Passive Income Investments: How to Use Self-Directed IRAs to Build Wealth

Eric Wilson
November 12, 2020


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Greg Herlean,Dave Seymour


Dave Seymour 00:01

Hi, myname is Dave Seema welcome freedom venture investments, very excited to have avery good friend of mine on the call today. And I mean that sincerely. Thereare certain tools that wealthy people have in their toolbox that the averageperson doesn't have. And we're going to talk about that today. I have on thecall with me and on this recorded zoom call that we all seem to live on my verydear friend, Greg Helene, is out in California this morning. He is the cofounder and owner of horizon trust. So if you could turn on your your videothere, buddy, let's see if this thing. How are you man?


Greg Herlean 00:42

Good.Good. How you doing? Thanks for having me, Dave.


Dave Seymour 00:45

Yeah,no, I'm doing well. Man, sir. so crazy timing, real estate crazy time in thatcountry, for sure. But out of chaos comes opportunity. So give back give thefolks who are watching this a little breakdown of who you are how you gotstarted in real estate brother. And you know, what's what's your wheelhousetoday? What are you spending your time on? Let's let's start there.


Greg Herlean 01:06

Well,then let me excuse any background noise because it is interesting time. So I dohave the kiddos at home and family if so there's little background noise. Thisis real, right? This is not taped over and, and shot a few times in a row. Butso let me just start with look self directing is, is typically a subject thatis kind of boring, frankly, unless you understand it. And I've just got apassion for because it really built my career and my you know, my excitementreally in the real estate world. So let me just back up real quick and explainself directing IRA, a self directed retirement account is frankly just a it'snot a technical term. It's just a, it's used as it was actually approved this,this self directing vehicle was proved in 1974. So it's been around for over 40years. Most people don't know about and we'll talk about about why. But it'sbeen around for a really long time. And all it is is basically a vehicle inwhich the IRS is approved individuals to use the retirement plans to invest inwhat they want, and what they want, which is the important part. And the secondpart of that which actually catapulted my career is if you don't have an IRA orretirement account, you can actually learn how to use other people's retirementaccounts, meaning they might lend you their funds. And so I've learned bothsides of it. Now I'm more on the passive side of the retirement accounts whereI do a lot of my own investing in alternative assets like real estate. But aself directed vehicle is basically a vehicle which the IRS has approved toallow individuals invest in what they want. And so I've been doing that for,you know, I actually was in the real estate game for a long time. Bye, bye.That was 19 years ago, I started in real estate. And I started the TrustCompany business about 12 years ago. And I started it primarily only because Iwas looking for a company that would help me fund my real estate deals usingIRAs. And the companies at that time, I just felt like their service wasterrible. And because they were slow, and they didn't understand it very well.It actually slowed down my deals, and I lost deals because of it. So that'sactually how I got into the industry. And now it's primarily what I do, Iprobably do three to five different real estate deals a year. I used to do like30 to 40 a year I do three to five. And now I focus primarily on teachingpeople how to use the retirement accounts.


Dave Seymour 03:37

ThatOkay, that was it's always a firehose with you, man.


Greg Herlean 03:44

I wantedto jump right into it. So I'll slow down and learn about this subject. So goahead.


Dave Seymour 03:50

It'slike I would like doing one of these in the background. Let me let me pull likeI love you, brother. I do. I've always loved you. I've loved your energy. Ilove what you've done for me and my business. Let's let's go back a little bit.First of all, you said self directed IRAs, individual retirement accounts,right at retirement, have 401, K's, Roth IRAs,


Greg Herlean 04:14

etc,etc. You said the ability to self direct them was actually approved in the 70s.Is that what you said? Correct in the 70s is when the IRS approved individualsto self direct, meaning move their funds into kind of whatever they want with afew exceptions.


Dave Seymour 04:32

So holdon a second. So if my math is right, that's almost 50 years ago,


Greg Herlean 04:38

is thatcorrect? That's right. 46 Yep. 4647 There you go.


