Individual Retirement Accounts. How much do you really know? Did you know that investing in real estate through an IRA doesn’t require paying taxes or penalties on rollovers? This makes IRAs a very attractive option. But you need to stay educated and understand the rules and regulations associated with these types of investments to avoid potential issues with the IRS. 

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4:48 The history of self-directed IRAs
14:34 Alternative investments are not inherently risky
17:12 Real estate investments through IRAs
27:07 Solo 401k tax exemption

Alex is a business development specialist and host of Advanta IRA’s podcast, the Alternative Investment Advantage. He holds the designation of Certified IRA Services Professional (CISP) from the American Bankers Association and loves diving deep to learn about the rules, regulations, and technical aspects of self-directed IRAs, employer plans, and IRS regulations. He believes so strongly using retirement plans to invest outside the stock market he has self-directed his retirement and health savings plan and invest in real estate and private equity.

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Full Transcript

Alex Perny (00:00):

Well, I mean, I would also utilize the analogy that I believe Warren Buffet said is that you can stick money in a mattress, but it’s all it’s going to do is be something to sleep on. It’s never going to grow.

Greg Lyons (00:23):

Welcome to the Passive Income Brothers podcast.

Tim Lyons (00:26):

Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go. Welcome to another episode of the Passive Income Brothers podcast. My name’s Tim Lyons, and today I’m joined by two absolute rock stars, one of which being my brother. Greg. How are you doing today, buddy?

Greg Lyons (00:44):

Tim, I’m doing great and I wish the listener or the YouTube person can see what a disaster this is to try to get a podcast started. Microphones and cameras and this and that. I mean, what a disaster. But we are here and we are ready to talk. Self-directed IRAs, baby.

Tim Lyons (01:04):

That’s it. If anybody has any trepidation about starting a podcast thinking I’m not squared away, I don’t understand how to do it, I’m probably not going to be on time. My microphone’s always going to crap the bed. Just know that I am that person and we still have a great podcast. So

Greg Lyons (01:18):

Nearly 100 episodes in nearly, and this is a complete disaster off the rails, but here we are.

Tim Lyons (01:27):

So today we have a great guest and it’s somebody that is going to drop some knowledge bombs on us about investing via your I R A, your self-directed i r A, how to take your retirement account and convert them to an I R A. What are the benefits? What are the cons? How to do it, how to do it legally, how to stay in bound out of color, inside the lines and all those things because there’s something like, I don’t know, 10 trillion, maybe Alex is going to be able to tell us locked up into 4 0 1 Ks and you change jobs and all this good stuff and they just languish. And people really need to know that they have the power to get started in alternative investing by using these retired vehicles. So without further ado, I’d love to introduce you guys to Alex Perny from advanta I R A. Welcome to the show, Alex.

Alex Perny (02:16):

Hey, thanks for having me on, Tim and Greg, I really appreciate it. It’s great to be on love talking about this kind of stuff. And to your point of exactly how much retirement plan assets there are in the United States, as best we understand from information provided by the I R S and other sources, currently there’s roughly 37 trillion, that’s three seven with four commas and 12 zeros of retirement plan assets in the United States right now. Suffice it to say that from both sides of the coin, whether you are looking to invest or you’re someone that’s trying to raise capital, it’s a huge chunk of money. It’s something that more often than not gets overlooked. People just think, oh, I have my, it sits there at a big wirehouse. It owns I B M, Tesla, Microsoft, some Vanguard E T F, and you’re kind of done it and it’s really not the case.


So what I’d like to elucidate to people today is really the options that you have. While I’d certainly love for anyone listening to utilize our services, I try to keep it high level and hopefully you can see the benefit of doing this kind of thing. So specifically, I always like to ask podcast hosts when I’m on these types of shows. Where do you want me to start? I’ve been doing this specifically at advanta for going into my 12th year now. I’ve been involved in over 1200 different and specific individual deals and closings and investments with clients. When I kind of cut my teeth in the beginning of my career, I try to calculate it. It was something like something about 250 million worth of assets that I directly had a hand in investing for clients. So I kind of like to let you open the door and then I’ll walk through it and then we’ll take this journey together.

