Archive for June 2011

Investing in Teak Wood Forestry

I have a client that has checkbook control of his IRA funds and he was explaining to me an investment strategy that I had never heard of. And that is investing in Teak wood forestry. I find this to be another fascinating investment strategy; one that I’m sure most investor don’t even know is possible to invest in teak wood forestry.
Here is how he explained to me.
This investment has outperformed all major stock indexes during the past 25 years; it has an annual growth of 15%. Teak is a perfect investment that hedges against a falling US dollar. It also is a green investment that slows the greenhouse effect and to a lot of investors this is an important factor. Of all the hardwood species it is seen somewhat like gold among the precious metals. It is used in shipbuilding, fine furniture, door and window frames as it is a strong durable stable wood.
Now that the supply of Teak from natural forests is diminishing and the demand continues to increase, the trend now is the use of plantation grown teak. It is simple to grow in comparison to other hardwood species. Given the growing demand for teak wood and the likelihood that natural forest sources will soon be unable to meet it, investing in Teak plantations can yield high, long term returns on his investment.
Teak plantations date back as far as 150 years in India and Myanmar, plantation establishment has accelerated over the past 20 years. In the future, plantation will probably be the most important sources of teak. As demand for plantation grown Teak grows, so will the value of your investment. Proper due diligence on plantations is critical just like it is for any investment.
This is just another example of the type of alternative asset you can hold in your checkbook control IRA. True diversification is key to our retirement accounts success. Remember true diversification isn’t just large cap, mid cap, small cap and bond funds. That’s 100% stock market based investing. There are so many investment strategies available to us outside of the stock market. There is just no reason to be 100% in one asset class.
Remember to continue to educate yourself on the power of IRA owned LLCs. And as always contact us if you would like more information.
Timothy Schubert

What is an IRA owned LLC?

I recently interviewed a couple that used their IRA to invest in a limited liability company to take checkbook control of their retirements funds. His IRA invested $60,000 into the LLC and her IRA invested $40,000 into the LLC. So the LLC had $100,000 in the LLC checking account. Remember these funds came out of their IRA accounts into this newly formed LLC without paying taxes or penalties because the LLC is the investment of the two IRAs and it is an LLC that they manage and control.  After doing good research they identified a property for $150,000. This same property sold three years ago for $360,000 they realize that that was probably an inflated price as most properties were three years ago.  None the less they were confident in this 2500 square foot home in a nice neighborhood that is less than six years old.

They contacted a non-recourse lender to apply for a loan on behalf of their IRA LLC. The lender told them that they will require an appraisal of the property and would need an analysis of what the property could yield in rental income this is part of the appraisal process. The lender would also need to verify that they have enough funds in the LLC checking account for 50% down and at least 10% cash reserves.  After the appraisal came back the property appraised for $174,000 and the rental analysis came back with estimated rent at $1350.00 per month.  The lender agreed to lend the LLC $75,000 and the monthly mortgage payment would be around $750.00 per month and that includes the escrow account to pay the insurance and property taxes.

After closing on the property the LLC now has a property with a mortgage that needs some minor repairs and cleaning.  They spent around $10,000 to get the house in rentable condition this means that their IRAs total investment into this property is $85,000. They hired a property manager to oversee and rent the property. It takes the property manager three weeks to find a tenant to rent the property.  They agree on $1300 per month with a $1000 as a deposit.  The realtors cut is $130 per month for property manager fees that leaves a balance of $1170 that is sent to the LLC manager to place in the LLC checking account. After the mortgage payment of $750 that leaves a profit of $420 per month in the LLC that’s a little more than 5.5% annually.  But as they stated they are in this investment for the return when they sell the property not the rental income.  The goal was to make enough rental income to pay the mortgage and pay for any upkeep the property might have and with $420 per month of profit they accomplished that. 

They are very happy with their decision to take control of their retirement accounts and invest those funds into an asset that they control and that is a tangible asset something they could touch and feel. They stated that they have had their retirement accounts in the stock market for years and felt helpless and hopeless, their stock market based retirement accounts were out of control.  They are excited about the future of their retirement accounts and will never give up the control again. 

