Key Takeaways
- A self-directed IRA can give investors more control over retirement funds by allowing alternative assets like property, notes, and private placements.
- Investors must understand prohibited transactions, arm’s-length rules, and tax issues before using retirement funds in deals.
- Retirement wealth is built through education, due diligence, patience, and the discipline to plan for the future before it becomes urgent.
The REI Agent with Kaaren Hall
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The Retirement Account Most Investors Never Fully Understand
A Bigger Vision For The Money Already Sitting There
Most people think of an IRA as a place where money quietly sits in stocks, mutual funds, or index funds until retirement. It feels distant. It feels locked away. It feels like something useful later, but not something powerful now.
In this episode of The REI Agent Podcast, Mattias Clymer sits down with Kaaren Hall, founder of UDirect IRA Services, to open up a conversation that could completely change how investors see retirement money.
Kaaren brings humor, clarity, and years of deep experience to a topic that can feel intimidating at first, self-directed IRA investing.
What makes the conversation so powerful is not just the technical education. It is the bigger idea behind it. Retirement planning is not only about waiting. It is about learning. It is about taking responsibility. It is about discovering that money already saved for the future may have more possibilities than most people have ever been taught.
“What do you mean my IRA can own real estate?”
That simple question becomes the doorway into the entire episode. Kaaren explains that a self-directed IRA is not some strange new loophole or risky secret. It is an established structure that allows retirement funds to invest in alternative assets, including rental properties, notes, private placements, and more.
For agents, investors, and entrepreneurs, this idea can feel like a light turning on. The question is no longer just how much money is in the account. The deeper question becomes what that money is allowed to do.
From Radio Announcer To Self-Directed IRA Educator
Kaaren Hall’s Unexpected Path Into A Powerful Niche
Kaaren did not grow up dreaming of becoming a self-directed IRA expert. Her journey began in radio, where she spent years as an announcer. She enjoyed the work, but eventually realized that passion alone was not going to create the lifestyle or financial stability she wanted.
“I’m not going to get rich this way.”
That realization pushed her into a new season of professional growth. Her career began blending with the world of real estate. She worked as a real estate agent, then moved into property management, loan servicing, and loan origination. Those experiences gave her a broad foundation in how money, property, debt, and ownership actually work.
Then came the Great Recession. Like many professionals connected to real estate and lending, Kaaren had to adapt. She took a job at a self-directed IRA company, learned the industry from the inside, and eventually launched UDirect IRA Services in 2009.
Years later, her company has grown into a major platform with more than a billion dollars under management. But the inspiration in her story is not just the number. It is the pivot. It is the reminder that a career setback can become the exact pressure that reveals a person’s next calling.
“We’ve been doing this for a minute and we have 1.3 billion under management now.”
Kaaren’s story is a powerful reminder for anyone who feels like their experience does not fit into one clean box. Sometimes the strange combination of past jobs, skills, struggles, and reinventions becomes the foundation for a rare expertise.
The Big Idea: An IRA Is A Bucket That Can Hold More Than Stocks
Why Alternative Assets Change The Conversation
One of the most important explanations in the episode is also one of the simplest. Kaaren describes an IRA as a bucket that holds assets. Most people are familiar with that bucket holding stocks. If a stock pays a dividend, that dividend goes back into the account.
But if the IRA owns a rental property, the rent can function in a similar way. The asset is different, but the concept is not impossible to understand. The IRA owns the asset. The income goes back to the IRA. The retirement account continues working toward the future.
“If your IRA owns a house, that house will pay rent and rent is the dividend in this case.”
This is where the episode becomes especially valuable for real estate-minded listeners. Kaaren explains that self-directed IRAs allow people to invest in alternative assets. In practical terms, that means assets outside the usual stock market path.
She also makes it clear that this is not new. IRAs have existed since the 1970s, and self-directed investing has been part of that broader retirement landscape for decades. The issue is not that the opportunity is brand new. The issue is that most people were never taught that it exists.
“It’s nothing new. It’s been around for a very long time.”
That truth is both exciting and frustrating. Exciting because investors may have more options than they realized. Frustrating because many people go decades without ever hearing that their retirement account could potentially participate in deals they actually understand.
How An IRA Can Buy A Rental Property
The Account Becomes The Buyer
Mattias walks through a practical example. A person has money sitting in an IRA, perhaps invested in stocks at a large brokerage. They see a rental property opportunity and wonder whether those retirement funds could be used to buy it.
Kaaren explains that the IRA itself would go into contract. The IRA would be the buyer. The offer, the escrow process, the inspections, the title work, and the closing process would all look familiar to someone who understands property purchases. The key difference is where the money comes from and who owns the asset.
“Your IRA would be the buyer.”
That sentence is one of the biggest mindset shifts in the whole conversation. The investor is still directing the decision, but the retirement account is the entity purchasing the property. That means income and expenses must flow through the IRA properly.
If the property produces rent, the rent must go back to the IRA. If the property has expenses, the IRA must pay those expenses. This is where many investors need to slow down and respect the rules. The opportunity is real, but the structure matters.
Kaaren’s message is not reckless excitement. It is empowered responsibility. She wants investors to know what is possible, but she also wants them to understand the boundaries that protect the account.
The Advanced Part: Leverage, Non-Recourse Loans, And UDFI
When Borrowing Inside An IRA Changes The Math
One of the most fascinating parts of the episode comes when Kaaren explains that an IRA can use leverage to acquire real estate. However, this is not the same as getting a typical personal mortgage.
When an IRA borrows money, the loan must generally be non-recourse. That means the lender’s recovery is tied to the asset, not to the personal guarantee of the IRA owner. This makes the financing structure very different from the kind of loan most investors are used to getting personally.
Kaaren also explains that leverage can create a special tax issue called unrelated debt financed income, often referred to as UDFI. In simple terms, if part of the property income is produced because of debt, that portion may be subject to a special tax.
