The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 83 - Hard Money Lending & Investing w/ Self-Directed IRAs w/ Brenda Price & Cindy Hewett
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Discover transformative insights into using retirement accounts for innovative investment strategies. Learn how private money lending and mortgage note investing can help you grow your wealth in a non-traditional but effective manner.
• Benefits of using self-directed IRAs for investment
• Brenda's transition from teaching to real estate investing
• Cindy's financial expertise and compliance importance
• Exploring private money lending efficiency and profitability
• Common mistakes to avoid in private lending and IRAs
• How to begin your journey with private money lending
To learn more about what Cindy and Brenda are doing go to:https://nls-usa.com/
Your tax savings is going to give you all your down payment back. The rest is just profit coming in. It's like you're investing in real estate for free. He was a limited partner, so there was zero risk and he really liked you. This was one of our more risk adverse clients. All right, welcome to the show. I always love nerding out with experts in the world of money and finance. Okay, everyone, welcome to the show.
Speaker 1:The Mark Perlman CPA Podcast. I'm joined by two of my friends, cindy Hewitt and Brendan Price, and they do a variety of things in the real estate space, but not just the real estate space. What we're going to be riffing on and discussing is some opportunities that they are creating in their groups in regards to investing, lending and retirement accounts and, in particular, I think there's a lot of stuff people don't realize you can do with retirement accounts. So there's a lot of fun things to explore new opportunities you're probably unaware of. So there's a lot of fun things to explore new opportunities you're probably unaware of. So, brenda and Cindy, before we jump into the conversation and what you're doing and maybe some missed opportunities out there for some of our audience members who have retirement accounts, tell us a little bit about yourself and what you do, brenda. I'll let you start off 60 seconds or less intro.
Speaker 2:And then Cindy, brenda, fill us in on who you are. Okay, I am a former educator. I taught fourth and fifth grade for 22 years and I decided five years ago to start investing in real estate. So I bought some rentals, I did some creative financing deals and retired myself from teaching. So when I retired from teaching, I was a landlord and am still a landlord for about a year or so. And then I got heavily interested in mortgage notes and mortgage note investing. And then I met Cindy and we started getting into and talking about private lending and decided to start Next Level Strategies together where we educate people on how to use their self-directed IRA to invest in non-traditional ways.
Speaker 1:Cindy.
Speaker 3:I recently retired from the bank. I'd worked at a major bank for 15 years as a credit manager, an underwriter, did negotiation deal structuring and then, before I went to the bank, I worked as a CPA at a regional CPA firm and did auditing, taxes, bookkeeping, internal control. So three years ago I started buying real estate and I have three furnished rentals and when I was able to roll over my 401k I started doing private lending. With that. I find the perfect vehicle for private lending through your self-directed IRA. And so I had this bright idea to educate other people about the strategy, because people don't know that this is a thing. They don't know that you can use your self-directed or your IRA for something more than investing in stock market. So Brenda came along with me on that education journey and moving forward with NLS investments and trying to continue to educate people and help people use their retirement funds in non-traditional ways.
Speaker 1:Awesome. So let's talk about private money lending. What is private money lending to people who haven't heard of that before lending to people who haven't heard of that before.
Speaker 2:So that is just a person or a family that uses their own money to lend to others and we only operate in the commercial space, because when you do consumer lending. That's a whole other set of laws that you have to follow, not find.
Speaker 3:So we stick to commercial lending and real estate.
Speaker 2:And so I can loan Brenda money to buy her duplex.
Speaker 3:And then you still have the same protections.
Speaker 2:You have a promissory note, you have a deed of trust.
Speaker 3:You're collateralized, it's just done by people and not by the bank.
Speaker 2:Limit limit collateralized. It's just just done by people and not by the bank.
Speaker 3:Limit limit and to my understanding the reason why this is so appealing and beneficial is you can get pretty good, good returns on terms, right right that's correct.
Speaker 2:You can get decent returns and then you can get your money back quickly if you do the short-term loans, so you can have the velocity, get your money back quickly if you do the short-term loans, so you can have the velocity of your money to come in and go back out. Or you can choose to be more passive with it and allow your money to stay out longer. And if it's in your self-directed IRA and you want to be passive, you may want to lend it out for a number of years. Or if you want to be more active with it, you may want that velocity to earn money for you. So you'd want to go out and come back in and say between six and 12 months and you could just keep lending it out and it creates a nice return on your investment.
