EP 452 – Detroit “NO SDIRA” City

NCS 452 | Self-Directed IRA

NCS 452 | Self-Directed IRA

 

For years, Detroit, Michigan has been hot on the market primarily because of its inventory to price points and not having an SDIRA or self-directed IRA. With its numerous economic developments, there are issues that are lagging around such as the city being on the verge of bankruptcy. If you are planning to invest here, reaching out to others such as a CPA or an attorney who is not on the mock arena is a recommendable. Working with a company that is an expert at pulling data minimizes the risk of losing an entire SDIRA. In this episode, Scott discusses a recent hiccup in the city for SDIRA investors who are looking to fund the deal in their IRA account name and how to fix it.

Listen to the podcast here:

Detroit “NO SDIRA” City

Detroit Inventory Price Points

In this episode, we’re going to be discussing a little bit about Detroit, Michigan and some of the changes that are taking place there. It sprung up from a conversation I had and working with a couple of our students to get a couple of deals closed in Detroit Rock City as we say. Detroit’s been a hot market in the last few years because of a couple of things: lots of inventory, price points are still cheaper and values are rebounding strong. Detroit itself has at least a double-digit appreciation over the last few years just because of its affordability for one thing. There are still a lot of troubles going on in that neck of the country as well. Especially Detroit’s got a lot of blight in different parts of it. You’ve got a lot of economic development going into it with the new Gordie Howe Bridge. You’ve got the gentleman from the Cleveland Cavaliers putting in a lot of money in developing downtown Detroit. It’s really nice to see.

There are issues with the city that are still lugging around. The city has been on the verge of bankruptcy for the last number of years. The city is trying to get aggressive in their outreach for taxes and fines and things like that because they just don’t have the money to operate for the most part. An interesting story took place and it’s something relatively new. We had a couple of students getting ready to buy a couple of performing contract for deeds in Detroit and they were going to be using their own self-directed IRA to fund. They sign the contract, they get ready to fund, they send in the paperwork to their self-directed IRA quest. In this case, it’s Quest IRA and Quest informed them that they would not be approving the transaction. It was surprising like, “This is my investment. You can’t tell me yes or no on the investment. I’ve done the due diligence. I want to use my money to fund this.” Unfortunately, some crazy things are going on in with the City of Detroit. They are smoking a lot of cracks over there in a couple of ways. They said they’re getting aggressive on the outreach to try to collect on taxes and things like that.

Detroit Reaching Out

I had a long conversation with my buddy Derek Long and Nate Hare. What’s funny is that Nate texted me about two hours before I called them to find this out to discuss the specific deal with, which I love it. They’re like, “There’s an issue we want to reach out to you and give you the way to fix it.” I was like, “Awesome.” I hear from the student, “Quest is not going to fund this deal. What would we do now?” I’m like, “Let me call Quest and find out.” I get on the phone and here’s what’s going on. When you buy a note and you’re funding it with your IRA, how does it get recorded at the county? If you’re using Quest Trust, it’s either “The Quest Trust Inc. For the benefit of Scott Carson, IRA number 1234567” or it will say “Quest Trust Company for the benefit of IRA number 1234567.” What is happening, there are investors that are buying assets in their IRA. It’s not just Quest, but other trustees. They’re not following through and they’re not paying taxes. The City of Detroit is now reaching out and suing the self-directed IRA custodians. It’s happening all across the country. It’s just not happening to Quest. It’s happening to other people out there and other entities out there as well.

As I was talking with Nate Hare, he was saying, “Quest has been sued several times by this city even though it’s not our deal. It’s an investor’s deal and we’ve had to work to pay to get these things done. It cost us money.” They have made an administrative decision not to fund deals in Detroit, Michigan and the title is going to be held in Quest Trust IRA account. There’s a workaround for this because that was one of the biggest things, “If we can’t do this, how do we get this done?” As Nate said and I totally agree, this is what I love about Quest. The solution works faster to solve the issue to get funding done versus going the traditional route of having a deed of trust, a note, or things like that. I’ll have to provide copies of the new transfer stuff. Nate said that you can go out and create an LLC or you create LLC with a third party, usually somebody that’s not the IRA Macarena, not your parents, not your kids, not your siblings, but somebody else outside of that Macarena.

