By J.P. Dahdah, Founder & CEO of Vantage
Being a Self-Directed investor does not mean you have to go through your financial journey alone. In fact, very few high net worth individuals would tell you that they reached their level financial success by themselves. Making sound financial moves consistently requires a high level of financial literacy and it is difficult to master a multitude of investment, tax and legal strategies by yourself. If you are going to excel at the money game, it is essential that you identify an effective group of professionals that can add value to your retirement planning by sharing their knowledge and experience in their area of expertise. I am not suggesting you delegate your financial decisions to third party advisors. But you should surround yourself with a team of experts that can help you make the most informed decisions. You should still maintain total control at all times.
As an alternative investor subject matter experts and advisors should be by your side to provide knowledgeable input, information, insight and options for consideration. Ultimately, they report to you and then you make the final decision based on your level of comfort, understanding and confidence resulting in the most suitable direction for you and your family. You may be thinking, “I already have a CPA, Financial Advisor and Attorney, so I’m set. I have my team established already.” Wrong. That is not sufficient. You must go deeper…much, much deeper.
For example, let us assume that you have decided to use a portion of your Vantage Self-Directed IRA to invest in real estate.
Your alternative investor dream team should include, but not be limited to, the following list of knowledgeable professionals.
Registered Investment Advisor / Financial Planner: This individual is responsible for ensuring your Real Estate IRA strategy is in line with your comprehensive financial goals and the expected rate of return will help you achieve your defined retirement objectives. You may want to find a fee-based or fee-only advisor that can prove they embrace the methodology of incorporating alternative investments in to a well-diversified investment portfolio.
Certified Public Accountant: This individual is responsible for confirming your Real Estate IRA strategy will not increase your tax exposure and you are prepared to cover any current and/or future tax liabilities. Should your Real Estate IRA strategy include leverage or active business activities (i.e. dealer status), your CPA should be able to educate you and analyze the potential impact of Unrelated Business Income Tax (UBIT) and Unrelated Debt Finance Income Tax (UDFI) on your IRA.
Real Estate Attorney: Having a family or general business attorney will not cut it. You need legal counsel that specializes in real estate. Someone that can provide guidance on real estate contracts, debt instruments, eviction rules, leases, landlord laws, deeds, ownership structures, etc.
Self-Directed IRA Attorney: Identifying an attorney that specializes in Self-Directed IRA strategies is critical. This individual is responsible for educating you about prohibited transactions, disqualified persons; appropriate investment ownership structures (i.e. Limited Liability Companies, Limited Partnerships, Private Placements, Syndications, Investment Funds, Private Stock, etc.) If you can’t afford hiring the appropriate attorney(s), you can’t afford the investment.
Estate Planning Attorney: Yes, a third attorney. This individual is responsible for ensuring your IRA investment is aligned with your overall estate plan. They will counsel you on your various IRA beneficiary options and suggest the most tax efficient structure given your wishes upon death.
Real Estate Professional: This individual is responsible for identifying and negotiating the best investment property for you. Be sure that your chosen Realtor® specializes in investment real estate and isn’t a generalist. If investment real estate does not make up at least 50% of their business, you should move on until you find one whose business reaches that minimum threshold. Visit our home page to search for a Certified Real Estate IRA Agent in your area.
Title and Escrow Officer: The title company and escrow officer plays a critical role throughout the real estate transaction so be sure you select a financially strong and credible company to help you avoid delays, unnecessary expenses and pitfalls. You need someone that has the patience to explain the purpose of each document and the responsibilities you are assuming by signing each dotted line.
Property Manager: This individual or company is responsible for helping you protect and hopefully increase the value of your real estate asset. This is done by ensuring you identify a great tenant (if your strategy involves obtaining rental income) and providing credible service and maintenance providers.
Loan Officer: This individual is responsible with helping you analyze if using leverage with your Real Estate IRA strategy is viable. Be sure this professional is knowledgeable about how non-recourse IRA loans work, has access to non-recourse loan programs and can educate you about the potential for tax liability associated with leveraging your IRA (i.e. Unrelated Debt Finance Income Tax).
Insurance Agent: This individual is responsible for ensuring your investment property is adequately insured for all potential risks. Be sure you work with an insurance specialist that has a vast knowledge in investment protection policies.
Remember, this list is relevant to someone making an investment in real estate. If your alternative investment appetite is something else, there will be a slightly different list perhaps but taking the steps of drafting a dream team of experts in each key area should not be overlooked. As you gain more investment experience and you identify a group of experts you trust and feel comfortable with, this process will increasingly get easier and more proficient. Most alternative investors already have a head start with this and already have a short list of these professionals on their side and only need to draft a few more to complete their power team. Regardless of whether you have a few or you are starting from scratch, you may be wondering, “What is the best way to find the right professionals?” The best way is to get a referral from a trusted source. Find someone that is already at the financial level you are seeking to obtain and ask them who they use. If they are wealthy, chances are, they have already built their alternative investor dream team and can share their contacts with you.
Good luck in drafting your alternative investor dream team and happy investing!