Role of IRA in Real Estate


Oscar Jofre

CEO and Co-Founder


Oscar Jofre

CEO and Co-Founder

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

Bill Humphrey

CEO and Co-Founder

New Direction Trust

Bill Humphrey

CEO and Co-Founder

Bill is recognized in the industry as an expert in self-directed IRAs, HSAs, and other tax-advantaged accounts, as well as the IRS codes pertaining to these investments. Bill has taught courses on retirement plan investment rules to investors, CPAs, and investment professionals through a variety of venues, including the University of Denver’s School of Law. An experienced Certified Public Accountant, Bill has focused on income tax, auditing, tax-related real estate issues, and forensic accounting for more than 20 years. Bill is well versed in IRA law and is current with all legislation governing tax-advantaged plans. Bill has served as a consultant to HSA platform providers, and is a leader in promoting the idea of investing HSA assets long term for medical costs in retirement. He has been involved in real estate investment and has assisted in developing the framework for debt-leveraged IRA real estate investment. Bill received his Bachelor of Science degree in Business from the University of North Carolina, Chapel Hill, with a concentration in accounting and computer science. He rounded out his technical background with graduate study in finance, accounting, and economics at the University of Colorado, Boulder.

Oscar Jofre  00:00

Great insight for this afternoon. You know it, the preparations are so important. Sometimes they’re overlooked. And there’s good guidance here from each of them, giving you all the things you need to do to prepare. But one of the things that when you are ready, and you have all of the elements combined, it is an amazing ride that you will have in regulation A. With real estate, there is one thing in particular, that’s really, really interesting that we’re starting to really see and hasn’t been fully, you know, 100% on yet, but we believe it’s coming. And that is IRA, we all hear IRA is a critical part of real estate and I brought today a special guest. Bill, it’s good to see you nice painting as always.

Bill Humphrey  00:56

Thanks, Oscar, good to see you as well. And so far, so good. Thanks for having us.

Oscar Jofre  01:01

Yeah, so far. Yeah, it’s been great. You know, listening to Nate and Joel and Douglas, again, they kept reiterating all the model requirements that a company needs to do to prepare, and particularly when you’re doing a real estate offering for Regulation A, but this is a part that I often see a lot of companies look at, in sort of like an afterthought, they go, Oh, you know what, I think I should add IRA. And in the past, it wasn’t something that was immediately brought on. But now that we’re bringing an asset class, that tends to, you know, lend itself for IRA more often, I would like to kind of explore that with you. But before I do, it would be rude of me. Please take a moment to say hi to everyone, introduce yourself, please.

Bill Humphrey  01:48

Hi, everyone. And thank you for inviting me to this presentation today. My name is Bill Humphrey from New Direction Trust Company. I am the co founder and CEO of New Direction about almost 20 years now. So thanks for having me.

Oscar Jofre  02:06

Thank you. So it’s always eluded Regulation A we it hasn’t been the the, the big investment, sorry, the vehicle today where people are putting in their IRA dollars. So let’s talk about IRA in general, how people use it. And then obviously, it’s, it’s been used a lot in real estate. And I’d love to hear your insights on that. Because you’ve been one of the cofounders of New Direction Trust, you would have a fairly good idea of that kind of sector why it’s been so privy to these investors?

Bill Humphrey  02:42

Well, it’s a great question, and particularly for us. So real estate is the reason that we started new direction in the first place, because the co founder, the other co founder, Katherine Wynn, came to me one day and said, Hey, I keep getting sent to the stock market, I keep going to Wall Street, I don’t know anything about Wall Street, all I’ve ever done is invest in real estate, why can’t I do that with my IRA. And, lo and behold, you can you just need a custodian that’s willing to allow you to do it. So it’s, it’s an entire asset class, that until more recently has been excluded from securities markets entirely. So most of our clients would invest their own IRA directly into a property rather than going through an offering. So all of their money will go into one or maybe two, sometimes three different properties but you can’t diversify work very well with that approach. So with RegA and reg CF, now suddenly, people are put smaller amounts and more properties in rather than swinging for the homerun get a lot of singles out there in the in the marketplace. So it’s a very exciting time for for new direction and for IRA investors.

Oscar Jofre  03:52

And it sounds like you’re going through your own construction, and it’s okay, you’re using your IRA dollars to rebuild your home.

Bill Humphrey  04:01

Yeah, I wish.

Oscar Jofre  04:05

So, okay, so it’s interesting to, obviously this new custodial role, and we’re seeing a number of them and your firm being one of them. But typically, the way we’ve often seen IRA use is being in big investments where it has a can have a tax effect on on the investor. So they would tend to use but now we’re dealing with smaller amounts of capital being injected by a company, but that should not prohibit them from using their IRA accounts. Correct.