“Yes, IRAs are tax free and tax deferred, but they are income tax free, income tax deferred.”
This is why Kaaren emphasizes running the numbers. Leverage is not automatically bad, but it is not automatically better either. In personal real estate investing, leverage is often celebrated as a wealth-building tool. Inside an IRA, leverage requires additional analysis because the tax treatment changes.
The lesson is clear. The structure does not remove the need for strategy. It increases the need for strategy.
The Rule That Can Destroy The Whole Plan
Why Prohibited Transactions Matter So Much
The episode becomes especially important when Kaaren explains prohibited transactions. This is where casual investors can get into serious trouble if they treat IRA-owned assets like personal assets.
An IRA-owned property must remain arm’s length. The IRA owner cannot live in the property. The IRA owner cannot personally fix the property. Certain family members, including parents, grandparents, children, grandchildren, and a spouse, are disallowed people for IRA purposes.
This means an IRA cannot buy a rental property and let the owner’s child live there. It also means the owner cannot personally remodel the kitchen, replace the roof, or throw personal money at a problem when the IRA-owned property needs help.
“You can never live in that property.”
“You can never do the work on the property.”
Kaaren makes the stakes clear. The purpose of the self-directed IRA game is to win big for retirement, but the investor has to steer clear of prohibited transactions. If the tax-protected structure fails, the consequences can be painful.
“The tax protected bubble of the IRA bursts.”
That image is powerful because it turns a technical rule into something easy to understand. The IRA is like a protected bubble. Inside that bubble, the asset can grow according to the rules of the account. Break the rules, and the protection can disappear.
The inspirational part is that Kaaren does not frame this as a reason to be afraid. She frames it as a reason to be educated. Investors do not need to guess. They can learn the rules, ask questions, work with professionals, and move carefully.
The Mistake You Cannot Unring
Why Personal Money Cannot Rescue An IRA-Owned Asset
One of the most dramatic examples in the conversation involves a person who used a home equity line of credit on a personal residence to put a new roof on an IRA-owned house. On the surface, that might sound like a responsible investor solving a property problem.
But inside the IRA world, that creates a major issue. The personal funds benefited an IRA-owned asset. Kaaren describes it as a prohibited transaction problem that is very difficult to undo.
“You can’t unring that bell.”
That line captures why structure matters so much. A repair may be necessary. A roof may need to be replaced. A water heater may fail. A tenant may stop paying. But the solution cannot ignore the ownership structure.
If the IRA owns the asset, the IRA must pay the asset’s expenses. That means an investor needs idle cash inside the account. Buying the property with every dollar in the IRA may feel exciting, but it can create danger if the account has no cushion for vacancy, maintenance, or capital expenses.
For real estate investors, this part of the episode is a strong reminder that smart investing is not only about acquiring the asset. It is also about surviving the surprises.
Self-Directed Does Not Mean Set It And Forget It
The Passive Income Myth Gets Challenged
Mattias brings up the idea that notes may feel more hands-off than owning rentals. Kaaren agrees that notes can be less operational than dealing with tenants, toilets, and termites, but she challenges the idea that investing should be treated as completely passive.
Her point is practical and deeply important. Even if an investment does not require daily management, the investor still needs to pay attention. Is the borrower paying? Is the tenant paying? Is the syndicator paying as agreed? Are the account funds arriving when expected?
“Don’t consider investing passive, because you have to look at it.”
Kaaren shares her own experience investing with someone she trusted. The person stopped paying, and she had to deal with the consequences. In her case, the investors came together, hired attorneys, and she eventually got her money back. But the lesson was permanent.
Trust is not a substitute for monitoring. A good person can still get into trouble. A familiar name can still lead to a bad outcome. A deal can still require attention after the paperwork is signed.
For listeners, this may be one of the most valuable mindset shifts in the episode. Freedom does not come from ignoring investments. Freedom comes from taking ownership of them.
Your IRA Can Also Become The Bank
Notes, Bridge Loans, And Creative Retirement Strategies
Kaaren also explains that self-directed retirement funds are not limited to buying houses. An IRA can potentially lend money. In that sense, the IRA can become the bank.
For example, if someone needs a bridge loan for a property purchase, or a rehabber needs additional funds for a project, an IRA may be able to lend money as long as the parties are not disallowed. The IRA can earn interest, and the repayment can flow back into the retirement account.
“Your IRA can lend money. Your IRA can be the bank.”
This idea opens another door for investors who may not want to own property directly inside the account. Some may prefer notes. Some may prefer private lending. Some may prefer other alternative assets. The key is understanding what fits the investor’s goals, risk tolerance, timeline, and account structure.
The bigger lesson is that retirement investing does not have to be one-size-fits-all. A self-directed account gives investors more control, but that control must be matched with education, due diligence, and professional guidance.
Do The Homework Before The Deal
Due Diligence Is Not Optional
Kaaren’s framework is simple, but she warns that simple does not mean careless. She likes to describe the self-directed IRA process as open, fund, invest. But before the investment happens, the investor needs to do real due diligence.
That means reviewing the deal. It means understanding the asset. It means having professionals evaluate documents when needed. It means checking title reports when property is involved. It means talking to other investors who have worked with the same sponsor or borrower.
“Before you open, fund, invest, you better do your due diligence.”
Kaaren shares a cautionary example involving bad actors who had people make loans against a property without properly recording the loans. On paper, the property appeared free and clear. In reality, multiple investors were being pulled into the same dangerous situation.
The story is not meant to scare people away from self-directed investing. It is meant to wake them up. Most deals may go smoothly, but one bad deal can cause enormous pain if an investor does not ask enough questions upfront.
In that way, this episode is not just about retirement accounts. It is about maturity. The best investors are not the ones who blindly chase opportunity. They are the ones who combine optimism with verification.