Dave Seymour 04:42

We'llround it up. So let me ask you a question. I know for a fact that there was alarge majority of people who watch this recording, have no idea that they evenexist it. Why?


Greg Herlean 04:54

Well,there's two there will the main reason why most people don't know about it.This is kind of an obvious one, if you think about it for a minute, if you selfdirect your funds, that means you're moving your money from where it may be nowwhere will be typically a broker, so Charles Schwab, fidelity, Merrill Lynch,you name it, the big house is fidelity, that means you're moving your moneyfrom them to a Trust Company, like mine rising trust, and then what happens isthey no longer get a fee. So your financial advisor is not going to advise youand say, Hey, if you want to move part of your money away from me, so I don'tmake a fee, feel free to move in here. Um, and so so that's, that's the numberone reason why you probably will never hear about it. But the other reason whyI think you might not hear about it is, it's not for everybody, you might justkind of hear about it in general, in in in this, it's not the right approachfor everybody. If you're if you can't kind of pay attention a little bit toyour time to plan and accounts, then it might not be for you.


Dave Seymour 06:02

So itmight not be for me, then why would an investor even want to deal with one of thesethings? I mean, what's the what's the advantage in it? And what's I guess,what's the disadvantage? Because that's a pretty powerful statement. This maynot be for you. I mean, we're in that we're in the financial industry, inessence, right? I raise a fund and deploy capital, you create vehicles wherepeople can move capital. I mean, why would an investor even want one of thesethings? Great.


Greg Herlean 06:27

Well, myquick answer that is, is how, what do you think he cares about your money? Do youthink it's me? Do you think it's you date? Do you think it's your financialadvisor? No, I assure you, it's not. I mean, when's the last time yourfinancial advisor called you and was like, hey, Dave, I got this great stocktip, for this great mutual, whatever the case is, you know, send me over 10,000or $100,000, I actually wish they would do that. They don't. The only time theycall you is when they're like, hey, do you want to increase your contributions?Why do they want you to increase your contributions, because the more you gotinvested, the larger fee every is every year, so. So that's, that's one reason.The second reason is, um, I really enjoy making more than the typical with themarket mix. Meaning if you can self direct and invest in something you actuallyunderstand, and make an extra 234 percent per year and your money, what thatdoes over 1020 or 30 year period, we're talking about hundreds of thousands, ifnot a million dollar difference, just by making a few percentage points more.So that's why one should do this.


Dave Seymour 07:38

I had aguy and I love what you just said, because it's, it's absolutely to the point Ilove man, you know me, you know, where I came from, I didn't come from afinancial background. You know, I'm a blue collar guy in a white collar world.And I kind of bring, bring that attitude with me. But I remember the first timea gentleman explained to me what a compounding cost does to compoundingreturns. And we don't have to go too too far into that. But for every time thatI have a consistent cost inside a growth vehicle, I end up diminishing thosereturns substantially, to your point over the long longevity of the of theCapitol going to work. And nobody teaches that. I mean, nobody is out theresharing that information, because it would be, you know, I would be a deficitto, like you said to the financial industry's message in it will say that thestory that they tell that most folks, you know, participate in? So talkingabout participation, let's let's try this one, who is and who is not eligiblefor self directed retirement accounts? Because it can be kind of scary tothink, okay, now I got the responsibility of making it grow. So who is and whoisn't? Or is everybody eligible?


Greg Herlean 08:54

Ingeneral, everybody's eligible. But let me let me explain further becausebecause I say everyone, because one could actually open up an IRA account fromscratch and put in 5500, or 6500 or more, and start from scratch. So that's whyin general, everybody is, but realistically, our demographic, our kind ofclient is one that has over typically over 25,000 or more in a retirementaccount, meaning a SEP IRA, a simple IRA or Roth IRA or traditional IRA. Thelast bucket that I explained is those also that are available or eligible, havea 401k from a prior employer prior. So that means if you're currently employedwith the foot, and the company and you have a 401k that you contribute to, thatallows you to move over, but again, in today's world, right with pandemic andeveryone are changing jobs, or whatever the case may be. A lot of individuals,probably at least a third of those listening to this call, have an old 401kthey're not really paying attention to those are eligible to self direct. So Wecan get a lot of those. And we also get a lot of just IRAs, people that have anIRA that's existing, that are just kind of sick of the same old returns, butare not really paying attention and not understanding what they invest in, andthey'd rather invest in real estate, or something they understand better. Sothat's, that's, that's who's eligible for typically on our demographic are selfdirected.