Bill Humphrey  04:40

Absolutely correct. That you can do any amount. You probably don’t want to do a $10 investment. 2000, 5000, and up makes a great opportunity for your IRA to get into something that you wouldn’t be able to buy all of but now you can buy a sliver of it and you decide With that size that sliver is gonna be.

Oscar Jofre  05:04

That’s it. So that’s good to know. So the day, we finally got it down to the point where someone can participate, and this is a good thing for everybody to hear, who is looking to do a RegA and using an IRA, or would like to add that, to their process of during the campaign, the investor is looking to invest is, how does that fit in. And should I added, even though it’s a smaller amount, as Bill just indicated, if the investors investing, you know, as low as $2,000, which, you know, this coincides with the average investment in and RegA, which is around 2500. It’s not a bad way to approach it. But there are some interesting changes coming about. And I’m gonna twist it around a bit, because it’s now that we’re hearing of IRA, I was in a meeting earlier today, and I’m gonna say, Well, you know, Oscar, I don’t want to add it. Because what if I have to refund that money? And I really didn’t, at that moment, I’m going, why would they think they need to refund it? But that’s not the case. What’s going on? So there is this talk, as you know, within the the administration, the current administration, that the IRA, that the ability for people to use it, in particular, accredited investors to use it, I think that’s the bigger element that they would not be able to utilize the tax component of it. Can you just give us an overview of what’s going on there, and what impact it could potentially have in real estate in general?

Bill Humphrey  06:42

Sure, and, of course, what you’re talking about is proposed legislation. Who knows until the signatures are wet on the page, what it’s actually going to say, as it is written Currently, the the one name that you need to know Peter teal, he took his IRA, and started with $2,000, it’s now worth about 5 billion. Yes, b with billion, and the Congress is after him. So they’re trying to figure out all the ways to stop rich people from getting richer. And the way they’re doing that, currently, is to say that anybody who wants to make an investment that requires them to be accredited, won’t be able to do it with their IRA. So that’s different from it is the way it is today, because a lot of people invest both both accredited and non accredited in a wide variety of assets. But it mainly is going to impact reg D offerings that require accreditation, which fortunately doesn’t impact reg a or reg CF, because they don’t require accreditation. So there’s lots of options left but the reg D, which of course, tend to be richer dollar amounts. Already, they are currently going to be prohibited from being able to be invested in with IRA funds.

Oscar Jofre  08:04

Okay, so that’s a good, you know, what you brought up a really good point, the the proposed changes by the administration, are really, it’s about targeting the accredited investor. And obviously, we don’t know where that’s going to go. But that’s not prohibiting the non accredited investor to keep using their IRA, in a tax shelter environment, where they can use it to make further investments in real estate companies or any other type of right.

Bill Humphrey  08:29

Correct. And, you know, the whole JOBS Act is aiming at here, democratizing investing. And the people that have money, smaller dollar amount, most often they have that money inside an IRA. So they want to be able to invest for the future, they’re probably going to need to invest their IRA funds, because they don’t have as much liquid capital in their pocket. I know something’s wrong with my pocket, it tends to leak. But once I get that money in the IRA, then it tends to stay there for longer term investing, perfect for RegA and reg CF.

Oscar Jofre  09:04

So let me ask you this. I mean, obviously, the adoption, everybody’s trying to get the investor to use this, what what would you say would be kind of the barriers? Why do you think there may be a barrier from the investor side to, to other say yes, but that in and to an IRA account, or this and that, what do you think some of the things they’re going through? Because they think everyone needs to understand because obviously, we’re talking $9 trillion sitting there, right? So clearly, there’s an opportunity, but what is what is it that we’re missing?

Bill Humphrey  09:38

So probably the first thing that’s missing is education, that you can actually do it because if you call fidelity or Schwab, and you say I want to invest in a reg CF offering, they’re gonna say, Oh, no, no. And the reason they say that is because they don’t want to do it. It’s not that you can’t is that they won’t let you so you need to find a custodian And then will both educate you about how to do it and let you do it in the first place.

Oscar Jofre  10:07

So that’s interesting. So what you just described here, I think this is really interesting. I don’t think anybody caught on to the little nuance and a little nuances that you were talking about a two tier type of IRA custodians. There’s the top tier, and they’re not allowing what they’re saying, No, they’re not saying you’re not allowed, you’re just not allowed to do it with us. And there’s another tier of IRA custodians that do allow to put money into privates. And that’s where the education needs to come in. Did I did that correctly?