Speaker 1:Awesome. And what kind of returns are we looking at here? It's compared to like. You know you put your money in the bank. We're looking at returns of like maybe you know 4%, 5%, which is maybe keeping up with inflation probably less than inflation. There are other interest-bearing vehicles out there, but probably not that exciting and I know you could do better. What kind of numbers? Obviously it depends based on the federal interest rates and what is out there. But what can people expect to be making here from this? And then I think you get some additional fees and some origination fees. What's all that looking like?
Speaker 1:I'm not going to look at the cats, I just shouted at Glass, a glass in the background, you know, luckily I just ordered a new box of jiggy glasses because the cats like to knock things off my desk. But uh, anyways, let's keep it going. Let's talk about those numbers.
Speaker 2:So I would say you could double your return easily based on what you're getting at the bank. Would that be safe to say, Cindy?
Speaker 3:Yes, that's safe to say. There are several laws that you need to be aware of usury laws, which restrict you from charging interest rates over a certain amount, and that varies by state. From charging interest rates over a certain amount and that varies by state. So you consult with a professional, a real estate attorney or someone knowledgeable in that field to make sure the rates you're charging are in compliance, but you're definitely going to earn more than in a savings account.
Speaker 1:Right, and you know, the thing that I think is cool about lending is you can operate this business out of your retirement accounts. You can operate it out of a deferred vehicle like an IRA or 401k. You can also operate it out of a Roth. And obviously the Roth is really exciting because if you can just find a way to get the money into the Roth without losing your share in the taxes because this is a taxable event when you convert it into the Roth, without losing your share in the taxes because this is a taxable event when you convert it into the Roth, we can time this properly. Now you have this money growing tax-free in the Roth and you never pay taxes on it again.
Speaker 1:So a lot of things that we do with our clients is, if we find them in a low bracket and they have tax deferred accounts, we like to move it into the Roth. Or maybe we time a Roth conversion with a cost segregation study so we can potentially eliminate all the taxes on this conversion. We pay the taxes up front at a smaller amount and then, when we grow it, we grow it tax free in the Roth. You could do the hard money lending, get really nice returns on this, and this is usually collateralized debt.
Speaker 1:So if they stop paying, you can get real estate in the Roth that sells at a profit. So if you're smart obviously nothing's easy, nothing's guaranteed, but obviously you do your due diligence, you stay compliant and you evaluate the proper borrowers you can grow a sizable fortune that's completely untaxed in this Roth IRA and you have a good. Even though when we think about Roths and retirement accounts usually you think about, oh, it's passive, it goes in the stock market. I don't see it. I just, you know, I get a report. I can't control the companies and this with the Roth in the self-directed Roth or even a self-directed IRA or 401k, you have a decent amount of control and oversight in decision making and control over the outcome of what's going on here.
Speaker 3:Absolutely. When you're the self-directed IRA, it means you are directing it. You don't have your custodian that physically holds the assets, is not making choices for you. You're making your choices so you can invest in real estate, precious metals, mortgage notes, tax liens, pretty much anything, pardon.
Speaker 1:And cryptocurrency.
Speaker 3:Crypto. Yes, you can Imagine if you bought crypto in your Roth account Five or 10 years ago. I mean yeah.
Speaker 1:So tell us about some of the things you're teaching and you see people doing in your space.
Speaker 2:Well, first of all, Mark.
Speaker 2:I'd like to say I like what you said there about your investment is collateralized If you're private money lending or mortgage note investing. I have lots of people that come to me and they come to our class and they want to invest in real estate. Well then, when they start looking into what it means to be a landlord, to own property, they start saying, hey, wait a minute, this is a bigger onion than I ever want to peel. I don't really want to own the entire property and deal with the tenant and the paperwork and all of everything that comes with it and the sleepless nights, you know. So the private money lending and the mortgage note investing allows somebody to get into the game of real estate, secure by real estate. But they're more passive, you know. They don't have the headaches of being an active investor or landlord.
Speaker 3:So I like what you said about that.