Dave Seymour 10:21

Now,when I took my capital that I had left from the fire department, I put it intoa self directed vehicle. And I think is important for folks to understand this.And I'll share from my own experience, I was told that I could invest inanything that I understood. And what I mean by that was was other people'sbusinesses. If I still understood the stock market, and I wanted to be my ownday trader, I could choose to do that. Obviously, for me, I put it in sticksand bricks, I was also told that I could be a lender to other investors. Wheredo you see the majority of your clients direct in their investments? How what'swhat's the big business right now for that? You see?


Greg Herlean 11:02

Well,look, you know, I'm a little bit biased, because my roots are real estate. AndI also think that's why people typically that invest in any kind of real estatework with our boutique kind of Trust Company, because we understand it, youknow, that's, that was the basis of the foundational basis of our company. So,you know, 70%, I would say, of our clients invest in some kind of real estatebe at wholesaling, or lending or flipping or whatever the case may be, or evenbusinesses then LLC is that buy real estate. So that's where I see most of it.But it's also because that's, that's what we know, really, really well, I willsay that, again, it's, you know, this isn't because I'm biased, but there'sbeen more millionaires made in this country because of real estate than anyother industry. So I think that's also why people typically invest in realestate and they understand it, right. I mean, people understand real estatebetter than typically a mutual fund, because it's a little bit confusing. Andthere's six different people getting fees on it, and somehow it's supposed togo up, but it goes down. And so, so real estate, you know, like you said,sticks and bricks, even when the market goes down, at least you still own apiece of property. Typically, it depends on kind of what you're investing inwith your self directed IRA, I will say you didn't ask, but I'm gonna jump toit, which you can't invest in real estate is like your own home, you can't moveyour money into and purchase your own home. And I pay Can I pay


Dave Seymour 12:23

my kidsout of my self directed retirement


Greg Herlean 12:25

accountas you can be? There is a few rules. But for the most part, you know, almosteverything's fair game. And we explain that to you when we do a one on oneconsultation with my staff. And, and when we kind of figure out what you'retrying to accomplish. But you can invest, you know, you can lend your businesspartner and vice versa. You just can't You can't buy your own home or vacationproperty. That'd be taxable. That'd be means now you're using your retirementfunds before the age of 59 and a half.


Dave Seymour 12:51

So yeah.Oh, I look man, I know it obviously firsthand. But I've seen the self directionthrough real estate has been an absolute accelerator for me, right, andaccelerator. You know, I would say to anybody watching this, if you ever lookedat your 401k account and wonder why it's not growing, when it says on thestatement, it's a 7% return, right? The dollars and cents don't alwayscorrelate. My question to you is this. All right, we covered self directed IRAsindividual retirement accounts. But one of the sexiest vehicles that I hear alot about out there right now is what's called a solo 401k. Can you give me thebullet points on one of those, Greg, and what what that looks like, and why isthat maybe better than a self directed or not better than a self directed IRA?


Greg Herlean 13:38

Well,it's still, it's still, we open and hold people's solo K's or 401k accounts. AtHorizon, we do individual 401 K's we don't really do big company 401 K's. Um,it's, I'll start with this meaning saying that when we do a one on one callwith you, we're going to find out what your goals are and what your intentionsare and how much you can put away and see, you know, what, if you qualify forit, but a lot of people who are getting into the self directed space, who willmaybe start their own business with an LLC, we'll also open up an individual401k. And the advantage of that and to answer your question here now, there's afew things that make it you know, attractive, but I'll just focus on on two ofthem really, first and foremost, you can you can contribute a lot more. So Sotypically, in your IRA, you can only contribute 5500 6500 in a solo, okay, youcan put up to 50 $52,000. I mean, that's a huge difference. So for those of youthat are kind of behind on your savings and preparing for retirement, you canput up a lot more so that's, that's number one.


