROMMA:  OK, it’s fairly straightforward.  First of all, you find a firm that does self-directed individual retirement accounts.  Our firm does, obviously.  We have 30 offices throughout the US and there are other firms as well.  And--

ASMAN:  So you Google it--you Google self-directed IRAs and you’ll find a firm.  Yeah, go ahead.

Mr. BROMMA:  Exactly.  That’s--and you’ll get to make your choice from those individual firms that are around and then you transfer your individual retirement account, or in your case, an old 401(k), at an employer where you don’t work anymore, into that IRA and then at that particular point, you decide on what it is, choose the property that you want to buy.  Let’s say it’s in McAllen or in San Antonio, in some cases, Southern California, in some cases, Florida these days, foreclosure property and then you direct the custodian, or administrator, to purchase those assets for you.

ASMAN:  You actually mentioned one case in Los Angeles, you mentioned it in something you wrote for Forbes, I would never have thought that now would be the time to be investing in Los Angeles.  But tell us--tell us of this particular investor.

Mr. BROMMA:  Well, what this investor did, and I found actually out last week at a lecture that I gave, there were 50 other people who were very interested in the market because the foreclosures have really gone up in that particular area, and so the cost of housing has really halved of what it was a year ago. 

And now what’s happening is the investor, in other words, those individuals use IRA, are looking at a property that will actually generate cash flow and have a net operating income that exceeds the mortgage that they may have on it, although most of the people who buy here are buying with cash that they have in their IRAs.

ASMAN:  Dani Babb, what I love about what Hugh is describing is, again, the whole theme tonight has been how the market is solving these problems without the dumb TARP money, all these hundreds of billions of dollars politicians say we can’t live without.  Here’s another example of how we can live without it.

Ms. DANI BABB (Real Estate Analyst):  Yes, this is awesome because we saw in the last six months or so, a lot of people taking money out of their 401(k)s, taking the hits.  I’ve actually done it myself to buy up properties that are super cheap, and as he mentioned, cash flow, which is, you know, fantastic.  If you can get into a property like that and use a plan like this where you’re not taking the tax hit, I say go for it.  It’s great.

ASMAN:  So Hugh, what happens, just to warn people that there can be a tax hit, who is hit with taxes and how?

Mr. BROMMA:  OK, the way that that works is that the owner of the property that you’re buying is the individual retirement account and the tax hit occurs when you start taking distributions of your IRA.  But in a traditional IRA you have to start taking distributions at 70 1/2.  Until that time you get the operating income tax-free, but you must end up paying that at--when you’re 70 1/2.  In a Roth IRA, or a Roth 401(k), of course, all of that is tax-free and there are no limitations about when you have to withdraw it.  You can keep it in there for a very long time.

ASMAN:  So message to Washington, folks, the market is moving, it’s not frozen.  The market is moving.  We’ve given you several--any time you hear a politician tell you the market is not moving, don’t believe them, you’ve got a lot of examples from tonight about how it is.  Hugh Bromma from Entrust Group.  Hugh, thank you very much. 

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