You can’t create an LLC with your managing member, but maybe you have your CPA, maybe you have your attorney, maybe your best friend. Have the operating manager or the managing member of that LLC, and then what the investor would have to do, if I’m buying notes using my IRA, I would have my attorney be the managing member of an LLC, then I would have my IRA fund that LLC, which is a private entity, a private placement investment. It’s easy to do with Chase. It’s just filling out a couple of forms. You don’t have to provide copies of the notes. You’re just like, “We’re funding this IRA. We’re investing in this entity.” What happens is the title of that note or the title of that contract on the assignment or on the deed, if it’s a contract for deed, is in an entity name, not in Quest’s name. It solves the issue. While it requires you to have a separate LLC or separate person managing it, it adds a level of asset protection to your deals. It adds a little bit of extra between for a couple of reasons. For your IRA, your name isn’t floating out there.

Somebody like Scott Carson or any of our students can jump on the county clerk website or county appraisal district and type in Quest Trust to find people who have funding deals with IRAs. It would show up as an entity. If they don’t know the entity name, there’s no way to track it down. That’s a nice little extra thing. Your IRA name is not out there so that’s a bit of anonymity and asset protection for you as well. The thing you got to keep in mind, now you’ve got to pay separate filing fees for the LLC net state or other states. If you live in California and you’re buying in Michigan, you have to create a new account. You’ve got to pay that extra filing fee in California. California wants their pint of blood. If you breathe in California, you’re paying your annual registration fee. If you’re creating an LLC in Michigan, it’s less than $100. That’s the thing to keep in mind. That’s the work around and it’s a pretty easy fix for that aspect. I would not be surprised if you run into this. As Nate said, other IRA companies are regulating to this and they’re avoiding Detroit, Michigan until Michigan realizes, “You can’t be suing Quest Trust Company. You sue that IRA. You have to sue the account holder, not the actual company.”

NCS 452 | Self-Directed IRA

Self-Directed IRA: Quest actually works faster to solve the issue to get funding done versus going the traditional route of having a deed of trust, a note, or things like that.

 

Do not be surprised. This is something that’s popped up. I was trying to track down any other articles I’ve seen pop up about this and have not. It was great to have that conversation. I reported back to our students. I said, “Here’s the fix. Reach out to your CPA, reach out to your attorney, reach out to somebody who’s not in the Macarena as far as it’s an arm-length transaction where it looks like that entity’s buying the actual asset and then the LLC is funding that, which is buying the asset. It’s easy to make a phone call to the person helping them with the deal or the note seller. Say, “Here’s what’s going on. We’re going to get this fixed. I’m vouching. I just got off the phone to get this solved. This is something you’re going to run into selling more assets in Michigan, especially Detroit, Michigan, if you have other people that are funding with their IRAs.” He’s like, “Thank you. I appreciate the workaround. I appreciate you jumping in and helping to get this thing solved.” You can easily create an LLC in 24 to 48 hours and get it all fixed and the contract’s reassigned. That way it’s all done and buttoned up and still closing in 24 to 48 hours.

Now you don’t have to resend in the copy of the assignments, the copy of the deeds, anything of that. The private placement forms are simple and easy. You’ve got a copy of the joint venture agreement or the lending agreement. It takes place on that. It’s a cool aspect of getting things solved. That’s something to keep in mind. I know many people out there are buying in Michigan. They like that state. I love Michigan, but this is just in Detroit. Another thing about Detroit. It’s got so much growth going on in it as well. You’ve got to be careful if you’re buying property or buying notes that need work in the outlying areas like Flint, Pontiac, and many other areas that’s maybe a half hour to an hour outside of Detroit. You’re going to have a harder time finding contractors.

A lot of contractors are feasting in Detroit. They don’t want to spend the time to drive out of Detroit or to drive elsewhere when they can find so much more going on in the city. That’s something to keep in mind too. I would like to thank Adam Adam with AJA Investment for sharing that with us. It was him and me passing when we were up in Michigan and we get a chance to hang out with him and his lovely wife, Jennifer, when they were up there looking at assets too. The funny thing about social media is like, “You’re in town. We’re in town. We’re twenty minutes apart from each other. Why don’t we meet for coffee?”