Speaker 2:So we teach that. You know, when we talk about private money lending we had a class on that, was that? Last month, cindy, we did private money lending, yeah, in December, yeah, and then coming up January and February and March, we're going to teach mortgage note investing and, like you were pointing out, it just really appeals to people to have their investment collateralized by real estate so it's not as risky as an investment and you're also avoiding the three t's of real estate investing which is toilets, tenants and trash.
Speaker 1:So you know, another thing that we do is um for folks avoiding the three T's is oil and gas, or maybe the investment syndications. And what are your thoughts on some other thoughts on why people are going to be really gravitated to the note investing in the hard money lending side of things?
Speaker 2:Well, I think it. Self-directed IRAs and mortgage note investing and private money lending go together sort of like peas and carrots, because they're so passive. You could be so passively involved and Cindy will tell you all about how you need to be pretty passive in your investments in your self-directed IRA because you can't touch it.
Speaker 3:When you use a self-directed IRA, you have to make sure that you don't violate any of the rules that are set forth by the IRS. There are certain transactions you have to avoid prohibited transactions. For example, if you own a duplex in your IRA, your son can't live there. Your son can't live there. That will make your IRA be turned into a taxable entity. You lose your tax deferred status. So there's things you need to learn to start investing using your IRA. You want to always avoid the prohibited transactions and with the private lending and mortgage notes it's so passive. It's easier and truly passive because you don't actually own the real estate itself.
Speaker 1:You know we have a variety of clients. I find that younger clients especially those who are like strapped for cash, they like the fast return type of things, they like to really have their hands in the weeds here and they really invest into their own businesses. But as you become more successful and become more affluent, you don't really have more time.
Speaker 1:But instead of having lots of time and little money and leveraging all the money you got. It kind of switches as they get older and then they don't have any time, but they have lots of money that they have acquired and accumulated and they're looking for a way to deploy it to really build that generational wealth. So correct my assumption. But my guess here is that the folks who are a little closer to retirement, like 50s and up, are going to be the people that really see a lot of benefit in this way of investing, where they can take their profits and their wealth and grow it in a way that's very tax-advantaged. What are your thoughts on that statement?
Speaker 3:Well, it's part of a great diversification strategy, because if you have all of your 401k or IRA in mutual funds, you can wake up tomorrow and half of your value be gone. If you have half of it in real estate or real estate-backed notes, then you wake up tomorrow morning and your value is not going to go down, it's going to hold its value or, generally, real estate will appreciate. So it's great to have some in the stock market if that's what you love.
Speaker 2:But with investing in your IRA you can invest in many different types of things. It spreads your risk. I would argue that people like it too. Like I, work with some young people in their early 20s and they have that Roth self-directed IRA going on that they're private money lending out of and they're excited to do so. They're just diversifying a portion of their income to that and working that small balance. Imagine if you started doing that when you were 20.
Speaker 1:That would be nice.
Speaker 2:And then you're ready to retire by the time you're 59 and a half 60, you know you've grown in all these years. So there are young people that are deploying these strategies. I love to talk to them because it's so exciting to see them learn and do and execute this at such a young age, because you know that that's going to pay off for them so well in the long run.
Speaker 1:Yeah, and I imagine that there's a lot of people out there who want to be somewhat entrepreneurial but they just can't handle, you know, being a part-time house flipper or dealing with tenants, and this is a way where you can be really smart with your money and leverage your money and leverage your time more effectively than other means of creating additional income streams. That's right.
Speaker 2:And sometimes these young people are extremely bright and they'll say things like well, I see you struggling with owning all that real estate and what it means to be a landlord. And they'll tell me I don't want any part of that, I would rather have my time. So how can I invest in a way that is more passive and still have a decent return?
Speaker 1:and that starts the conversation right, and I'm guessing because I know that you guys have done a lot of different things. You've been a teacher and you've both. I know, brenda, you've invested in real estate. I think you have as well, cindy um, have you? I think you had a couple of rentals, right?
Speaker 3:I have three yes.
Speaker 1:Yep, so tell me about the difference between real estate investing and investing in hard money, assets and notes and things of that nature, and what kind of led you towards further exploring? I know that you're still doing the real estate and You're diversifying, but how does someone find their way into this? What's really motivating you guys in this direction?
Speaker 3:Go first Brenda.