So why are you not in control of your retirement? Are you tired of looking at your quarterly statements and feeling that you have given the control of your IRA to some stockbroker or financial planner? It is your retirement future, take control of it. For more information on how to get checkbook control of your retirement funds contact us today.

Timothy Schubert CISP

When should I start saving?

Over the past sixteen years of working in the retirement industry I have come across people in every stage of life, from 25 years of age to people on the verge of retirement.  And a common question continues to arise, at what age should I start saving for retirement?  Most Americans have trouble planning  a year ahead for summer vacation much less having the ability to plan for 30 years down the road for retirement.  So how do we deal with something that is so far in the distance but so important to our future.

If you think back about 35 years, Individual retirement accounts (IRAs) were just being created. There was no 401k, 403b or 457 plans. Retirement for people back then meant the three leg approach: Social Security, pension checks, and savings. Retirement didn’t last too long because life expectancy didn’t go far beyond the age of 70. The average male didn’t even make it that far.

Our retirement will be very different. You will live longer, and you’ll have a more expensive life style than your parents.  Let’s look at the three leg approach to retirement. First is Social Security: The average annual Social Security benefit is around $12,000. In other words not enough to live on.   Second is the Defined benefit plans also known as traditional pensions:  first of all do you even have one? Only 20% of Americans even have such a benefit.  If you are among the lucky few, the benefit is based on your salary and the number of years you worked for that employer.  But we are a mobile society and people just don’t stay with the same employer for 30-40 years like dad did.  Most of us cannot even count this as part of our income because we are part of the 80% that doesn’t have a good old fashion pension plan.  And the third leg is our savings:  of the three this is the one you have most control of.  So while two of the three have some serious problems you want to make this leg as strong as possible.  To save or not to save will have the biggest impact on the quality of your retirement years.  Let’s look at what our retirement accounts would look like if we started at age 25, 35, 45, and 55.

If at age 25 you invested $5,000 for 10 years and didn’t save another dime and you averaged 11% return at age 65 you will have $800,000 in your retirement account.

If you wait until you are 35 and you saved the exact amount and earned the same return your retirement account at age 65 would be valued at $364,615.

If you wait until you are 45 and you saved the exact amount and earned the same return your retirement account at age 65 would be valued at $168,887.

If you wait until you are 55 and you saved the same amount and earned the same return your retirement account at age 65 would have a value of $83,227.

You can see the power of compounding and the importance of starting early, each saved $50,000 but the returns that compound are significant if you start early. So when is the best time to start saving?  NOW!

If you want to know more about self directed IRAs and how to take checkbook control thru an IRA owned LLC call us today.  Now is the time for you to take control of your retirement future.

Timothy Schubert

Simple questions before investing

 There are simple questions that you should ask if you are considering investing in a private venture? The old saying that “if it sounds too good to be true then it probably is”. If this is the only way we  judge an investments worthiness we are not doing a good job in our due diligence.   We should be wary of promises of high returns with little or no risk. Let’s look at some simple questions that we want answered before we give our retirement money to anyone.

  1. What is my risk? All investments carry some risk, but higher returns typically mean higher risk. Be careful of misleading information telling you that there is little or no risk in these high yield investments.
  2. Is the firm selling a product that is regulated by local or federal regulators? You want to deal with firms that have full disclosure of their financials and report to some government regulator. If often pays to check the public record for recent documents that the company has filed.
  3. What are the fees? What are the total fees for this investment? Ask about entry and exit fees. What is the commission for the sales person?
  4. What is the exit strategy? Can I get my money back when I ask for it?  Are there fees or penalties for cashing out?
  5. Do I have security in real property with this investment?  If not, you may not have the comfort level that you desire with this investment. It may carry more risk than you want. Be careful with terms like secured and guaranteed.
  6. How much debt does this company have? And does it have loans to other related companies? Some companies have been found to be lending to related parties or related companies. These conflicts should be fully disclosed as well as the risks of these associations.
  7. Do you understand the investment? You should know your investment and this includes the company’s financial statements.  What sectors is my investment in? How long has the company been in business? You should know the history of the management team and the company.

These are just a few questions that you want to discuss with anyone selling you an opportunity in a private venture.  There are many other questions you could ask, but this is a good start for you.  Do your good due diligence on any investments you are considering.

Timothy Schubert