The Books That Changed The Conversation
Mindset Still Matters As Much As Mechanics
Near the end of the episode, the conversation shifts from technical investing to personal development. Kaaren shares that one of her favorite books is Think and Grow Rich by Napoleon Hill. For her, the book created a mindset shift that helped her see a different future for herself.
“It changed my mindset.”
Mattias brings up How to Win Friends and Influence People and the way classic books continue to shape entrepreneurs, investors, and leaders. These books come up often because they help people think differently, act differently, and move beyond the limits they previously accepted.
Kaaren’s insight is simple and powerful. People are always telling themselves a story. If they want to move from where they are to where they want to be, the story has to change.
“If you want to be here, but you’re here, how do you get from here to there?”
That is the heart of this episode. It is technical, yes. It is educational, absolutely. But underneath the IRA rules, tax structures, and property examples is a bigger message about possibility. People can learn something new. They can change their financial trajectory. They can become more intentional about the future they are building.
Planning For The Person You Will Become
The Emotional Reason This Matters
The final moments of the conversation bring the entire topic back to something deeply human. Retirement planning can sound boring until someone imagines what life might feel like without enough money later. Kaaren shares a memory of seeing an older person in a grocery store with only enough money to buy a small amount of food.
“You don’t want to be that old person in the grocery store spending 11 cents on a banana because that’s all you can afford.”
That image lands hard because it makes retirement real. It is not just a number in an account. It is dignity. It is choice. It is safety. It is the ability to care for the future version of oneself.
Kaaren’s message is not rooted in fear. It is rooted in preparation. She wants people to plan, learn, ask questions, and make better use of the tools available to them. The goal is not complexity for its own sake. The goal is a healthier retirement and a stronger financial future.
For The REI Agent audience, this episode is especially valuable because it connects real estate knowledge with retirement strategy. Many agents and investors already understand property. Kaaren shows them that, with the right rules and structure, retirement money may be able to participate in that same world.
A Bigger Future Requires A Bigger Education
Why This Episode Is Worth Replaying
Kaaren Hall’s conversation with Mattias is the kind of episode that deserves more than one listen. The first listen creates curiosity. The second listen reveals the rules. The third listen may spark a serious conversation with a tax professional, attorney, or self-directed IRA custodian.
The inspirational takeaway is not that every investor should immediately move retirement funds into property. That would be too simplistic. The real takeaway is that people should not let ignorance make their decisions for them.
They can learn what is possible. They can understand the risks. They can build a team. They can protect the account. They can run the numbers. They can decide whether a self-directed IRA fits the life they are trying to build.
“I want to plan and have a healthy retirement.”
That is the spirit of the episode. A healthy retirement does not happen by accident. It is built through choices, discipline, education, and the willingness to think beyond the default path.
With Kaaren Hall’s guidance, listeners are reminded that retirement money may not be as limited as they once believed. The future can be directed. The strategy can be learned. And the account that once felt quiet and distant may become part of a much bigger wealth-building vision.
Stay tuned for more inspiring stories on The REI Agent podcast, your go-to source for insights, inspiration, and strategies from top agents and investors who are living their best lives through real estate.
For more content and episodes, visit reiagent.com.
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Contact Kaaren Hall
Mentioned References
Transcript
[Mattias]
Welcome back to the REI Agent. My guest today is Kaaren Hall, founder of the UDirect IRA Services and one of the country’s leading educators on self-directed retirement accounts. Kaaren has spent years helping everyday investors, including real estate agents and investors, discover that they can use their existing IRA or 401k funds to buy rental properties, notes, and private placements, all tax advantaged and completely legal.
She’s a published author, bigger pockets author, and national speaker on a mission to make self-directed investing accessible to anyone who is willing to learn how it works. Kaaren, welcome to the REI Agent Podcast. Wow, Mathias, thank you.
Yeah. So tell us a little bit about how you got to where you are today. What was your journey like in the professional world?
Did you always imagine yourself as a child that you’d grow up one day and become a self-directed IRA expert?
[Kaaren Hall]
Well, you’d think that would be the case, like most healthy children, but I’m just different. I can’t tell you. So no, I didn’t.
The true story is I started out as a radio announcer and realized, hey, I’m not going to get rich this way. I’m not going to really barely pay my bills this way. I need to find a way to sustain a lifestyle.
And what I really, really enjoyed, my 17-year career in radio, it kind of blended in with other things real estate related, starting with being a real estate agent in my 20s. So I did that for a year and then moved and got into other things like, what did I do? Property management.
I did loan servicing, loan origination, but then we had the great recession, you know, kaboom. And so I had to find something else to do because I couldn’t, any of the skills that I’d acquired, I couldn’t put those together during that time. So I got a job at a self-directed IRA company, worked there for a couple of years, and then in 2009 broke off, created UDirect IRA services in again, 2009.
So we’ve been doing this for a minute and we have 1.3 billion under management now. So not too bad.
[Mattias]
Yeah. I mean, it’s, I think a little bit, maybe the word’s nebulous to think about at the beginning of how you can, you know, take your money and buy a house with it when it’s supposed to be in this like retirement account, like how does that all work? And maybe I’ll just ask you this, I mean, in the simplest possible terms, how does a self-directed IRA work for someone who wants to buy a rental property?
Who holds the title, who pays the expenses and who receives the rental income?
[Kaaren Hall]
Yeah. And you bring up such a great point. I mean, it is kind of, I’ve got the real estate background too, right?
So it is mind blowing to think that you can own real estate over here personally, but wait a minute, what do you mean my IRA can own real estate? You know, that doesn’t make sense at all. There are different rules.
It’s two different buckets of money, two different, you know, just sets of rules. Okay.
[Mattias]
Kind of like you can own stock, right? Like I could go just buy an S&P 500 at Vanguard in a personal account or I could have it in an IRA account. Is that accurate?