Bill Humphrey  10:37

You got that correct. Only you need to switch your hands. So the top tier SSL certs Okay, are a lower tier that limit you limit, you say, Oscar, we’re only gonna let you invest in these things. And they give you list. And it’s mainly publicly traded stuff. When you come to a self directed provider, they say Oscar, what do you want to invest in. And there are a few rules about what you can do as it relates to you personally, but any investment that you can do with your personal cash, almost all of them you can do with your IRA. And a self directed provider lets you do that.

Oscar Jofre  11:19

And that’s where, and that’s coming back again, to what you were saying that’s where the education comes in. So for everyone listening, and this is really important, because, you know, we get asked this question a lot, I believe everyone does. And we always say, yes, yes, of course, you can add IRA. But we also need to look at it, what are the barriers, and more importantly, I think what people need to do, and I and I think anytime I hear the word education, it’s not enough to just say, we take IRA, you will need to provide some further information to that audience, to let them know what the IRA is, and what this means because they will add to your point, don’t make the assumption, go to fidelity or Schwab. And they’ll say, No, no, no, we don’t touch that we don’t. And then all of a sudden, you’re just lost in the investor, because they weren’t properly given the the instructions, because not everybody knows this information. Obviously, you do, because you’re in the market. So from outside of the education side, so the investors are there, they’re I mean, my experience and just viewing it is that obviously there are a handful of of these providers that provide the custodial services for people. And then there’s the company raising its capital. And how do you do it when you work with one IRA custodian, then the individual would have to be moving $1,000 from or $2,000 from one IRA custodian to the other? I mean, is this is this a feasible model for for companies to operate in the background to do that to raise to raise capital from IRA? Or is there just something different here?

Bill Humphrey  13:10

Well, it’s a great question Oscar, it’s so that once you become educated enough to know that you can do it, then the question is how. So if you’re looking at writing a check from your, from your bank account, versus having your IRA invest, writing a check personally is easier and faster. With an IRA custodian that is built to handle those kinds of transactions efficiently and easily, then the process becomes faster and more automated. You still have to move the money into the IRA, because remember, I like to call him Uncle IRA. So it’s your money. Uncle IRAs. So uncle IRA is the investor. And uncle IRA has to write the check. That’s what your custodian does, to send the money to the investment. And the paperwork is titled in the name of uncle IRA. So you’re still in charge of it. You’re approving everything But uncle IRA is actually the investor. So once uncle IRA is created, So currently we have about 19,000 IRAs. Most of those IRAs have money. And all of those IRAs could immediately invest in a RegA offer because they have the money there. If they have their money at fidelity or Schwab, then Shame on them but they should move it over into their new self directed account as soon as they can. If they want to invest in those kinds of assets.

Oscar Jofre  14:34

You know that that is a look at all of us. Hey, you know this is this is just a person I want to hear because, you know, you know where he is right now. This little bugger is in Denmark, and I’m very thankful that he’s able to time in because right now he is all the way there sending beautiful pictures by the way. Beautiful pictures, clear water. love to fish. But it’s, you know, investor acquisition providers. And Andrew has been one of the longest running operators doing this. I mean, obviously, we’re trying to reach the largest amount of investors, and we’re trying to use IRA. But it’s rather interesting to hear that there’s still one more step, before we just say, IRA, it’s not enough anymore, because we’re making that assumption, as you just alluded to Bill, that the investor may not understand yet that this particular investment has to be with another type of IRA custodian. And that’s an education piece, that that I think, is something that will help everyone. Because it, it’s something they need to consider as they’re going to, if they’re going to open that up, which I believe they should, because it’s $9 trillion. I’ll remind everyone, it’s $9 trillion. We just need to find a way. And I know Andrew is like, you mean, I need to teach people another thing. I mean, it’s a I think it’s worth it. I just, you know what I didn’t clue into me, just listen to a little bit longer with you. I know you and I Bill spend a lot of time and thank you again, for this afternoon, we’re going to be continuing this discussion. So as you all know, look, there’s something really interesting going on, if you’re really curious about these new administrative changes regarding IRA, please reach out to Bill they’re looking at lobbying this as quickly as they can there. There’s some work to be done there. But overall, IRA is not going to go away. It’s not going to affect the non accredited investor, which is great news because it’s gonna be a key, but I see just alluded to, we’re gonna have a lot of education to do along the way. So Bill, enjoy your afternoon. Make sure though, the your your new home extension to your mansion is going well.

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