Dave Seymour 14:49

Is thattax free, Greg going in that 5052. That's a tax free contribution into a solo401k.


Greg Herlean 14:56

So as asolo 401k can there's different kinds of have accounts we can set up inside ofyour soul. Okay? So if you set up a traditional 401k Yes, that would be adeduction on your tax return, you know, it'd be 50,000 less that you pay tax onwhat I would say if you're, if you're 50, you're younger 55 maybe. I mean, itdepends, again, depends on what you plan on doing, it could be, you actually gofor 65 or younger, probably. But for those of you that are planning on makingreally big returns in your 401k, you can actually set up a 401k with a Rothbucket. So it's like a Roth 401k, which is actually what I have. So so youdon't get the tax write off now. Right? Because it's after tax dollars, there'sa free dollar that goes, you don't pay any gains, tax on your gains, and it allcomes out tax free. So so if you plan on only like and maybe investing for fiveor 10 years, it's probably just your traditional, but we'll be investing in for10 years or more, you should absolutely do a Roth bucket. It's really creative,and it's been approved. It's funny, these are kind of little, you know, thingsthat you never hear about, or really, it's the really, really maybe educated orlobbyists that understand this and play with it, but we're pretty good at it,we do, I'd say we open about 100 a month of these kind of accounts. And so, um,so we know we know how to do it anyways, that's number one. And the number twobenefit from a 401k, rather than just a traditional self directed IRA is youcan borrow from it. So you can borrow 50%, or up to $50,000, whichever islesser. So if you have like a $50,000 account, you can borrow up to 25,000. Andyou can use that money for whatever you want anything. I mean, I don'trecommend that you use it for vacation. But that's not what it's typically payoff, you know, debts or you know, something that's kind of have high interest.And what's cool about that is when you borrow it, you do have to pay it backover five years, and it's prime plus one or two. But that interest rate, let'sjust say you're paying for, you know, a 4% interest rate back in the loan backto your retirement account, that 4% you're paying yourself back,


Dave Seymour 17:01

insteadof instead of somebody else. Yeah,


Greg Herlean 17:04

like afree loan more or less, you know, that you want to get it paid back as quick aspossible, because you want to you know, keep the compound going. But those arethe two main advantages of having a solo, okay. And we have a lot of peoplethat do that.


Dave Seymour 17:16

I tellyou, man,





Dave Seymour 17:18

obviouslyI already know a lot of this stuff. I don't I don't live and breathe it everysingle day like you do. But even after all these years in the business, I stillget excited. When I talk to you, man, it's like, I'm gonna have a good daytoday. Look at the size of the smile on my face.


Greg Herlean 17:36

I loveit. Like that's that's the goal, because it's, you know, it's such a toughsubject because, you know, taxes and IRS do people fall asleep on but it'sexciting, because there's so many loopholes where you can actually make somebig games.


Dave Seymour 17:49

Yeah,you know what's funny, I was told one time, the the, like, the consumer mindsetcalls it a loophole. We as entrepreneurs, we actually refer to it behind closeddoors as tax advantages and opportunity. You know what I mean? They're all they'reall right there. They were written by the 1%. So why shouldn't we participatein it? You know what I mean? All right, let's, let's go to the dark side, thishas got to be expensive, man. You must charge an arm and a leg for all of thisstuff now?