Speaker 2:Well, I bought a lot of property really fast. Because when I do something, I do it. I'm going to do this. So I did it. I bought a lot of property really fast. And because when I do something I do it, you know like I'm going to do this. So I did it. And then I quickly realized, oh my goodness, this is so much work.
Speaker 2:And I got to thinking it over. I'm like I'm really hustling here and who's making the money on these transactions? And I would sit at the closing table and I would just sign this paper promissory note, you know, next sign it again. And I got to thinking who's making money at this table when we're signing these documents? And I look at the paper, at the lender, you know, and I'm like that lender's making bank and I'm the one laying the floor and painting the wall, you know, and I'm like I'm not getting any younger, I don't want to do this, be this active and work like this. It's going to kill me. So that's when I backed off buying the properties and started thinking you know, there's a reason why the banks are the biggest buildings in the corner of every city USA. What is?
Speaker 2:it that they're doing and I'm like I want to be the bank.
Speaker 1:Right and you know what I, what I've seen is. So let's say you're doing this and you do it full time or you don't have real estate professional tax status. Some of our clients still like to invest in short term rentals where you don't need rep status, real estate professional tax status to reduce your taxes and you can still do the cost tax to reduce your taxes. But also, you know one of the things that we've looked at, especially with bonus being phased out.
Speaker 1:you know one of the things that we've looked at, especially with bonus being phased out you know, your bread and butter for reducing your taxes is the cost sex for real estate investing and there are other things and just write off strategies. But what we find is that you reach a certain threshold where you're at risk of paying lots of taxes out there. Usually just doing cost alone doesn't cut it, just wreck status. Love doesn't cut it, just rep status alone doesn't cut it anyway.
Speaker 1:So when you reach the threshold here where the let's say it's not all in your Roth or let's say you're doing a Roth conversion and we want to mitigate the taxes, there's a whole world out there of additional tax planning opportunities that have nothing to do with real estate. And when we get these real estate investor clients we say it's not just about using real estate to reduce your taxes or mitigating the taxes from the real estate, like capital gains events, but how can we reduce the taxes from your business and from your W-2 or some advanced planning so you have more tax savings that can be used to lend or that can be used to buy more real estate? So you know, to really be effective, you you need a whole, what I call holistic tax plan where you're looking at everything and all your income sources and your goals and your situation here to create the most advantageous situation, and you know obviously having these self-directed accounts and hard-mending lending plays a big part in it too, when you're interested in that stuff.
Speaker 2:Absolutely. That's why we need you, Mark, to teach us. Tell me more. Tell me more about how I offset my active income and work smarter, not harder.
Speaker 1:Yeah, absolutely, and I just love that you can do this with a Roth and get really good returns on your cash here, because there's like you're, you know, because there's so many restrictions on what you can do inside these retirement accounts in the Ross, and this is one of the areas that gives you an opportunity to be active and really build profit but still see the benefits of the retirement accounts here. So it's a really cool thing that I think a lot of our listeners should at least consider adding to the mix.
Speaker 2:I get that question a lot. People say, well, I just have a small balance, I don't think I can do anything. But you can as long as your transaction makes you more money than the fees. So we've run into that. Sometimes the fees Watch out for those that your custodian has in place and partner Partner IRAs. Or if you have an HSA, you could partner that with your Roth um yeah that's pretty cool. I think, I don't know, do what Mark it's really cool.
Speaker 1:You can lend for your HSA. We even talk about that. You know your HSA when you put the money in it's tax deferred and when you take the money out it's untaxed. So you see the money in it's tax deferred and when you take the money out it's untaxed. So you see the best of both worlds between the Roth and the 401k. And if you want to be like a next level tax saving ninja with these retirement accounts, you maximize your HSA contributions and then you can lend out of that. That's some really cool stuff.
Speaker 2:Absolutely Excellent and I love to teach people about it, especially young people. And let's face it, we're all going to have health events, so let's be building up that HSA for those times when we need that.
Speaker 1:So tell me about where. So, when we're thinking about these topics, where are some common mistakes? I mean, I think you touched on this as a compliance related. What are some common mistakes that you? You know what I mean. I think you touched on this on some compliance related stuff. What are some common mistakes that you see people encounter, whether it's compliance related or, you know, maybe some poor business decisions? What are some mistakes to avoid on these topics?