[Kaaren Hall]
All day long, same thing. And that’s a good, it’s a really great analogy because that’s what IRAs are. It’s a bucket that holds assets.
So if you have a stock, that stock might pay a dividend, right? If your IRA owns a house, that house will pay rent and rent is the dividend in this case. So what self-directed IRAs do let you invest in what they call alternative assets.
And all that means is it’s alternative to the stock market. So it’s not a money market, not a particular stock, nothing market correlated. I mean, your IRA can, okay.
So just kind of back up till, like IRAs were founded in 1975. So that’s been a minute, right? Longer than you probably even been alive.
So it’s not new. That’s what’s crazy. People, I go to a party, well, what do you do?
I have a self-directed IRA company. They just no idea what I’m doing. And so I try to couch that in a different way.
So it, it hits better, but, but yeah, so your self-directed IRA has always, since 1975, been able to invest in real estate. And so let me know what avenue you want me to go down on that one, but that’s, it’s, it’s nothing new. It’s been around for a very long time.
[Mattias]
Okay. So I guess let’s, let’s say I have, I’ve got $400,000 in an IRA right now. That’s just in, you know, a blend of stocks and Vanguard.
What, tell me how I can start getting rental properties or whatever. What, what, what do I need to do?
[Kaaren Hall]
Yeah. I mean, like any asset, first you do your research and you decide, Hey, is this a good deal? So that’s what you’re going to do as an investor anyway.
So you find a property say it’s 300,000. And so you’ve, if you don’t have personal money to acquire this, but you don’t want to miss the opportunity, you might say, Hey, well, wait, I’ve got this retirement money. I can still snag this deal.
This would be great. So what would happen is your IRA would go into contract, your IRA would be the buyer. And that, that would be the name of the purchaser on the offer to purchase would be the name of the IRA, which is, you know, like a contractual name, which, you know, we could give you later, but it’s the IRA is the buyer.
So the offer is made, you know, and then hopefully accepted. And then now your IRA owns real estate. Now the process of doing that as a process of buying any other piece of real estate goes through escrow.
You’ve got to, you know, uh, you know, you’ve got inspections, you’ve got a title search, you’ve got the whole nine, everything, all that is the same. The difference is now the money isn’t necessarily being wired from a lender. It’s being wired from a retirement account, like a cash purchase.
It can be like that. Okay. So if you’re thinking of it like structurally, but I’m going to throw a wrench in this and tell you that an IRA can take on leverage and this will kind of blow your mind.
[Mattias]
That was my next question. Yeah.
[Kaaren Hall]
Yeah. So kind of advanced class here, but let’s talk about it. So when an IRA borrows money to acquire real estate, it’s not a Fannie Freddie.
It’s not a conforming conventional loan. It is a non-recourse loan, a commercial kind of loan. Okay.
So yeah. So, so say this property is 300,000, but maybe you don’t, maybe you don’t have enough in your IRA to really have a slush fund for expenses and the whole thing. So you want to borrow some, so say you borrow like 20%.
So you get this, you know, a $300,000 property. And then like, so then you’ve got part of it, 20% is leverage. So what’s going to happen with, within an IRA world is that when your IRA receives a rent check, well, 20% of that rent check is received because of debt.
Okay. This is only in the IRA world. And so that 20% will be subject to a special tax.
Okay. Yes. IRAs are tax free and tax deferred, but they are income tax free, income tax deferred.
This tax I’m talking about is called UDFI, unrelated debt financed income tax. So long story short, you can do it. We can go deep on this.
It can be done. There’s a tax. Your IRA will file a 990T.
Probably you can take deductions and super minimize that tax. Maybe have no tax at all, but you still have to file a 990T. So it’s not too much brain damage.
But again, it’s something that you learn about it, call us, we’ll talk you all the way through the whole process. But so now your IRA has got that piece of real estate in there. It must be non-owner occupied because anything in an IRA has to be, you know, arm’s length, right?
So, and in real estate, we all get arm’s length. If a realtor knows that they have to stay arm’s length from the transaction, right? And so it’s the same thing with the self-directed IRA.
So here, here’s what happens as the, as the IRA owner, you can never live in that property. You can never do the work on the property. That’s called a prohibited transaction because it’s a sweat.
It’s an over-contribution of sweat equity IRS. Okay. There you go.
They’re also disallowed people. So it’s your parents and grandparents, you and your spouse, your children, your grandchildren, and like a fiduciary or a 50-50 business partner disallowed to the IRA. So your IRA isn’t going to buy a property and let your child move in there because they’re a disallowed person.
That’s a prohibited transaction. If your parents are, have, you know, have some real estate and they’re trying to retire and you want to buy a property from them out of their estate, maybe even if they passed prohibited transaction, don’t do that. Just keep it arm’s length.
But the people who are allowed are your siblings and your cousins and your aunts and uncles. So if you want to have, say for example, your brother move in to your IRA and property, fine. No problem.
No problem. Your uncle, your aunt, fine. That’s just fine.
Not your dad, but your uncle. It’s a little weird, but that’s an IRS rule. So your IRA can definitely own real estate.
And then the rent check must be being payable to the IRA. If you make the rent check payable to, or if you receive and cash that, that check, it could be a prohibited transaction at best. It’ll be a distribution with tax.
So we should probably talk about what a prohibited transaction is, right?
[Mattias]
Sure. Yeah.
[Kaaren Hall]
I mean, let’s go there. So the game of self-directed IRAs is to win big for your retirement to invest in assets that can pay off big dividends like real estate. But in order to win that game, you have to steer clear prohibited transactions.