Adam was giving some insights and some of the stuff that he’s dealt with there in Flint and other areas of the country because he’s a big fan of Flint. I’m a fan of Flint. I may not drink the water, but still there has been some good cashflow because the asset is a bit cheap. That’s the thing to keep in mind when you’re talking to your potential funding partners and they want to be on the assignment of trust, the assignment on mortgage, or the deed of trust with the CFT like, “Let’s go ahead and create a separate LLC, have your IRA fund that LLC and then we’ll put the entity in LLC.” If you had a series of LLC, it’s an easy thing to do. Just create a note series, especially here in Texas, that’s what we do. We’re buying assets, we’ll register that series, and you’re funding that series. We’re working through so we’re not violating security laws or things like that. I highly recommend you talk to an attorney.

There are also some changes going on in Ohio. The state won’t even let you have an office there, primarily, if you’re in a second lien position space. You want to double check that law and clarify to make sure you’re not violating anything by buying notes in Ohio. CFDs are currently exempt from that law of wanting you to have a spot or office in there, but just reach out to your servicing company. I had a good conversation with Shante Duffy over at Madison, found that weird exempt from that just fine because we don’t own any junior liens. That’s one thing that you’ll want to keep in mind later when you’re looking at buying in that space. Laws like this change and things pop up. Those that understand it and keep abreast of it will figure the workaround, “I can’t go this way. I got to go A-one. Instead of going this exit, I got to go to this exit instead, and how we structure the deals to make things happen.”

I’m excited about that. It’s an easier fix. One thing that springs to my mind is if somebody were to do some research, it might be a great way to offer up a service to somebody, to investors in that neck of the woods and use their IRAs. If it’s performing note, you’re like, “It’s done and been funded already. They’re not going to go and counter.” You take it out of that entity and you may put it into something else, but they might be. If they’re IRA investors, especially if they’re buying it, funding deals, or bought assets in that neck of the woods, it’s something that they had to be concerned about as well. I would not be surprised if you start seeing letters from other self-directed IRA custodians and trustees reaching out to their existing investors, their existing database to alert them to this change that is taking place in Detroit City. Detroit, no SDIRA city, as we like to say. That’s a couple of things you want to keep in mind. Things will come and things will go. You just move on and keep rock and rolling.

NCS 452 | Self-Directed IRA

Self-Directed IRA: Things will come and things will go. You just move on and keep rocking and rolling.

 

Working With Quest Trust Companies

One of the great things that I highly recommend and what I love about Quest Trust Company is being able to pick up the phone, talking to somebody in minutes, and coming up with a solution to get this fixed, solutions to help save the deal. The thing I love about them is that they can fix things. There’s usually a way to make it work so it doesn’t violate any law. You don’t risk your losing your whole self-directed IRA, asset protection, by doing something stupid. They’ve got a way. It works out to be better in asset protection for the investors out there, whether it’s performing or nonperforming, the city still wants their pound of flesh to pay for taxes. That’s unfortunate. There are some opportunities there, everybody. Keep that in mind when you’re looking at it. I know Michigan is usually a top two or top three markets for a lot of our students across the country that are buying in individual or in bulk aspect of things.

Another thing that has popped up is I got in a large list. I’m very excited about this list. It’s a good size value on the assets here. A portfolio from a major hedge fund, 96 assets, roughly average UPB is $381,000. I know it’s a good size value assets. The estimated average value of this stuff, pretty much current values pulled over the last few months, are values at $497,000. There are a lot of assets with some equity. It’s on older loans but complaints have been filed. The bank has already started the foreclosure process on this stuff. It has got a portfolio of stuff in New York, that’s not a big surprise. Quite a bit of stuff in Florida, New Jersey, a couple in Illinois, Cook County, Pennsylvania, Hawaii. I might have to look at that, Durham, North Carolina, Maine, Massachusetts, a couple of nice stuff in Nevada. It’s not so bad. There are decently priced stuff with over encumbered on in Las Vegas. A condo and then a house there and some stuff in Texas. A couple of assets in Oregon, Pennsylvania, Washington State. One’s in California as well, Ohio. There are some decent looking assets in this.