Tim Lyons (03:47):

Love it. So listen, I am a conservative guy. Greg knows that I said 10 trillion. It’s actually almost four x that 37 trillion. I mean, that’s an incredible mind boggling, staggering amount of money. And we’re not going to come to you today and try to trash Wall Street or trash your ETFs or mutual funds. I mean, listen, for a lot of people, there’s a place for that. They understand that and invested lane that you’re in, then you know how you’re going to invest your dollars. There are so many people out there, and Greg and I have had the privilege and honor of serving investors by unlocking some of these accounts and they had no idea it was even a avenue in which they could go down. So Alex, take people down a little bit of a history lesson about why and how self-directed IRAs came to be, how they work and how people who don’t understand what’s available to them can begin to learn how they can unlock some of this capital. Yeah,

Alex Perny (04:48):

I’m really happy you asked that. I am most bc I really like history. I’m a big person that you always have to examine what happened in the past to understand what’s going on in the future. And the history of IRAs is actually pretty interesting, especially in the context of understanding. People are hearing, oh, I can invest in this kind of thing with an I R A. This sounds something new or exotic. Did this just get written into legislation for the next administration to pull it? And it’s specifically not the case. So going back in the way back machine before I was born, so think back to the Watergate era. At Nixon’s president, we have this big block of legislation called erisa, the Employment Retirement Income Security S Act of 1974. What that did is it basically said that, hey, we have these big labor unions that have collective bargaining agreements.


They have good retirement plans for these people, but people working at an employer that had a hundred, 200 individual people that just wanted to extra avenues to save for retirement didn’t have an option. So what ERISA did is it created the venerable 4 0 1 K, it also created IRAs. So since 1975, it’s a trailing year for legislation. IRAs are created mainly the traditional ira. Roth IRAs come around in 1998. Roth 4 0 1 Ks come around in 2004. Not specifically important, just different tax strategies. But the point that you’re getting of saying, Hey, where do these things come from? And the point I’d like to make to people is that, again, this is not new. So basically when IRAs are created, you have the I R S saying, Hey, look, here’s a few things you can’t invest in. You can’t buy things that are derived from collectible value.


You can’t buy a life insurance policy with an I R A past that. It’s up to the company. So think you’re Charles Schwab’s, your Fidelity’s people like Advanta to say, Hey, here’s what we will and won’t let our clients invest in because some things are very specialized. If you’re a securities broker, you need to be a licensed broker dealer. You registered with finra. If you’re going to be doing stuff like real estate, well, you have to have people that understand, okay, well you’re going to have to sign a lease. You’re going to have to issue payments for repairs, you’re going to have to pay taxes, things like that. So again, it creates the market for these different people to get involved. Now, the reason that people haven’t heard about self-directed IRAs is because it’s a much smaller segment of the market. So as best we can determine that big 37 trillion figure that we talked about, roughly 4% of that is self-directed.


And that even includes people that pick and choose their own stocks. It is a fraction of that of people that actually go out and do things like invest in commercial real estate, invest in real estate, directly lend people money to go buy real, do all these other kind of interesting alternatives. It’s a very small group of people. So there’s less service providers, it’s just less part of the market. But as people are kind of coming around to see the benefit of, again, things like investing in real estate, and a big part of that is podcasts like this and other avenues where people can say, Hey, I don’t have to be beholden to Wall Street. I can get out there and understand that other things besides stocks and bonds can make money because very few people are series sevens. They’re not the financial analysts. It’s hard to kind of understand the stock market to any specific degree, but basically anyone can understand that hey, people need places to live.


Real estate’s been an investment since the Romans owned real estate. And the fact that they call it alternative assets in this context always kind of bugs me. Three things are less of an alternative asset than real estate from Roman Empire, the British Empire, they were conquering land in real estate. There’s a value to this stuff. And again, that’s again kind of the history lesson a little bit, but that’s where this stuff comes from. The genesis of it is back in 1975 and people have been able to do it since then. We’ve been administering some pieces of rental property for clients for 20 years in their IRAs. So that’s where it kind of comes from. And with regard to IRAs and their history,

Greg Lyons (08:37):

That is really interesting that real estate is viewed as an alternative asset. It’s people have been investing in real estate for years. Fortunes have been built. Of course there’s been some pain in real estate. And I think the main thing for this podcast is that we are not offering any advice whatsoever while doing this. We are just showing people that there are different things out there. Since Cityside Capital is FINRA licensed and we really like dealing with people that dot their i’s and cross their T’s, and you definitely have to do that when investing with your retirement accounts. There are so many different things. We tend to focus on multifamily real estate, self-storage, real estate, but there are so many different things you can invest in with your self-directed funds, real estate nodes, venture capital, oil and gas, agriculture. You kind of touched on it a little bit with collectibles, but what things will get you in trouble when trying to invest your real estate funds? Can you invest in Bitcoin or anything like that?