And if you don’t, the tax protected bubble of the IRA bursts, and now you owe tax and maybe even penalties on that. Now that sounds scary, but I’ll tell you that in my pretty much 20 years of experience, I’ve only seen like a handful of actual IRS delegated, you know, actual prohibited transactions, because a lot of times we can catch them. A self-directed IRA custodian, we can catch them and see, wait a minute, your, you know, your last name is the same as the, as the renter, wait, you know, what’s the deal.
Or we can see that if you’re buying a property from somebody with the same last name, we’ll catch that. But the responsibility not to commit a prohibited transaction is a hundred percent on the IRA holder. You know, it’s, it’s the IRA owner’s responsibility not to do that.
And so that’s what we’re here for too, to educate you and to talk to you as long as you want about, about prohibited transactions and are you in danger of committing one? So we’re here to help.
[Mattias]
I mean, it sounds like it’s like almost like having to have an accountant specific for this, right? I mean, it’s, it’s like there’s, IRS is very complicated, so you need expertise to help you do it properly.
[Kaaren Hall]
Can I interject there? You know, I might’ve thought the same thing, and then I realized my accountant, IRA is only, it’s only internal revenue code 4975. Okay.
IRC 4975. That’s it.
[Erica]
Okay.
[Kaaren Hall]
Accountants, they know the whole, they have to be responsible for the whole internal revenue code. So I think any competent tax professional could handle this, but just talk to them first. Do they know, are they familiar with this tax?
Do they know, you know, IRC 4975, if they can look it up in a heartbeat, they could, they would understand it. So I wouldn’t say a special tax person, but I would definitely make sure that your tax person’s on board with your, any of your investing plans, whether they’re, they involve IRAs or not.
[Mattias]
Sure. Going back to the beginning, like you mentioned having to form some sort of, for lack of better word entity to, to buy it with, from like, you know, the IRA. So it sounds like it’s basically like an LLC, but it would be for like, it would be like, like you wouldn’t be buying it, you know, Mattias Clymer, it would be like the IRA, right?
Like the.
[Kaaren Hall]
You, yeah, your IRA. So it’s the, I it’s you and then the IRA is underneath you. So you own everything.
Like, that’s what we call ourselves. You direct because you’re in charge of everything and everything is just underneath your jurisdiction. Sure.
[Mattias]
Okay. And then as far as borrowing goes, you mentioned borrowing 20%. That’s like kind of inverted from what people typically expect.
So is it not with the taxes? Is it not advantageous to borrow more? Like, I mean, is it better to be pretty cash heavy in these transactions or do you get some of the benefits of leverage in the, you know, like by, is it, is it, do people not borrow like 80%, 75%, et cetera in these kinds of transactions?
[Kaaren Hall]
Yeah. It’s a lot different from personal borrowing. If you’re just buying it with your own personal money, you know, leverage away, but in an IRA, it’s probably more advantageous to have a lower income, you know, a debt to, or LTV.
That’s what I’m trying to say. A lower LTV is better, but because you’re going to pay this tax. Right.
So I would say lower, it seems probably better, but again, whenever you’re investing in anything, do the numbers, you know, write it down, do the math and see what’s better for you. Because, because you’re also looking at the potential upside, like, Hey, I can, I can get this property for a steal. Maybe I’ll 80% leverage this thing because I know I’m going to triple my income.
Sometimes you can find a distressed property like that, that would fit in an IRA. So again, the deal itself will determine what’s good for you.
[Mattias]
Yeah. I mean, the, the, a lot of the, you know, the strategies that we talk about that I’m used to, you know, all kind of pivot off of leverage. So like for example, a burr property, and I know that with a with this kind of self directed IRA, you can do flips, you can do all that kind of stuff within it.
[Erica]
Right.
[Mattias]
So, you know, you could do a burr in theory as well, where you would buy it outright, renovate it, and then put it on a note to get access to more of that capital to try to do it again. But again, like you said, you have to, you have to factor in the tax that obviously can make a huge difference.
[Kaaren Hall]
Yeah, the UDFI tax that’s on income that you that the IRA earns because of leverage. And, and again, you know, if you here’s chapter and verse on that one, if you want to look it up, irs.gov is the website and look up publication 598 people have lots of I always ask me questions about UBIT and UDFI. And the truth of it is, you’re going to pay these taxes now.
And then when you take them take that property out of your IRA, if you ever do, then you pay income taxes too. So it’s kind of double taxed. So it just depends on whether or not the deal makes that look good for you.
[Mattias]
Okay. Now, what about the can is there is there self directed Roth IRAs? Is there a differentiation between the two because I know the Roth would be taxed on the way in rose tax free.
So that would be the same with real estate.
[Kaaren Hall]
Now all IRAs are self directable that traditional Roth SEP simple spousal inherited, even an HSA or a health savings account or an ESA and education savings account, all of in a solo 401k to which is a great vehicle for a realtor. All of these account types can be self directed. The self directed just means what self directed means and like where do you file that in your head?
self directed IRAs mean that you’re choosing an alternative asset, that it’s not a stock market asset.
[Mattias]
That’s what self directed is putting buying a rental with an HSA is blowing my mind right now.
[Kaaren Hall]
Yeah, I mean, you got to save in that thing for a minute, right? Yeah, you’re not going to do it tomorrow. But if you had saved enough in an HSA, it is probable to have a totally tax free house.
You’d have to, you’d have to really work the numbers on that. Yeah.
[Mattias]
Yeah, it’s interesting. And then I was gonna I had another follow up question on that. I’m blanking now.
[Kaaren Hall]
Well, let me throw something in if I could.
[Mattias]
Yeah.
[Kaaren Hall]
And that is that I think it’s really important to say it’s not just a house, right? Your IRA can lend money, your IRA can be the bank. So if somebody else wants to buy a house, and maybe they need a bridge loan, so maybe your IRA has enough to make a bridge loan to somebody, you could do that, you know, as long as they’re not disallowed.