Greg Herlean 18:19

No, no,I like the way you teed me up. Like it's supposed to be expensive. Now thatthat's the look like what you don't hear about these things. Because of what Isaid. Previously, this just, we can't our company can't compete with marketingagainst fidelity. I mean, these guys are giants. That's what you see on TVevery day. Yeah. Typically, just to give you an idea, most people in theretirement accounts are paying anywhere from one to three or 4% per year, youmight not think it everyone tells me Oh, no, I paid 1%. Here it is, youactually are missing the loads and different fees that are inside your mutualfunds that aren't on your statement. So So I'll start with that you're payingbetween one and three in our fees range from 50 basis points to 75 basispoints, what does that mean is a half a point to three quarters of a point soso it's less than 1%. In our 401 Ks, it's less than $1,000 per year, it'saround six to $700 per year. So I mean, that's and that's a flat fee, and I'm solow Ks and so, you know, you do the math, if you get 100,000 or more, it's it'sless than 1%. So, so not only are their fees, even if we were more, and we'renot but even if we were more than typically people in their self directedaccounts should be making between two and 4% more per year, if not even morethan that. No, I agree. No. So the fees really a non issue.


Dave Seymour 19:40

So asyou know, we're raising capital right now for a private equity fund. You haveyou've been a resource for me personally, and you know, my clients over theyears. If one of my clients and like I was talking to a guy this morning andsetting up a solo 401k I think he's already coming your way. But when a clientcomes from us through to your services, and they say, yeah, you know, I want toset up a self directed vehicle, whether it be an IRA or solo 401k. What doesthat onboarding experience look like, and what's the investment that might myclients would be making if they're coming from me to you?


Greg Herlean 20:17

So So,you know, again, this is this is mostly for education reason, anyways,obviously, we'd love to earn your business to go elsewhere, you'll end up prideback to us because I feel I'm so confident in our service, because that's theonly difference. There's, there's a handful of trust companies, we all do thesame thing, we're licensed to do the same thing. The only difference truly iscustomer service, and in how quickly we move money. And that's actually supercritical. So so we move money, I would say at least half the time that everyother company does. And what does that mean? It means that extra two to fourweeks quicker that we do is two to four weeks of interest that you're makingwhere you want to be putting your money. And so I'm like, the process is prettysimple. We handle 90% of the work for you, we recommend a one on one call withour team. Most companies say just go to our website, print out the forms, fillit out, sometimes they're a little bit cumbersome and not understanding whichboxes to check, we do a 15 to 20 minute phone call one time over the phone helpyou fill it out. And then you know you sign it and send us an invoice or justsubmit it to us. And and then once we get your paperwork, we request the fundsto be transferred all or part of it. That's the other thing that's important isif you decide to self direct, this is not an all or nothing thing, like okay,I'm going to move all of my retirement funds into this, you know, into thisself directed vehicle, you can if you get let's say $100,000 at Charles Schwab,you can leave 50,000 there and move 50,000 to a self directed IRA. So you canhave both things and kind of test it out for a little while. But I recommendthat See if you can, if this idea is actually better than the market. And thenand then and then you can move more money over the following years. So it'spretty simple. It takes us a couple weeks to move your money over. Believe itor not, it typically takes most companies four to eight weeks to move moneyover. So that's where we're we're just better. Yeah, that's that's the process.


Dave Seymour 22:07

Beautiful.Well, look, man, I I love it. You know, I love it. I've always loved it. I'vealways enjoyed, you know, having you being part of the part of the Dream Team.So the way I work is this is anybody that's coming through freedom ventureinvestments, I'll tell you what we do whatever our technical guys, you know,the ones that are smarter than us find some way of linking up through ourwebsites. And then we'll we'll service our clients going forward, man so


Greg Herlean 22:34

I'm notat the end of that Dave is a little bit sorry, is interrupting his Look, if youcome through in contact Dave and I'm sure you'll figure that out the linkaccepted like you said, we will we will waive your setup fee. And so typically,there's a one time setup fee that's a few hundred dollars and then just ournormal annual fee. If you if you come through Dave and then the link that he'sgot here somewhere below, somewhere, it will we will we will waive your setupfee. And so just look we want to have a good experience and in really startmaking more money than you are right now.


Dave Seymour 23:07

Rather,Thank you man, I appreciate you. Thanks for being there. Thanks for the youknow the service you give our clients and and also other people as well showingthem how to build a little wealth through some through some self direction. Allright, man. Thank you. I appreciate you brother be well thanks. Take care.