Alex Perny (09:48):

Yeah, so there’s kind of two parts to that question. Things that get people in trouble are kind of two faceted. One, you can get in trouble by violating i r s regulations, which again, people should strive to stay away from. The I R S is many things, but a sense of humor that they have, they don’t. So again, making sure you understand the rules. Again, the basics of it are you cannot buy something that’s collectible. So think rare bottles of wine, artwork, things like that. You also can’t buy a life insurance policy. But there’s also certain people you cannot directly deal with. Think opposite sides of the closing table. Like your I R A can’t go out and buy some stock that you personally own. If you’re invested in a syndication, you go, Hey, I’d like my I R A to be plugged in. You can’t sell your I R A that limited partner interest.


You can’t also, let’s say you own a direct piece of real estate, you couldn’t live in that piece of property. So you have to keep things at arm’s length with the IRAs and in general, painting with a very broad brush. If you stay at arm’s length, you’ll be fine with 99% of the I R S rules. And most of the time when people come in to invest in real estate, especially for things like self-storage and commercial apartment building ventures, again, that’s very hands-off. The reason you are a limited partner in that sense is because you don’t want to deal with the management. You’re in a passive position. So it works well for IRAs to plug into those types of scenarios. The other avenue is investing in something that is kind of over your head, and you can do that with stock bonds, mutual funds, you can do that at Fidelity.


They will let you trade on margin and write option contracts. You can get in a lot of trouble with that. You can also do it with IRAs. You mentioned a lot of different stuff. What I tell people is that whenever it comes to investing, you’ll see the most benefit from investing in things that you know and understand. The more you can understand about it, the better educated you are, the better position you’re going to be in to do well. Now obviously anything can happen. That’s not a guarantee that you will have success, but setting yourself up with understanding what you’re investing in is paramount of importance. So the two parts to that question is that yes, there are some keep things at arm’s length with your I R A. Don’t sell something to your I R A. Don’t sell things to a disqualified individual. And those individuals are directly up and down in the family tree. So mother, father, son, daughter, spouse, just don’t deal with those people. And again, the other few things I mentioned, you’ll stay well out of the issues that you can run into with the I R S.

Tim Lyons (12:15):

So that was really powerful and I want the listeners to understand that and really take it to heart. I mean, so many people are looking for the event and not looking for the journey. They want that bitcoin billionaire overnight status and all of a sudden they’re like, wow, I can use my old 4 0 1 K. Maybe I have 50 or a hundred or 700,000 in there. Wow. But you have to, Greg and I always have a theme on this podcast that it’s education times action. You have to be educated no matter what investing avenue you’re going to go down, whether it’s real estate, whether it’s stocks and bonds, ETFs, if it’s private money lending, fix and flips, whatever it might be, you have to be educated. You got to spend the time to align yourself with the folks that know the most about it that are doing the thing that you want to do. And then you have to talk to somebody like Alex who can help you color within the lines and use your retirement money in a way that is going to be satisfactory to the I R SS guidelines. I mean, there’s a rule book in life guys, and if we follow the rule book and taxes are a big part of what scare people, what also scares people is the group think Alex, right?


Excuse me, I had a 4 0 1 k and everybody that I know just kind of does a target fund 2045 fund. And they kind of set it, forget it. They don’t look back at it. They were taught from a very young age, you dollar cost average into your retirement account. Try to max it out if you can put some money into the Roth I r a, if there’s a company match even better. And then hopefully with a really big dose of hopium, you’re going to have enough money to retire when you’re 65. And guess what? You may even be in a lower tax bracket because you’re not going to be making any active income. I mean, raise your hand right now if you want to retire because and settle into a really low tax bracket and live on coupons and no frills items at the supermarket.


I mean, I’m not one of ’em. I don’t think Greg is. I don’t think anybody really wants to raise their hand for that. So what we’re saying is that there are avenues to unlock your wealth and to maybe even find an asset class that you really enjoy, you really love to learn about and use this option because for some reason, and I think Alex, you touched on this earlier, real estate is considered alternative, right? Risky. You hear alternative investments and I don’t know you Google alternative investments. I don’t know what comes up, but I’m, I’m going to say on the first page, you’re going to find results that say they’re risky. And I got news for everybody. All investing is risky. That’s why you’re getting paid. There’s something called a risk premium or risk premium. You can put your money into a safe liquid CD at the bank.


My dad did for, I dunno, 40 years. Greg. Greg, the man still ladders his DDS every 12 to 18 months. That’s safe to him. He likes it, it works for him, but there’s no risk premia associated with that. So we touched upon a couple of different, the asset classes and what I love to talk to investors about is really being active versus passive. Alex, right? If you’re active investing in your I R A in a stock account, you’re a day trader. If you’re actively investing in an I R A doing real estate, well maybe you’re doing fix and flips or maybe you’re doing private money lending. Maybe you’re going to invest in a syndication like Greg and I are a part of here at Cityside Capital. You can do single family rentals, you can do Airbnbs. So there’s a lot there guys. And Alex, if you could just take that ball and run with it a little for a little bit and kind of let the listeners know what are some of the investments that you see your investors at advanta I R a taking advantage of, especially in this economic climate?