We’re excited about this. It’s a major fund out there. A big shout out to Logan out there. He’s closing on a couple of deals and he called me up. He’s like, “I’m working with this fund. They want to sell some bigger pools off.” “What’s the amount you can handle? Why don’t we talk to the fund and find out what they’re looking to sell, how big a pool they look into, how small a pool?” One of the great things about having a mastermind group is we’ve got 40 people coming together to discuss working on a portfolio like this. Everybody gets a piece of the pie where everybody’s working together and coming and co-bid together on assets to help knock some things down in. We’re excited about this. We’ll be putting this tape just for the mastermind members. There are some nice markets. It’s of higher price stuff, but some stuff that could be nice for some people who are raising capital and looking for some nicer priced assets as well.

Florida sticks out, North Carolina, Oregon, Ohio. As I say, got to love the tropical island of Hawaii. There are some stuff here in Texas too. I’m pretty stoked about this. We got some equity on that one, and $42,000 in unpaid balance. They owe $130,000. They still got some equity, but still got a UPB on this stuff and the back payments there over encumbered. I’m pretty stoked about some of this stuff. You’re starting to see this, everybody, thanks for moving stuff. When you start seeing more banks moving residential or bigger funds being open to selling off smaller trades, not the $20 million or $50 million, but even a $5 million trade is not that huge anymore these days. It’s so much money sitting out there ready to get to work. I’m pretty stoked. I see some stuff I look at for our portfolio and I’m looking forward to spending this time. We’re excited, we’ve got 40 people coming into Austin. We go through a variety of different things, rule changes, like what’s going on in Michigan like I just talked about. Some different tapes we see and the different opportunities for people to partner together on assets and trades so that it’s a win-win across the board for everybody.

That’s one of the great things out there, if you can keep track or really build. Your riches are in the niches. We’ve got a niche here, but more so than anything else, a lot of the wealth in the next few months is going to be coming from you working with other investors. Not that you weren’t going to make money as an individual investor, but I’ll give you an example. It’s becoming harder and harder for individual investors or one-off buyers to get deals done. Why is that? For a couple of reasons. They’re looking at maybe they only had a little bit of limited funds. They’re looking to fund their deals with their money. It’s a limited amount. Your hedge funds, you’re asset sellers, your banks, they prefer to deal with larger trades unless people, because they’re not set up to handle with 100 buyers. If you can work together, and I won’t call it like a buyer’s club, but it comes down to that where you’re a note buyer’s club working together, taking down trades, probably want to put some paperwork together for asset protections.

Being The Best At Pulling Data

NCS 452 | Self-Directed IRA

Flash Boys: A Wall Street Revolt

Working together take some things done and win together as a group. We are making some changes here in our offices on some of the things that we’re doing wisely. I’ll give you an example. There are different ways that we’re one of the best at when it comes to pulling data and marketing out there. I’m just going say we’re the best at what we do in our field. I’ll give an example. Pull a list of self-directed IRA owners and investors out of specific counties that we’re buying in. Those lead to great leads for buyers of assets in those areas. We’re also working the other side of the equation by building lists of asset managers that we reached to, building lists of funds and available tapes that are available for people to cherry-pick from or co-bid on or carve out a mini tranche for their own portfolio or together as a group. That means you are connecting the two. I was called by Investor’s Business Daily as the Chuck Woolery of ugly paper, the love connection of ugly paper. That’s what we’re focused on.

We’ve got some great things that we’re doing with master’s right now, but since we’ve done such a great job for the last few years of building a great database of such, we’re going to keep doing that. The need to go out and go to three or four conferences to meet 400 people has been nullified by what’s going on with LinkedIn, Meetup, and Facebook marketing and things like that. That’s where a lot of the funds, they get it, are going to make a lot of money because they’re going to have less overhead when it comes to marketing to go to an event to spend $5,000 or $20,000 to send people to a convention where they can sit at home market, work in their shorts and t-shirt if they want to. I have no problem with that. Market to areas, market to cities, market to the funds and realize, “You’ve got these 40 assets in Michigan, let me take them down. Get these twenty assets in Florida, these 30 assets in Ohio, these twelve assets in Texas, whatever. I’m looking to buy.”