Speaker 2:Well, like I just said, I think, watch out for the fees, Pay attention to what are the fees that your custodian asked the question. You know how do you charge me this fee? And think about your business model and how that would affect you, and maybe shop around a little bit to see what suits you and what you want to do. And then also, I see a mistake in people's. It's a mindset. Mark their mindset. They'll say, oh, I can't do this, I don't have enough money to start, so they never start. Well, you know, the best time to get started is today. So how much do you have today? Let's start there and it can be a small balance and that's okay. What?
Speaker 1:about you. How long do we need to get started?
Speaker 2:Well, I mean, as long as you can fund, I would fully fund. See if you can fully fund your um, it depends. But your H and then your roth and go from there. If you partner, you can start small. Yeah, we could talk for a while about mistakes made too. So the private money lending space people not vetting their buyer appropriately I mean not their buyer, the borrower and then they, you know, they didn't look at their borrower. And then they, you know, they didn't look at their borrower closely enough and lost their money or it didn't come back to them. So I would caution against that. If you're private money lending, take a close look at your borrower.
Speaker 1:Yeah.
Speaker 1:The only time I see that being possible with retirement accounts is if you, if you want to borrow from your 401k, you could borrow the lesser of 50% of the balance, or $50,000. And each of the husband and wife can do it. But that's it. So all those things to keep in mind here. One thing that I also think is cool about retirement accounts is, as long as you have these accounts set up, you can contribute to them after the end of the year.
Speaker 1:So let's say, we're doing your taxes and we find out you have a decent liability, more than you anticipated coming down the pipeline when we get your books cleaned up and we find that we want to mitigate those taxes and we also have the funds to do it, but we didn't put it into the account yet. We also have the funds to do it, but we didn't put it into the account yet. You can put your money after the end of the year into these tax-deferred vehicles and you get the deduction from the prior year. So that's really, even though it is more capital-intensive than other tax-reduction strategies, you can hold on to that money a little longer than you'd think and still get the tax deduction applied to the prior year. So a pretty neat opportunity there that's often overlooked as well.
Speaker 1:Now I got a question for you guys, so let's say this stuff sounds interesting to me, but I'm listening in the car to this podcast and I don't know where to get started. How do we get started learning more about these concepts with hard money, lending or private money lending, note, investing and self-directed IRAs? What do we do if we want to get started?
Speaker 2:And if you're in Knoxville, tennessee, we teach live the last Tuesday of every month on Clinton Highway at Master Services, so you can meet us there for a live class, and then we put those classes on YouTube. And, of course, you can find us on Facebook and Instagram.
Speaker 1:Awesome. So what we do towards the end of our conversation is can you give us a call to action and a place to go to learn more about what you do? And we'll also put that in the show notes of the podcast and the YouTube page.
Speaker 2:You can look us up on Facebook Next Level Strategies. We have a page on there. We have a web page. Do you remember the web address, cindy, because we could share it.
Speaker 1:Yes, Okay, let me know when you're ready and I'll put it in the notes. And also one more question here what haven't I asked you, if anything that I should have asked you during this conversation?
Speaker 2:Maybe you could ask what would be my if I were to choose what would be my favorite investment strategy at the time. And I think that changes in your life through the phases of your life and different things that you learn and do, and I've talked to people that have invested one way for so long and they just get bored with it and they want to do something else. So you know just where I'm at right now. I don't I can and do still buy houses, but that's not my main business model anymore. I really like mortgage note investing and private money lending. Second to that, because I value my time now and I would rather work a little smarter and not so hard at it, and I think that would be the favorite thing that I would do today, Although there's, like Cindy said, there's hundreds of options and we'll talk about them all, but that's my favorite today.
Speaker 1:Awesome, wonderful Well, cindy and Brenda, thank you so much for giving me your time today For those listening. If you are interested in this, go to the show notes and the reference websites and this will all be there. Contact us and we'll connect you with Cindy and Brenda. Also, if you or anyone you know may be interested in our services, send them to prosperalcpacom slash apply. Also, send us prosperalcpacom slash recruiting If you know anyone who can join our team. You guys have a wonderful day, enjoy listening and we have some more great content coming your way and we'll keep in touch thanks mark thank you very much.