Alex Perny (16:01):

Yeah, absolutely. So one of the main things that I like to look at is that understanding kind of the front end of this because you build a pyramid from the base and then you get narrower to figuring out where exactly you want to invest. So the biggest thing that I run across people in understanding the options, part of what you asked about is that you don’t have to pay taxes and penalties to do this types of investment. Having an I R A at ADVANTA and doing self-directed, and again, don’t like the term, but alternative investing doesn’t require you to pay taxes or penalties on that rollover. It’s a same difference of changing from let’s say fidelity to Morgan Stanley. You’re just utilizing a different platform for different investment options. So again, that’s kind of the basis of it. And the other one is that you don’t have to do any of these types of investments through a Roth I R a.


If you have one, great, I’m a big fan of those. But another kind of free conceived notion that I run into is that people think, Hey, I have to do this through a Roth. All my stuff’s traditional. I can’t do this simply not the case. You can do it through a traditional I R A A Roth I R A. You could even do it through a health savings account. I have a client that owns seven rental properties through his health savings account. It’s like $750,000 in an H S A. There’s all sorts of different interesting options. So if you have money in one of these kinds of things, you definitely have an avenue forward. But let’s get into the question you asked specifically of what have I seen? And that’s kind of a whole bucket in and of itself. And something I really find interesting that I’ve seen across my career.


This is really where I landed out of school. I started literally actually started in the, well, it’s kind of a closet, but where we sorted mail. So I was actually sorting mail and doing this and then got into the accounting side, the administrative, the investing side. Now I do this, but some of the interesting things that I’ve seen, again, a large part of our A U m is going to be real estate based. So best I can guess it’s probably about 1.5 to 1.75 billion of asset of real estate or real estate adjacent assets. And what exactly does that mean? So that’s a big spectrum. So we’ve seen plenty of people just go out and buy a single family rental. And you can do that a few different ways. The I R A would actually engage to buy the property. So it’s on the contract, it’s on the settlement statement, tax preparations, estoppel deed title policy.


The I R A actually owns that asset. And if you’re ever curious to know, pull up Pinellas County where we’re located and search our name advanta, I R A in the public record, and you’ll see hundreds and hundreds of properties that our clients own locally to us. Then if you do know someone that owns one, pull up the deed, see what it looks like. But you can, again, single family rentals are great because the I A buys the property and then instead of getting a dividend from something like let’s say what Coca-Cola, McDonald’s pay dividends, those are directly pegged to a share price. If that share price tanks, that dividend’s going to be directly affected. The nice thing with an I R A buying a piece of direct rental property is that they’re contractually obligated to pay a certain amount for a certain period of time.


So you can invest value agnostic because you have dedicated income coming in from something, which is a big benefit. But specific to that, you can do Airbnbs, you can do short-term rentals, you can do all that kind of cool stuff. You could do master leases with the property. You can do all sorts of fun, interesting things with the single family umbrella of real estate. Now, we do have a lot of people on the other side that like debt, just like with owning property and anything else like that. Owning real estate can be relatively labor intensive using that very loosely, but you have to deal with tenants to toy hidden termites, tornadoes, toilets, all that kind of stuff. So being on the debt side is really attractive to a lot of I R A clients because you get to kind of set it and forget it.


I don’t like the term mailbox money, but to make it digestible, you lend someone money, you encumber the property just like Bank of America would do your house, you hold a mortgage and they pay back the I R A and there’s all sorts of cool creative stuff I’ve seen with that. The debt is something I really found interesting in my career of seeing how people structured those like equity participation, participating in the appreciable gain at sale in lieu of having, let’s say a defined interest on a note, things like that. And then of course, what y’all get into of doing real estate. Syndications very popular for IRAs because again, very hands off the I R A gets to plug into a passive position. They get to then in turn sit there, collect the pref, whatever else is coming in on top of that, the preferred return, whatever’s stated within the subscription agreement and kind of just sit back and again, collect the income coming back in from the cash flows of that property.


And then from there, as far as other alternatives, again, we could chew up the rest of the time with that, but some interesting ones that I’ve seen, I saw a guy that had the lent a farmer money and secured it with the breeding rights to a bull that was in cattle rearing. That was pretty interesting. Had a gentleman that was buying and selling burial Crips, highly desirable cemeteries, was buying them at its I R A and reselling them. I’ve even seen the one that everyone kind of kicks around that we had. There was a gentleman that had a U C C filing against two alpacas. I don’t exactly know why he did that, but he did that in his I R A. Again, not that people have to get into the nuances of livestock trading with their IRAs, but again, just to illustrate the spectrum of things you can do, if you think you can make money at it and you feel confident in doing it, you could potentially utilize an I R A. Again, everything involves risk. What that risk profile looks like to you is going to be directly dependent on one the asset, and two, how much you understand about it.