What’s funny is you look at some of the news. Keller Williams announced that they were going to get into the iBuying in space. What’s that mean? You need to be buying assets. They’re joining Zillow in that space. Zillow is going to be buying real estate to turn around and sell that themselves. What does that mean? That’s taking the need to have realtors. Keller Williams is a big real estate marketing firm. One of the better brokerages in the country located here in Austin, Texas. Technology is driving that stuff. What it reminds me of more than anything else, if you ever get a chance to read the book Flash Boys written by the same guy who wrote The Big Short and Moneyball, talking about how New York traders will pay billions of dollars to get 1/100 of a speed faster when it comes to trading on the New York Stock Exchange and Wall Street. You’re going to start seeing that.

Amazon is in the works to announce something major too, because in 2018, for a brief moment, a real estate buying page appeared on Amazon’s website. I didn’t see it but news came out that said, “Are they going to be getting into the iBuys with real estate? Are they going to be offering that up as another service of being able to buy houses without the realtor side?” You already look at the mortgage side. A lot of the mortgage stuff is being automated as best you can and streamline, keeping things rock and rolling. You see that in the housing side. You see that in the realtor side. You see that on the mortgage side as far as the origination. You’re going to see more of that specifically here on the notes selling side, I believe too. You’re going to see more funds using the automation and marketing tools as they start understanding it. One of the things for us is moving these assets and be able to find buyers for sellers and put the piece together and high-frequency trading on the debt side, making it a little bit of something versus trying to knock it out of the park.

If you can speed up your velocity of capital, you’re making a point, and can get stuff done in a month versus it taking three months, you can speed up your money. You’re going to increase your returns and knock it out of the park. If you’re marketing now like our great conversation in our episode with Darin Adams talking about how everybody is a marketing company, everybody is a media company out there. Here’s one thing that I would love for you to do. If you go to our website, WeCloseNotes.com, you’ll see immediately when you scroll down, three boxes that pop up. You can go over to WeCloseNotes.com and you’ll see sign up for to buy notes, sign up for one of our virtual classes, or sign up for our mastermind information. What I’m asking you to do, just click on the buy notes side. That’s going to take you directly to our note funding link sign up. It’s going to ask you email address, first name, last name, cell phone number, and the top three states that you’re looking to buy. We’re not going to do cities, but we’ll do the stateside initially. If you like Ohio as your first state, great. Only buy in one state then put one down.

If you’ve got your three favorite states, just put your three favorite states. Don’t be like somebody trying to put 25 states in each one. That doesn’t make sense. Just put one state in. If you need to go in and have a different email address when you went through three more, then that’s what I would do. The thing to keep in mind is this will be in your database as we have assets available that fall in your neck of the woods, you’ll get emails, you’ll get updates to it. Our goal is to be able to send out text messages directly to your cell phone, that’s what we’re working on, with specifics of the deal. How’s that work? If there’s a deal in Detroit, here are the numbers behind it. Here are the photos. Here’s what we found in due diligence. If you’d like to reserve it, click here. If you like to go ahead and order an O&E, click here. If you want to order a BPO, click here. If you want to put it under contract, tentative contract put here. We’ll charge your card to pull it off the market. $500 refundable charge in case you don’t want the deal. Those are some of the things that we are working towards.

We’ve been working towards it for quite a while to get things done. We’re seeing some working in some of the assets that we’re selling now. We had been good over the last few years of pulling people’s database or data as far as their states and interests and things performing, nonperforming, whatever. There are some opportunities there. I love it. If you want to get registered, WeCloseNotes.com, click on the buy notes page box and then list in your top three states. We’re not going to spam you to death or things like that. That’s not what we’re looking to do. We’re looking to provide some great content for you out there as well.

NCS 452 | Self-Directed IRA

Self-Directed IRA: The cities, especially Detroit, is now starting to sue the IRA custodians when people aren’t paying their taxes.

 

One thing I wanted to bring up, I’ll mention Note CAMP a little bit. Our next upcoming Commercial Note CAMP is likely on July 26, 27, 28. If you go to NoteCAMPCommercial.com, you’ll be able to get signed up for that at half off. We are uploading and releasing. We’ve got a few of the episodes released of our Note CAMP 6 Podcast. If you go to Note CAMP season two I believe, we have three total podcasts that we do in the note space. The Note Closer Show, it’s playing all across the country and over 80 different countries. We also have our Note Night in America Podcast, which has our replays or audios of our open to the public Note Night in America conference calls. If you go to Note CAMP Podcast, it says Note CAMP season two, we’ve uploaded 34 more episodes that are uploading a day at a time. A big shout out to Tom and Tracy Hazzard and Alexandra Hazzard of Podetize for helping us get this uploaded.