If your IRA maybe they need maybe somebody is doing a rehab, your IRA could come in, as you know, how it always is with a rehab, it’s always more than you think. And so maybe they need an extra, say, 1020 grand for the kitchen. So your IRA could lend money to that rehabber, and then get paid back when it when the property sells out of escrow, you know, out of closing.
[Mattias]
Yeah. I remember what I was gonna say, then it was I thought I did. Now that the these are these are all really interesting.
Obviously, when we’re going into this, we are essentially not taking advantage of this until we were to reach retirement age, unless we are willing to take tax penalties, right? Like there’s penalties for withdrawing early, right?
[Kaaren Hall]
There are so the purpose, the purpose of a self directed IRA and IRA in general is to save for retirement period. That is the reason for the IRA. That’s the reason that they were created by the government.
And the reason you get tax advantages is so is to incentivize you to save for retirement. So you’re right, when you’re 59 and a half, you can take the money out. Now, if it’s a Roth, and you’ve had a Roth for five years, the money comes out tax free.
If it’s not a Roth type account, then yes, you’re going to pay your regular income tax rate on whatever you remove from the account. So that’s true. But the whole purpose is to save for later and believe me, you’re going to you’re going to want money later, just like you want it now.
So it’s good to be you know, your own best friend there and help yourself your future self.
[Mattias]
The I have heard about is it is it a backdoor Roth, where you can roll your traditional IRA into a Roth and then you’d be having to pay taxes on it. So it would have been tax free going in to the traditional and then there would be a tax to get it into the Roth. And then what I’ve heard is that if you if you do something like if you have a big if you buy an Airbnb or something to that extent, and you do accelerated depreciation on it, and have a significant windfall as far as depreciation goes, that you might be able to reduce some of that taxes to get into that.
Obviously, I’m not an accountant here. I’m just kind of regurgitating things that I’ve heard in the past. Have you had people do things like that?
[Kaaren Hall]
Sure, but if they did, they’re probably not going to talk to us about it. You know, they will be talking to their tax person. What they’re going to tell us, I mean, sometimes they do talk to us about the structure, we’re going to ask, you know, but sometimes that’s a strategy for after you’ve acquired the asset, you know, so but yeah, so they’re going to ask us to disperse funds, to collect, you know, payments, that sort of thing.
And just in obviously, facilitate and manage an account, which is what we’re going to do. Yeah, but sure. I mean, it’s that’s why it’s really great to have a tax person talk to them about, for example, maybe your IRA invests in a in private equity or private placement, like a reg D offering, for example, and that asset sponsor does a cost segregation.
So and but they’re also carrying leverage. I know I’m going deep, but but what does that mean tax wise to your IRA, your tax person will know. And so that’s something to discuss.
And so don’t be overwhelmed by these things. Because each one of these questions that you’re maybe thinking in your head has an answer and it’s someone else’s solved the problem or stubbed their toe and made a mistake and learned the lesson for you ahead of time.
[Mattias]
Yeah, yeah. And I think that’s maybe also talking about, you know, a tax strategist. I think that’s, you know, something that people often are looking for that they’re probably just paying to have their taxes done.
And that kind of thing would be something that you would be, you know, planning, and it would be not something that you would just wake up and do.
[Kaaren Hall]
So don’t wake up and do this. No. I mean, we I like to say like self directed.
The process is open fund invest. I came up with that in 2007 when I got in the industry and but it’s more than that, you know, it’s before you open fund invest, you better do your due diligence and you bet you really better do that. And there’s a lot of ways to investigate a deal depending on what kind of deal it is to do your homework.
Does this make sense? You you don’t want to just jump into an offer. Maybe you like someone.
Hey, they seem like a nice person. Well, I bet they are. But what how to but maybe they didn’t even write up their own deal.
Maybe they had an attorney do their deal. And then you’re going to look at that deal and say, oh, wait, you know, hmm. And you need to have an attorney who evaluates your deals.
You know, I could say even maybe check GPT. I don’t know how accurate it is, but it’s getting there. You know, like I have a I look at your deals and maybe bring up some questions that you can ask an attorney.
Hey, do you see like there may be these issues with this deal? Do you agree? But I would definitely get professional advice.
[Mattias]
I definitely agree with like that. I would look at AI being like a maybe a way to save how much time like work the attorney has to do. But I think the danger water there is when you just trust it blindly.
[Erica]
Not a good idea.
[Mattias]
You don’t know any better. So so is there like a conversion process that happens?
[Kaaren Hall]
So if somebody that’s what we’re talking about. Yeah, there is there. Yeah, I forgot about that.
Yeah, totally. I’ll go into that. I got off on a total tangent.
Yeah, there is. If you want the backdoor Roth, we’re talking about, right? Okay.
So yeah, yeah, you’re right. So if you have a traditional account, say you’ve got a Sapphire that’s got pre tax money or a simple or something like that, or even an old 401k, you can convert. However much you convert from from pre tax to Roth is taxable, you’ll get a 1099 for that amount, and you’ll get taxed.
So that is true.
[Mattias]
And then just just from a traditional IRA or a traditional Roth IRA into a self directed is it like is it moving money to a different account like from like a Vanguard to like where you all like your company kind of thing and that would then allow you to do this kind of deals? Or?
[Kaaren Hall]
Yes, yes. And by the way, moving from custodian to custodian, that is not taxable. Okay.
So if you’ve got an account at Vanguard, and you wish to invest in alternative assets, so you move, you transfer from Vanguard to us, for example, that is not a taxable event. It’s only if you take the money personally that becomes taxable. But I’ll tell you what, you can do that once in a 12 month period, you could take money out of an account, hold it personally, and then send the money to a retirement account.
And, and, yeah, and, and, and, but then, yes, you can do you can do that you can have, you can do that once in a 12 month period, it’s called an indirect rollover. And you’re allowed to do that.