Greg Lyons (21:24):

Well, Alex and Tim, we’ve hit a new point in the show where cattle breeding alpacas have now entered the fray, right? They have now entered the room and this is where we are right now. But

Tim Lyons (21:40):

I never thought I’d hear those words on this podcast, but thank you, Alex. I mean, it’s amazing. Thank you.

Alex Perny (21:46):

And again, it’s just to illustrate the diversity of this, and not to say that we deal a lot in those crazy alternatives. In 12 years I’ve been doing there 11 years I’ve been doing this again. That’s it. I can’t really think of anything that’s really kind of far out of left field, but I just like to bring those up to again, illustrate the fact that you’re not beholden to Wall Street to say, Hey, that target fund that you mentioned, you don’t have to do that. If you’re a farmer and you understand livestock, do that. If you’re a realtor and understand single family homes, do that. If you’re someone that builds sell storage and understand that there are avenues to invest in these things that are outside the scope of Wall Street, which is a very powerful tool to have.

Greg Lyons (22:27):

Yeah, like you alluded to earlier, where’s your zone of genius? And if you don’t have a zone of genius, who are you investing with that has that zone of genius and then you just deploy the funds to that specific area. So we look at real estate a lot and we look at the tax implications and the tax benefits you get from investing in real estate, but I know you’re not an accountant, but really on a high level, this is not advice for anyone. But on a high level, when you invest in real estate, we’ll call it a multifamily syndication, what are the tax implications of investing in your, say self-directed I R A? Do you realize any tax benefits from that or what are kind of the differences than investing with cash?

Alex Perny (23:18):

Yeah, absolutely. So there’s kind of a few ways to break it down. And again, this does get very nuanced, and again, I can’t give tax legal advice, but I’m also a bit of a nerd, but I can explain it ad nauseum. So here we go. So with regard to investing through tax shelters, if you buy something cash or there’s no associated debt underlying to the property or whatever you’re doing, there is no real tax that you have to worry about. If an I R A buys a single family home, it owns it as an asset. Any income that comes in doesn’t hit your personal income tax statement. There’s no funky tax filings to do. It’s very simple. It just goes directly back into it. There’s nothing else you have to worry about, which is really attractive to a lot of clients because doing something different doesn’t require a whole host of additional education.


If it’s basically just, Hey, everything’s tax deferred, I already understand that, or it’s tax free in a Roth, you just go forward from there. It does get to be a slightly bit more complicated endeavor. For an I R A specifically, and I’ll cover kind of a cool nuance here in a moment. If you invest, let’s say as a limited partner into a syndication because there’s underlying debt, typically the raise is going to be something like 30 20% down payment. There’s going to be a non-recourse loan on the actual property, which is all fine. IRAs can absolutely plug into that. But there’s this little nuanced tax called unrelated debt finance income or U D F I people mistakenly call it ubit or unrelated business income, not to get too far into the weeds. They are different and they’re the same if you will. So with regard to that, there might be a potential for there to be some tax filings that have to be done when investing in commercial real estate.


But the nice thing is, is that in the scenario of the single family home, you don’t have to worry about filing a tax return. Granted, you lose out on being able to write off expenses, but what do you have to write the expenses off on? You’re not paying any taxes. So it’s kind of a moot point. You can’t claim them personally. And that’s one of the only times I’ve seen someone get in real big trouble with the I R s is that they were writing off expenses for an IRA owned property. Personally, I r s really didn’t like that. And when I say really didn’t, really didn’t like that one. Anyways, back to the point, if you’re investing in I R A and I am being specific with my words, I r a into let’s say a limited partnership commercial development, X, Y, Z, you’re a limited partner.


There’s debt involved. It does have the potential on K one to pass through the need to file a tax return, what’s called 9 9 0 dash tier nine 90 T. And at the end of the day, even if you do have to have the I R A pay some taxes, all of the revenues and all of your gains at the end of the day are going to be dumped into a tax shelter. So you’re growing a tax shelter, and also you do get to take advantage of the pass through write-offs. So things like cost segregation, accelerated depreciation, any other type of allotment for your individual I R A invested in that helped to reduce that tax, you’ll also get a hundred thousand, sorry, you get a thousand dollars automatic. So most people really wouldn’t see any taxable implication. Let’s just call it an 8% pref. You really not going to see any tax.