You can go listen to a couple of those episodes. We’ve got about a week of them published for you. Go back and listen to this stuff. Go listen to the residential stuff. It’s got some great things. The investor panels. The proof due diligence from ProTitleUSA. We’ve got Franco and Tony from the Sottile & Barile law firm on there. Nate Hare was a guest, talking about self-directed IRAs. We got Shante Duffy in servicing for Madison Management talking on their interview in there. Sue Nelson is talking about some commercial notes stuff. Dawn Rickabaugh‘s episode is The Dance Between Property and Paper. There are a good seven, eight, nine episodes there for you to listen to. We’ll be releasing one a day. Check it out, the Note CAMP Podcast. That’s the third one that we do besides Note Night in America.

All the recordings are available there for you to download and listen to in case you missed it and you’re new to The Note Closer Show or the WCN footprint of different shows that are there for you to listen to. That’s there for you to listen to. I highly encourage you to check it out, download maybe, if you have questions. For some of the people that speak there and they have workshops or offers, they’re still available if you’re interested. If you’re interested in a product that they’re offering or class or workshop, they usually have new dates. Feel free to drop me an email. I’ll be glad to reach out. Oftentimes, if these educators are getting an email from me regarding a new student, they’re often willing to match that offer that they offered up months ago. I highly encourage checkout Note CAMP Podcast. It’s on iTunes, Stitcher, all available. The link is also on our homepage at WeCloseNotes.com for you as well.

Quick recap once again, if you’re using your self-directed IRA to buy a note, performing, nonperforming in Detroit, Michigan, you’re going to need to use an entity for title, for the assignment, for the deed of trust, whatever instead of Quest Trust, Equity Bust, whatever. Use a third party entity, somebody that’s not related to you, the whole Macarena, not your parents, not your kids, not your siblings, but an arm’s length transaction with somebody to manage that’s usually your accountant or realtor or very close dear friend as a managing member of that LLC. We’re going to have the contract going, that LLC name, the deed of trust, title, stuff like that, and then your IRA can fund that LLC. Simple transaction, private entity investment with Quest Trust, just a couple of documents and you’re still fine.

The cities, especially Detroit, is now starting to sue the IRA custodians when people aren’t paying their taxes. That’s one thing out there. Once again, take it, feel free to pick up the phone and call Quest Trust Company. Let them know, talk to Nate Hare or Derek Long over there. Big shout out to both of those guys for being very proactive and alerting to us this new issue that’s taking place and a way to work around and still get it to work. We still have our students close on deals, some double-digit return, some performing contract for deeds. We’re so proud of them. It’s great to work well with the company who’s going to work out and find a way to alert you of the situation versus letting you just sit there and make a mistake yourself.

Check them out. Once again, if you’re using the Carson19, it will get you a discount to the upcoming Quest Trust Expo taking place on August 23rd, 24th, 25th. Carson19, it will also give you a discount off of any fees to start or open a new account if you open to a new self-directed IRA or Roth, whatever, or rollover. Check out Quest Trust and tell them that I sent you, Carson19 to get 25% off every account opening fees. That’s about all I’ve got for this episode. I just wanted to alert everybody to what’s going on there and show you the way to get it fixed. It’s important to your partner with somebody’s IRA or using your own IRA funds to be a little safe, to take the guesswork out of it, and not to put your IRA at risk of being sued. More importantly, the IRA company being sued and not wanting to do business at all in that city or state.

It’s a little bit of a hiccup, but nothing big for everybody out there that are dealing with this. It’s an easy fix. You just got spend a little bit time and if you don’t have an entity, you probably need to get one anyway. Start doing it. Have your attorney be the managing member or somebody else out there to help you keep an arm’s length transaction so you’re not facing an issue when it comes down to asset protection. If you ended up running, you’re not jeopardizing Quest or your IRA custodian out there as well too from being sued. That is all I’ve got for you. Go out and make something happen. Take some action. Check out the website, as I said. Check out WeCloseNotes.com, register on our note buyers list and as we’ve got stuff available, we’ll send them out to you as well. Otherwise, we’ll see you all at the top.

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