The Secret Wall Street Doesn't Want You to Know About

Wall Street has hidden the truth that you can legally use retirement funds to invest in real estate while maintaining tax advantages. Self-directed IRAs (SDIRAs) offer investors control, cash flow, growth, and upside potential beyond traditional stock and bond investments.

• SDIRAs allow you to direct investments yourself instead of relying on fund managers
• You can buy rentals, flip properties, fund deals as a private lender, or invest in syndications
• Profits stay in your account growing either tax-deferred (Traditional) or tax-free (Roth)
• Roth SDIRAs use after-tax contributions but qualified withdrawals are completely tax-free
• Traditional SDIRAs use pre-tax dollars with taxes paid upon withdrawal in retirement
• Be aware of Unrelated Business Income Tax (UBIT) and Unrelated Debt Financed Income (UDFI) when using leverage
• Solo 401(k)s are exempt from UDFI on real estate deals if you qualify
• Prohibited transactions include buying property for personal use, dealing with certain family members, and performing sweat equity
• You can partner with other IRAs or non-retirement funds to scale into larger deals
• Choose custodians with real estate experience, good communication, and transparent fees
• Plan for liquidity needs including taxes, insurance, repairs, and required minimum distributions

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Chapters

• 0:00 Wall Street's Hidden Truth
• 1:43 How Self-Directed IRAs Work
• 2:55 Roth vs Traditional SDIRA Explained
• 4:01 Navigating UBIT and Prohibited Transactions
• 5:08 Partnering and Choosing Right Custodian
• 6:15 Final Thoughts and Planning Ahead

Transcript

Speaker 1: 0:00

Wall Street's lied to you. Most people had no idea they can use their retirement money to invest in real estate. Now, I'll admit it's a lie of omission not commission, but it's a lie nonetheless. Ever sat in your car scrolling through Zillow and thought, man, if I just knew where to start I could flip one of these? Yeah, I've been there too. Most people who wanna flip houses never even start, not because they're lazy, but because they don't have the blueprint. Well, that changes today. If you give me five minutes, I'll give you real-world flipping strategies that actually work. No fluff, no theories, no gatekeeping, just real how-to information for you to apply. Today You're listening to Demo to Dollars, your no BS flipping playbook. Wall Street's lied to you. Most people had no idea they can use their retirement money to invest in real estate. Now, I'll admit it's a lie of omission not commission, but it's a lie nonetheless. You've been trained to believe the only path is stocks, bonds and mutual funds. And sure that works for some folks. But you and I, we're not some folks, we're investors looking for control, cash flow, growth and upside. That's where a self-directed IRA, an SDIRA, comes in. It's the legal, irs-approved way to put your retirement dollars to work in real estate, private lending, syndications and a whole bunch of other asset classes. And here's the kicker you still get the same tax advantages you'd get with a regular IRA. So why don't more people do it? Because Wall Street doesn't make money when you take control. Here's how it works. With an SDIRA, you direct the investments instead of some fund manager. You can buy a rental, flip a property, fund someone's deal as a private lender or invest in a multifamily syndication. Let's say you flip a house and net $40,000 inside your IRA. In a normal account you'd owe taxes on that profit this year, but in an SDIRA that profit stays in the account, growing either tax-deferred, traditional or tax-free Roth. So let's talk about the differences between a Roth and a traditional SDIRA. Here's a quick breakdown A Roth SDIRA you pay taxes on the money now and all qualified withdrawals later are tax-free. This is huge. If you expect your deals to generate big profits, you're locking in zero taxes on that growth. Now let's talk about a traditional SDIRA. You contribute pre-tax dollars, grow tax deferred and pay taxes when you withdraw in retirement. This works well if you expect to be in a lower tax bracket later. Okay, let's talk taxes.

Speaker 1: 2:59

The UBIT and the UDFI conversation. Now I've got to give you the straight story here. If your SDIRA invests in an active business or uses debt to buy a property, you could trigger something called unrelated business income tax or UBIT. A common version in real estate is unrelated debt financed income or UDFI. Here's an example If your IRA buys a $200,000 rental using $100,000 of its own funds and $100K of a mortgage, half the profit from that deal could be subject to UBIT. This doesn't mean don't use leverage. It means you run the numbers to see if the deal still works after taxes and often it does. Or you use all cash in the IRA to avoid UDFI altogether. Another workaround if you qualify, use a solo 401k instead. Those are exempt from UDFI on real estate deals, all right.

Speaker 1: 4:01

So let's talk about prohibited transactions. So let's talk about prohibited transactions. Be careful here. Do not blow this.

Speaker 1: 4:09

The IRS has a short fuse here. So let's be crystal clear you can't buy a property for personal use. You can't rent to, buy from or sell to certain family members. You can't do sweat equity. You can manage the project, but you can't swing a hammer. You can't move personal assets into your IRA. Break these rules and the IRS can treat your entire account as distributed, taxed plus penalties. That sucks. It's a nightmare you definitely don't want.

Speaker 1: 4:42

Let's talk about partnering so in order to scale. Let's talk about partnering so in order to scale. One of the coolest parts of the SDIRA is you can partner with other people's IRAs or even with your own non-retirement funds, if the structure is set up from day one. This is how smaller accounts can get into bigger deals without triggering debt financing issues. So let's choose the right custodian.

Speaker 1: 5:12

Not all SDIRA custodians are created equal. You want one that's fast, communicates well and has deep experience in real estate transactions. Fees matter too. Some charge flat annual rates, others charge per transaction. Make sure they'll move quickly when a hot deal comes up and make sure you understand how they get paid up front. I'll put a link in the show notes with a list of SDIRA custodians that our partners and clients have worked with successfully in the past.

Speaker 1: 5:41

Okay, so let's talk about liquidity and planning ahead. Real estate obviously isn't as liquid as stocks. Your IRA still needs cash to cover taxes, insurance, repairs and emergencies. If you've got a traditional account, remember you'll eventually have required minimum distributions. Plan for how you'll handle those without being forced to sell at a bad time. A self-directed IRA isn't just a loophole. It's a not-so-secret weapon. Used right, it can accelerate your retirement, shield your profits from taxes and give you the kind of control most investors only dream about. But it's definitely not a set-it-and-forget-it tool. You've got to know the rules, run the numbers and work with the right people. Do that and you're playing the game on a whole new level. I'm Ed Matthews and this is Demo to Dollars. Thanks for listening. See you tomorrow. Thanks for listening to Demo to Dollars. If today's episode helped you move one step closer to your first or next deal, do me a favor follow us wherever you get your podcasts so you never miss a show. I'm grateful to be part of your journey. Now get out there and get cracking. Bye for now.