Again, painting with a broad brush using relatively conservative numbers, most people won’t have much or if any tax liability for the IRA for most of the time in these things until there’s a liquidation event or a refi. And then even if you’re paying the taxes, the IRAs paying those taxes, everything else, all those gains and all of your underlying basis go directly back into your I R A. So there’s definitely a benefit to that. What I like to tell people is that especially if you’re interested in investing in things like limited partnerships, commercial real estate syndications, most of the time you as an individual, you probably have other stuff going on, maybe you own some rentals, maybe you have an L L C A side hustle, you’re self-employed. Look at, and I can’t stress this up, setting up what’s called a SOLO 4 0 1 K because SOLO 4 0 1 Ks or 4 0 1 Ks in general are exempted from that tax. So if you want to make your life a little bit easier, invest in limited partnerships with SOLO 4 0 1 kss commercial real estate developments because it’s just a, there’s no weird thing that you have to file with the I R S. It’s just exempted. So IRAs might have a potential to have a little bit of tax associated with them in certain asset classes, mainly things that have debt associated with them. But solo 4 0 1 Ks across the board, real estate acquisition debt exempts you from that tax.

Tim Lyons (27:33):

I love that you just made a distinction right there because before I went down the rabbit hole or my journey in real estate, I didn’t understand that there was a distinction between an I R A A self-directed I R A A, solo 4 0 1 k, a 4 0 1 k administered by Fidelity at my employer or something like that. I thought they were all under the same umbrella. And that’s why it’s so important to work with somebody like Alex who understands and can paint this picture for you because you have to get educated. You really have to get educated because there’s so much out there, there’s so much opportunity out there for you. There’s already rules written, there’s already a playbook, there’s already a checklist, and you just got to follow along and that whole world could be opened up to you. I want to bring the listeners, Greg, through a little anecdotal story, and I’m going to use dad as an example and I’m going to use dad because he’s never going to hear this anyway, because as much as we tried to get him onto the podcast, he just refuses to listen to this podcast.


So anyway, he is 73 years old, he’s now retired, and when we do certain multifamily deals, Alex, there’s sometimes two classes of shares that you can invest in. We have our Class A shares in certain deals, and again, this is not investment advice, I’m just going to walk you through an example, but the class A shares often have a 10% coupon, meaning that they sit higher in the capital stack. So they got to get paid first after the debt. They command a 10% coupon every month or every quarter depending on how the deal is structured, but they don’t get any upside at the end of the project. So if a project is three to five years, they’re just going to collect that 10% coupon and they got to get paid before the other Class B investors that sit lower on the capital stack. And my dad loves that.


He is in how many deals, Greg a ton. And he loves that coupon because he feels like he’s first in line. He feels like it’s a guaranteed thing that makes him feel better at 73, whereas investors tend to go to the Class B route because they want maybe a smaller upfront, say cash on cash return or a smaller preferred return while they’re holding the project, but they want maybe that appreciation on the backend. So knowing that is where really kind of clicked for me because as a New York City firefighter, I have a retirement account and I’m also going to have a pension when I do retire. And my plan is to take my retirement account, what’s called a 4 5 7 and put it into a solo 4 0 1 K. And that distinction that Alex just laid out, you have to have a side hustle or a side job or a side business or you’re a small business owner. But I think the caveat to that is that you can’t have any employees under you. You can’t have any direct employees under you to qualify for a Soul 4 0 1 k, is that right?

Alex Perny (30:36):

Yeah, painting with a very broad brush, you are correct, but it doesn’t necessarily mean that you’re precluded from utilizing an employer. They’re called employer sponsored plans or business plans. Yes. A solo 4 0 1 K is basically the stripped down version of the 4 0 1 K. Everyone knows and loves 4 0 1 Ks have the distinction of being legislated by two different bodies, the Department of Labor and the I R S. So there’s a lot of stuff about notifications to employees, discrimination testing in the sense that you are offering the plan to everyone that needs to be offered to it in that context of discrimination. But with a solo 4 0 1 K, because they’re designed for just the solo business operator, owner operated businesses. So you could potentially have multiple people involved in it. You could have three owner operators and use a solo 4 0 1 K, you were all technically employees, but I had a solo 4 0 1 K that covered five partners.


They had no rank and file employees. But even if you do, you could still self-direct it. There’s avenues out there. And that answer kind of would chew up a lot of time for me to get really far into, but suffice it to say to your point, Tim, yes, if you are self-employed side hustle, you run some rentals through an L L C, you have to have some type of business income or business activity and you could be a W two somewhere else. But just understanding that I think therefore I am does not apply to 4 0 1 Ks, they’re awesome, but you have to have some type of qualifying business to attach it to, and that could be sole proprietor. You don’t have to have an L L C, you could be an S corp, you could be an L L C tax as a C corp, L L C tax partnership, any of those spectrum of types of business activities work.

