Archive for November, 2014

Why Self-Directed Retirement Investing is More Important Now than Ever

When most people think of retirement they think of long walks on the beach, golf, sitting around the house enjoying their grandchildren, and other happy thoughts. If you look at how most investment and annuity companies advertise, that’s exactly the dream they’re pushing. That advertising and marketing strategy has worked very well at getting Americans to fork over their hard-earned money to money managers, brokers and other financial professionals for them to underperform the Index on their behalf.

The thing is, it used to be easier. For example, the long term average dividend for U.S. equities has been 4.4 percent, going back to the 1920s. Stocks are paying a dividend of less than half that figure now, at 1.9 percent for the S&P 500.

Meanwhile, investors are currently paying 20 times earnings and up for exposure to the stock market. The long-term average is closer to 15 times earnings. Your parents and grandparents were getting a much greater return on investment than you are likely to get going into retirement.

In the 1970s, you could easily buy bonds that generated 10 to 12 percent interest, without breaking a sweat. Money markets even generated some solid numbers north of 5 percent and up. Inflation was a factor then, but inflation moderated, finally, going into the 80s, when investors simultaneously enjoyed the beginning of one of the biggest bull markets in history. But that happened because dividends could be profitably reinvested and multiples were simultaneously expanding from the tough times of the 1970s.

Things are different now: AAA bonds are paying dividends in the upper 4 percent range – and you can’t even count on the U.S. Treasury to be AAA rated anymore. Money market and CD rates are barely a blip. Going forward, conventional financial assets have a very strong headwind ahead of them.

Back then, it was easy to look good. There was plenty of return to go around and everyone was comfortable. Not anymore. Think of it: When stocks had dividends of 4.4 percent and up, and bonds earned 8 percent, it was no big deal to pay 1 percent to a mutual fund manager. Pay that now, and that’s over half your dividend return and a quarter of your interest income. That hurts.

That’s why we are believers in the Self-Directed IRA: It allows investors to diversify beyond conventional assets like stocks, bonds, CDs and money markets, and allows for access to potentially more lucrative asset classes. For example, leveraged real estate, precious metals, farming, mineral rights, oil and gas investments, limited partnerships, joint ventures – the sky’s the limit.

Yes, there are always risks associated with investing, and if you want to minimize inflation risk you must take on some uncertainty somewhere in the portfolio. But think of it: Any stock can go to zero. But energy won’t be going to zero. Land won’t be going to zero. A house’s value will never be zero as long as there is someone who is able to live in it. In fact, most of our clients who buy single family homes and rent them out, see a rate of return significantly higher than 4.4%. And the availability of leverage not normally available in most IRA accounts funded with conventional stocks and bonds has the effect of potentially significantly improving your cash on cash return within your retirement savings.

We’re here to spread the good news – you no longer have to feel bound to Wall Street. You can declare independence from the big investment banks and take control of your assets yourself.

To learn more, visit us online at, where you can download one or more of our exclusive guides to self-directed retirement investing.

Don’t let Wall Street get away with the same old same old. Seize the reins yourself.

Jim HittJim Hitt is the Chief Executive Officer of American IRA and he has been committed to all aspects of investing for more than 30 years, using self-directed IRAs for his own investments since 1982. Jim’s forte is the financing and acquisition of real estate, private offerings, mortgage lending, business’s, joint ventures, partnerships and limited liability companies using creative techniques.

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This technique will be used frequently and is one of my favorites to make a property easy to fund. It simply means the seller will take back a second, allowing you to get a new first to cover down payment and other costs.

The big advantage is it sets the stage for you to negotiate a deal that’s easy to fund because you can borrow the first at a low LTV making a hard money loan easy to get.


Seller wants $1,000,000 for an apartment complex that needs $100,000 in work. She owns it free and clear and fixed up and rented, you feel it’s worth $1,800,000. Seller says she’ll take $100,000 down and the balance within 24 months but will subordinate to a new first and take low or no payments or interest on the $900,000 second.

Purchase price $1,000,000
Down payment $ 100,000
Seller second $ 900,000

New hard money 1st $300,000
Less down payment -100,000
Less rehab costs -100,000
Cash to you $100,000

Financing structure
New 1st $300,000
Seller 2nd +900,000 – no or low payments

Your exit is to buy, fix and refinance with a good, permanent loan, or sell. You should be able to get a $1,350,000 loan (75%) or more and pull out cash once it’s stabilized.

Subordination can also be used in a more common manner by borrowing as much as you can on a first and getting the seller to take back a second for the difference with a longer payoff period. In this case, the financing is your permanent financing, so the first will be on good terms through an institutional lender and no short-term balloons on the second.


You can buy an office building worth $1,300,000 for $1,000,000 and if you get the seller $700,000 he will take back a second for $300,000 with monthly payments over a fifteen year period.

Purchase price $1,000,000
New bank 1st $750,000
Seller 2nd $300,000

The total new debt will be $1,050,000 and there will be an extra $50,000 to cover costs. Of course, the new first is a qualifying loan so the borrower and the property must conform to the lenders standards, so this will only work on stabilized properties with sufficient income to support both debts. The bank must know this second will be on the property– full disclosure.

Here are some notes on subordination:

  • Make sure you do your best to lower the amount of new financing and increase seller financing.
  • Won’t work on properties with high existing debt.
  • Be sure the property will easily support both payments if applicable.
  • Don’t over borrow and get yourself in a trap.

Now let’s look at a sample house deal:

ARV $200,000
Asking $150,000
Repairs $25,000
Seller Needs $40,000 Cash Now

Your Offer
Price $130,000
Down $40,000
2nd to Seller $90,000 Subordinate to a new first, no payments, 5-year down

You Borrow
Private Lender $75,000 First mortgage, 8%, $500 per month interest only, 5-year balloon
-$40,000 to Seller
$35,000 Cash to you for repairs and extra income

Total Debt
1st to Lender $75,000
2nd to Seller $90,000
Total Debt $165,000 on a $200,000 house with $25k in your account for repairs


  1. You get $35,000 the day you buy (25 in repairs).
  2. You get $35,000 less cash when you sell.

For subordination to work, you need a seller on a property with a problem and free and clear or close. Here you have all three ingredients.

Ron LeGrandRon LeGrand is the world’s leading expert in residential quick turn real estate and a prominent commercial property developer. Ron has bought and sold over 2,000 single family homes over the past 30 years, and currently owns commercial developments in nine states ranging from retail, office, warehouse, residential subdivisions and resort

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