[Mattias]
Okay. Yeah. So if somebody, you know, was interested in doing something like becoming the bank, right, like doing notes, would they typically they’re what they’re like networking with local real estate investor kind of things, and then kind of coming up with these places or these these opportunities on their own?
Because I, the reason behind the question is because I think I can see that being a nice, you know, more hands off type thing. And that’s often what people think of when they think of, you know, retirement accounts is, you know, like, it’s just kind of growing, and you don’t have to think about it. So the note could be something similar to that.
[Kaaren Hall]
It could, but I got to say, you’re investing, okay. So when you’re investing, don’t forget about it. Just don’t because, you know, when, even if it’s a mutual fund, don’t forget about it.
Look, look at your accounts. How are they performing? If even if you’re invested in the stock market, do you need to rebalance?
There’s, you know, are things performing the way you need them to perform? It can be passive. But if it is, you might something might happen and you won’t catch it.
So like anything, if you if you value that asset, regardless of what it is, check up on it. So even with a note, which is a great note, a great thing, it can be a long term thing too. And it can be relatively passive, because you don’t have to deal with tenants and tenants, toilets and termites or whatever.
You don’t have that with a note. But hey, are the is the borrower paying? So what you need to do is log into your account and see, oh, did that come in?
Actually, we’re going to send you an email when funds come in. But did you is the tenant making their rent payment? Is the borrower making their loan payment?
Is the syndicator paying as agreed? So you it’s it is self directed, and you need to look and you need to check. So don’t, I would advise or just, you know, suggest, don’t consider investing passive, because you have to look at it.
So I’ll tell you what I did, I made a mistake, I invested with somebody in the industry, who’s who’s a friend, and got into that that person’s deal. And doesn’t matter how good a person it is, all people get in hot water. And he decided to stop paying everybody.
And that included me. And so I was kind of like, okay, I invested all this money, but I because I trusted him. And it’s not like I didn’t read the note, I read the note and but he just stopped paying.
So what do you do then? And the long story short is that the investors got together, hired some attorneys, and guess what, it doesn’t usually happen. But I actually got all my money back.
Wow. So it’s, it’s so you have to, you have to take a look and notice, oh, wait a minute, they stopped paying that you’re so used to it. Maybe you went on vacation didn’t realize, oh, I didn’t get that payment or something.
You have to be on it. Yeah. So we were like, we were lucky, but it happens to everybody.
So don’t consider investments passive.
[Mattias]
Yeah, yeah. I mean, it’s very true. I mean, when you’re, yeah, when you’re investing in, you know, just in general in houses, I think the passive income has been sold.
And it’s like been oversold. And it’s really not.
[Kaaren Hall]
I mean, I mean, it is nice not having to have a tenant call you when you’re sleeping. That’s, that’s nice. You know that if that’s passive, then okay.
But, but yeah, no, but the thing of it is, is it’s such a great vehicle to grow tax free tax deferred with different assets that you might not have even thought about.
[Mattias]
Yeah. Well, I mean, you said that it has to be, you know, arms length is, does it have to have a property manager then?
[Kaaren Hall]
Kind of. Okay. I love this because yeah, right.
So having a property manager is a great idea for an IRA on property. But you can do certain things. You can screen the tenants and if they’re paying with a check, you can pick up the rent check that’s made payable to the IRA.
Otherwise the tenants could like ACH directly to the IRA. That could happen. But you can hire third-party vendors and that’s really what you have to do.
So you can kind of property manage, but you’re not going to go in there and fix anything. So if something like I say, for example, you need a new water heater. You can hire someone to go do that.
And your IRA pays all expenses of IRA owned assets. So if the assets in the IRA, it has an expense, like a note that needs to be collected on, you need to hire somebody to do collection. That’s fine.
But the IRA pays someone to do that for you. You stay arms length from that.
[Mattias]
So, I mean, with that logic, then you’re likely also needing to, like, you’re not going to go, if you have $400,000 in your IRA, you’re not going to buy a $400,000 property. You need to have, you need to have a cushion so you can pay those unexpected expenses. Right?
[Kaaren Hall]
Yeah. You make me think about the person who long ago, way back in the day, got a home equity line of credit on their personal home to put a new roof on their IRA owned house. Oh, wow.
You think that’s offering, it’s doing a lot of things, but it’s offering service, offering value, personal, it’s a lot of, it’s a prohibited transaction. So, and how do you unring that bell? Okay.
Now the roof’s on the house. What do you take it off? I mean, you can’t unring that bell.
Pretty much what I would do is get an appraisal and I would take that IRA. I would take that house out of my IRA and take it as a taxable distribution. Yeah.
That’s what I would do because it’s better than a prohibited transaction.
[Mattias]
So, but, so that, so, so you, it’s smart to have, you know, a good chunk of money there for the CapEx for, you know, I mean, even if you have vacancy, like, I mean, we’re all, we all know you’re supposed to do this type of analysis when you’re buying a rental property. You’re supposed to factor in, you know, vacancy, CapEx, maintenance in general. But, you know, not everybody always is super strict about it depending on, you know, where they’re buying some, some markets, the cashflow is a little bit tighter.
But it sounds like in this circumstance, you need to at least have that, like you ideally you want that investment to perform in that regard. Like you want it to cashflow factoring all those things in. But on top of that, you also need to have that buffer so that you can weather any kind of storms that come up if there are CapEx or extended vacancies, that kind of thing.
[Kaaren Hall]
A hundred percent. Yeah. So, so there’s idle cash left in the account and it needs to be left there for these kinds of expenses.
We do pay a little bit of interest on that money, but it’s, it’s sitting there as uninvested cash, but you do need it because again, you can’t throw personal money at an IRA owned asset problem, you know?
[Mattias]
Yeah. Okay. I mean, this is, this is definitely, like I told you, I’ve, I’ve been through this a little bit, this kind of topic, but I don’t think I’ve ever gotten this deep.