Tim Lyons (32:14):

So I love that. So there’s an opportunity there. This is all I’m trying to paint for you, and I just wanted to finish my little example of me, right, the 4, 5, 7, I’m going to take that money, I’m going to get it into a solo 4 0 1 K because the reason I’m doing that is when I got financially educated, I’ve read tons of books, I’ve been to conferences and webinars and podcasts, and I feel like there’s a ton that I need to learn. Somebody one time who is in the finance Wall Street community, we were talking one time and he said, you know what, there’s only usually about 30 up days, big days a year in the stock market. If you’re not in on those big days, you may miss out on the majority of the gains for that year. And when I thought about that, I’m like, wow, that’s incredible.


The other thing is, and I use this example a lot, is if you’re in the stock market, and this is the way that I think about it for myself is if I had a hundred thousand dollars in assets in 2022, Alex and the stock market I think went down by 22%, let’s just call it 20%, the s and p. Well, now my capital account would’ve $80,000 in it, right? A hundred thousand minus 20%. I’m at 80,000. If in 2023 it went up by 20%, I think maybe I’m back to my starting point, but hold on, wait a minute. 20% of 80,000 is 96,000. And then when I really started looking at that, I’m saying, wait a minute, where did my $4,000 in equity go? Where did that value go? And that really, I mean, Greg knows a lot of people know I am kind of cheap. So when I heard that and I walked through that, I said, well, I don’t want to participate in that. I want to go for something that I know. I like it. I trust it. I believe in the investing thesis of real estate people. It turns out they want to have a roof over their head when they go to bed at night, all this type of stuff. And that’s why I am deciding to do what I do today and also when I retire from the firehouse. Greg, what do you think about that?

Greg Lyons (34:20):

There’s so much room for not only dollar cost averaging being on Wall Street, there’s so much room in your portfolio for other things, alternative assets, especially real estate, but in the different things that we went over, no investing, being on the debt side of things, you can make money doing so many things, and I think that’s important. And unlocking some of those funds you may have in a retirement account is what it’s all about. And I think Alex has really laid out the case of it’s available, but you have to have the right help. Someone like Advanta I rra can help you navigate a lot of these questions

Alex Perny (35:00):

To the point that you made of a few of these things is that again, it’s not something that you have to do an all or nothing shot. That’s another thing that I kind of wish I had mentioned before in this is that for you to do self-direction, you don’t have to do all of your retirement. You’re not beholden. And I would say the lion’s share of my clients don’t only self-direct. We certainly do have some that do, but let’s say they have an account of fidelity, they may transfer over half, they still want to be in some stocks, bonds, mutual funds. They want to do some alternatives. Again, don’t like the term, but they want to do some alternatives here at Advanta. That’s perfectly fine. You don’t have to say, Hey, I’m going to change my investment thesis to be single-minded. Again, a sound investing strategy is one that’s not single-minded.


Granted, what that track looks like for everyone is individually based seek tax or legal help, but it’s kind of to the point of saying, Hey, just understanding that you don’t have to do all or nothing. And also to the point of understanding how to reclaim gains. To kind of illustrate again, is that when the real estate bubble crashed in oh 7, 0 6, 0 7, I want to say it was five and a half years before values had recovered and surpassed the actual reduction in value, but you still owned an asset, go back to the early aughts if you owned Enron, there’s no recovering from that. There’s no recovering from a WorldCom, there’s no recovering from some of these things that can happen. And that’s again, one of the benefits of investing in things like real estate is that I live in Florida. We actually had to reschedule this podcast.


My house was right in the path of hurricane at Dahlia. Thankfully, we’re still here, but if I own this property, I could have gotten ripped off the foundation. But there is still an asset here. Again, there is different things in risk profiles and yeah, you got to rebuild and all those kinds of things, but that’s one of the benefits of investing in tangible real assets, especially with the retirement plan. If it’s something that you are concerned about of being a long-term investment, the world’s 6 billion years old, they’re not making any more real estate, but new companies come around every day.

Greg Lyons (37:05):

Yeah, no, we appreciate that, Alex, and we appreciate your thoughts on the whole kind of retirement accounts, and we really invite people to say, Hey, if something struck a chord or there may be a rollover 4 0 1 k, you have somewhere, reach out to advanta I r a, reach out to Alex, and I’m sure they’d help you kind of navigate what’s going on. But right now, Alex, we are going to move into our last three thoughts of the podcast. This is, you could take your advanta, I r a hat off and you put the Alex Furney hat on and the personal hat. And the first thought is what do you say to people and even people, investors that you talk to through Advanta and they say, investing in real estate is too risky. What do you say to those people?

Alex Perny (37:52):

I would ask why, and I would follow that up with saying that people have stopped investing in all sorts of things, but throughout human history, they have never stopped investing in real estate. It was the core thesis of the East India Trading Company. It was the core thesis of Alexander the Great is to conquer land and what is land is real estate. So they didn’t have a stock market back then. They didn’t have a stock market till the 16 hundreds in the Netherlands where they wanted to start trading futures on tulips. So they were buying real estate before then. So that’s what I would say. Look at history. I like history, so I’d just say, look, yeah,

Tim Lyons (38:32):

You are a history guy. I can tell it’s coming through. Alright, the second one is from a de facto mentor of ours. God rest his soul, Jim Rowan. And he says that a formal education can make you a living and a self-education can make you a fortune. What does that mean to you?

Alex Perny (38:46):

Certainly the self-educated group is that experiential learning is kind of the most powerful tool. They say those that can’t do teach, you’re never going to get that real hands-on experience unless you get hands-on experience. Look at any great fortunes that have been built throughout the ages. They are people that went out there and granted, they may have had a great education, but it was the experiences along the way of navigating different things that have happened to them using that personal experience to inform future decisions that has ultimately led to their success. Again, look at anyone, you have to try to think of a good example, but no one comes out of college rich. They come out of college debt. So I would think that would probably be the core thesis of what I would say.

Greg Lyons (39:36):

No, absolutely. That’s a great thought right there. And speaking of debt, our last thought comes from Robert Kiyosaki, and this could be somewhat controversial depending on what you kind of speaking about here, but Robert Kiyosaki once said, savers are losers and debtors are winners. What does that mean to you?

Alex Perny (39:57):

Well, I mean, I would also utilize the analogy that I believe Warren Buffett said is that you can stick money in a mattress, but it’s all it’s going to do is be something to sleep on. It’s never going to grow. Or maybe something similar gold or maybe I just made that up. Well, let’s go forward from there. But to the point of that is that if you always are just reliant on what you are saving, you’re always going to be chasing something. If you take on outside debt, it’s just the throughput. Multiple is just, it’s there. Let’s say I had a hundred thousand dollars in my bank account. Well, great, that’s a great rainy day fund, but if I want to go buy a million dollar piece of real estate, if it took me 10 years to get that a hundred thousand, I might be 90 before I get that million.


And then cost of inflation and goods sold goes up. So utilizing debt, it can certainly be a powerful tool from many different facets. Things like liability, exposure, reduction, things like the ability to get more assets and create more wealth at a higher rate because we’ve covered one thing that’s a constant life today, which is taxes, the other one’s death. You can’t take any of this with us, and it’s a race to the end. So you have to make the most of what you have here. And not all of us are Bill Gates as children. So how do we do that? We borrow from other people and the rising tide raises all the ships.

Tim Lyons (41:14):

Well, Alex, I love that answer because you know what? We covered a lot of great topics today, and paramount among them is education and aligning yourself with people that are doing the thing that you want to do, learning from the experts because there’s all these rules and checklists and there’s a pathway forward for all of us there. We just have to learn the rules. We have to align ourselves with a team that understands what our goals are and how to move forward from there. So one of those experts is going to be Alex Ney over at Advent, i r a. So Alex, thank you so much for being with us here today and for giving us some of that knowledge. People want to reach out to you and find out how they can connect further. What’s the best way for them to do that?

Alex Perny (41:57):

Yeah, you can go right to advanta You can also reach me directly and my direct office line is 7 2 7 7 5 4 9 9 5 4 or email me A P E R N I am always happy to help. It’s something I am immensely passionate about. And to your point, Tim, it does take a village. We are one part of the equation of a much larger game board that people need to put together to achieve their financial goals. So give us a ring. I am happy to elucidate on any of the things that I kind of glanced over. And again, I will happily chew up an hour of anyone’s time that wants to learn more about anything or maybe 10 minutes, just let me know.

Tim Lyons (42:35):

I love it. And if the listeners, if you’ve got some value out of today’s show, Greg and I would be really grateful if you could just leave us a five star rating and review on Apple Podcast especially. It really helps with this thing called an algorithm. We’re still trying to figure it out, but the more reviews we get, obviously the better this podcast can do, the more people it can touch, and we’d just be forever grateful if you could take it some 30 seconds to just do that for us. That’s going to do it for this week’s edition of The Passive Income Brothers Podcast. Look forward to serving you again next week. Thank you for listening to another episode of the Passive Income Brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show so that you can start building out your passive income streams. Finally, head on over to cityside to connect with us and find out more information about how to get started passively investing in real estate.