So it’s clear that you’ve, you’ve written a book about it.
[Kaaren Hall]
By the way, I just want to pitch the book here. This is the Bigger Pockets Guide to Self-Directed IRA Investing. It’s on Amazon and it’s, it’s a, it’s a guidebook.
It’s not a storybook. So it’s like, oh, hey, how do I do that? Oh, you know, page four, it tells me, okay, here it is.
So it’s, it’s a reference book as well.
[Mattias]
That’s awesome. Yeah. The Bigger Pockets books are so helpful for a lot of those things.
[Kaaren Hall]
Great.
[Mattias]
Tell us about, do you have some golden nuggets for our listeners?
[Kaaren Hall]
With self-directed IRAs, I do, and, and, and I’ve kind of, you know, spilled the beans there on the one on, on just being able to do due diligence, but I’ll talk about how to do that. You know, if you’re buying real estate, obviously you start off with a title report and with a, because does the seller own the property and that happens. So we had, we had some bad actors locally.
I live in Orange County, California. What they were doing, they had a property, this house, and they’re having IRA people come in and make a hundred percent loan on their house. And so the people, even if they did the research, they weren’t, they didn’t, and they could see that the house was free and clear and it was owned by the person, you know, that was asking them to make a loan.
But guess what? These bad actors were asking like a lot of people to make a hundred percent loan and they weren’t recording any of them. So what you need to do is due diligence is talk to other people who’ve invested with the same asset sponsor or the same, you know, if you’re, if you’re investing through another person and definitely make sure that you find out that people are being paid as agreed.
That’s not a guarantee that nothing bad will happen. And normally bad things don’t happen. I’m only talking about worst case scenarios, normally self-directed IRA investments, the vast majority of them go perfectly, perfectly well, but it’s just the small percentage.
It’s, it’s dramatic. It’s fun to talk about. But you definitely want to make sure that you talk to other people who’ve invested when you’re putting your money with a person and when you’re putting your money in a house, obviously a title report is your first line of defense.
[Mattias]
And I would imagine you could get title insurance and this kind of thing as well.
[Kaaren Hall]
True. Yeah. Yeah.
Yes. We almost always do. Right.
[Mattias]
Yeah. Yeah. Cool.
And then do you have a fundamental book, one that you think everybody should read or just one that you’re currently enjoying?
[Kaaren Hall]
You know, my favorite book and one that I had my kids read is Think and Grow Rich by Napoleon Hill. And, and I liked that book because it’s where I had my aha moment. Like, Oh, I could do this.
I could do this. And it changed my mindset. It changed the way I approach what I do.
Um, different goals and minds just changed my trajectory entirely from being, you know, nine to five or two becoming, um, independent and doing, you know, becoming an investor and doing other kinds of, and then ultimately a business owner, um, and gave me the confidence to do that. Really a awesome, an awesome book. It was written when like a hundred years ago, like in the twenties or something like that.
It’s crazy. The principles are still sound.
[Mattias]
Yeah. I think my book would be how to win friends and influence people. And that’s also an old, tried and true.
And I think, you know, a lot of those principles, um, are just, yeah, like, you know, we, we, we get a lot of, uh, the, uh, rich dad, poor dad, but, um, it, there’s a reason they come up all the time. It’s cause it’s, it’s what has got you to change your mindset. What has gotten so many people to think about life a little bit differently there.
And yeah, it’s, it’s important. It’s great. It’s a great book.
[Kaaren Hall]
Yeah. It’s the whole thing is you, you, you know, you, it’s what you’re telling yourself some story and if you want to be here, but you’re here, how do you get from here to there? And they all say, change your mind, you know, and, and, and that’s how it happens.
And a book will do it for you when it lays it out and, and shows you a path. So yeah, both books are so brilliant at that.
[Mattias]
A hundred percent. Um, now if people are interested in learning more, they can obviously go on Amazon and buy the book. Um, you have your website is there as you direct ira.com.
Uh, is there any other great way for people to, to reach out or follow you?
[Kaaren Hall]
Yeah, we’re all over social media. What I started doing that or about a year ago is, is making little videos that talk about little, little bites about the self-directed IRA rule. So you can just take it one bite at a time.
So if you, you can find those on Instagram, Facebook, Tik TOK, and we’re on X, we’re everywhere. LinkedIn. So, uh, if you want to follow us and follow us and then see these things in your feed so that you’re being fed self-directed IRA, uh, techniques and little tips and tricks.
So that pretty much every social media platform we’re on.
[Mattias]
Awesome. Well, Kaaren, thank you so much for being on the show. It’s been a lot of fun.
It’s really informative.
[Kaaren Hall]
Thank you. I’m really grateful. It’s always great to talk about how people can grow their retirement because, I mean, you don’t want to be that, that old person in the grocery store spending 11 cents on a banana because that’s all you can afford.
You know, I saw that once and it’s like, I don’t, I don’t want to be that person. I want to plan in and have a healthy retirement. And that’s what we’re here to help you do.
[Mattias]
Yeah. And just one other point I thought about earlier is, uh, you know, I’ve been hearing all this stuff of David Sinclair, these people that are studying longevity and, uh, increasing, they, they think that the lifespan can be increased, uh, dramatically and that’s going to play a role.
[Kaaren Hall]
Yeah. Like I’m 103, you know, so yeah.
[Mattias]
Thanks so much.
[Kaaren Hall]
Thank you.
[Erica]
Thanks for listening to the REI Agent.
[Mattias]
If you enjoyed this episode, hit subscribe to catch new shows every week.
[Erica]
Visit REIAgent.com for more content.
[Mattias]
Until next time, keep building the life you want.
[Erica]
All content in the show is not investment advice or mental health therapy. It is intended for entertainment purposes only.
