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Dave Cole

Episode 13: Take Back Control of Your Retirement Funds Before It is Too Late!

During his 25+ years in business of helping folks to create wealth tax free, David Cole has seen time and again the dramatic differences in the outcome between people who step up to the plate and take charge of their financial lives as opposed to those who continue to do exactly as they are told and “trust” the system .

A favorite quote from his book is now more relevant than ever, “Get Rich Slow”

“As a result of others controlling your money, you’ve been lulled into a false sense of security, believing someone else is standing guard over your hard-earned dollars and, thus, guaranteeing your financial future.”

Today, David is recognized throughout the country as one of the foremost experts on the subject of retirement plans for hands on real estate investors.

David has consulted with hundred of hands on real estate investors helping them to overcome obstacles that were limiting their success.

David along with his Wife Jill, reside in Prescott, Arizona. Where during their personal time they are working towards creating a hands on Aquaponics education center to teach families how to grow their own pesticide free, organic, fruits and vegetables.

What you’ll learn about in this episode:

  • Picking the right investment based on the time you have to spend on it
  • What you need to know about the solo 401k
  • Getting control of your investment plan and deciding where to put your money
  • Why you haven’t been taught about the solo 401k
  • What you need to do to qualify to the solo 401k
  • How to deal with the regulations that happen when you have employees
  • What you can’t use a solo 401k for
  • The opportunities offered to you with the solo 401k for
  • How to borrow from your 401k effectively
  • Why people have ditched their IRA plans and rolled them into the solo 401 k plans (except for the Roth IRA)
  • Dave’s after tax Roth 401k
  • Moving taxable income into your retirement plans
  • The differences between a traditional IRA and a Roth IRA
  • The free consultation Dave is offering you as a listener of this podcast



Welcome to the Real Estate Investor Summit podcast, coming to you straight from the smallest big town in Texas with your host mentor and owner financing master Mitch aka Be the Bank Stephen. The possibilities of life without a J O B start here, so grab your pen and paper and listen up. You all just might figure out how to sail forward to financial freedom.

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Reinvestorsummit.com/capital.That’s reinvestorsummit.com/capital

Mitch Stephen: This is Mitch, and you are here at the Real Estate Investor Summit Podcast. I have a really great guest for you today, his name is Dave Cole. He’s going to talk to us about the value of self directed retirement vehicles. In particular he’s going to talk to us about the Solo 401k and I’ll let him fill you in on the details.

Right now I want to give tribute to our sponsor for this episode today, it is Fund & Grow. My friends at Fund & Grow Mike Banks and Ari Page, they’re doing a fine job helping my students find money for their deals and funding. I want you to go to reinvestorsummit.com/grow and listen to how they’re getting my students 0% interest money and or very, very, very affordable bank lines of credit, which by the way don’t hit your personal credit report.

I’m sure Dave will have something to say about that, I want to remind everyone that yours truly has invited Mike and Ari personally to be on a podcast, and that’s what you can listen to there at reinvestorsummit.com. If you want to find out how my students, over 90 of my students are getting 0% interest credit cards, and funding their quick lists, how they’re getting bank lines of credit up to 250,000. My students have raised, doing close to $7-million in low interest funds, and that’s what we need to get going in that business.

You can do this business without money, but it’s a lot easier if you have some place to go and make a quick strike and buy something in a split second. You can’t steal houses in slow motion. With no further ado I’m going to introduce my friend Dave Cole. How are you doing Dave?

Dave Cole: I’m doing marvelous Mitch and thank you so much for having me on the podcast, I really appreciate it.

Mitch Stephen: No it’s wonderful, because you changed my life, a long time ago I was involved in IRA’s, the traditional and the Roth, and as my business started to grow and I was able to do more and more deals, I lost a couple of deals because the trustees that I was dealing with at my self directed IRA locations, and I will withhold their names because they’re good people, they just, they just can’t move as fast as I need to, because I move fast.

You just have to lose one deal that you could have made 20 or 30,000 on and you start to think to yourself, how can I improve on this, because that’s very, very painful? I did, I lost a deal and then I fumbled around and got introduced to Dave Cole. He introduced me to the concept of the Solo 401k, which is a, with checkbook control, which was the key, I don’t have those problems any more.

Where do we start Dave? What do we need to know about the Solo 401k and how can I get these people on the right track and not have to suffer through the losses that I did before I got to you?

Dave Cole: Well again it’s something that I talk to people about every week. People call me from all over the country Mitch, because they’re referred by people, like professions like yourself, or maybe their CPA, that knows about our company or heard us speak or many of the articles or different things that I’ve done over the years, and they’re very, very frustrated because they can’t get ahead in the stock market, we already know that. They’re looking for what are my options? What can I do to to get involved in growing my nest egg?

They’re searching for answers, and I like the point you said, you can’t steal a house in slow motion, or purchase a house in slow motion, and that’s really true, real estate is a hands on investment. Many people do start down the path of the self directed IRA custodian, that’s the first thing they discover when they go out there and Google for information or whatever. There’s all kinds of these companies out there, and they do have their place, especially for certain investors.

When I’m talking to somebody Mitch, my first question to them is, what are your goals? How involved do you want to be in managing your investments, finding them, making offers, buying them, getting them sold? I try to help people decide which camp they’re in, and by camp I mean are you a mailbox investor, meaning that you’re busy, you’ve got a career, you’ve got a lot going on, you want to diversify into real estate but you just don’t have the time to do it very much hands on.

Well that’s certainly a person that would be a good candidate to work with a self directed IRA custodian, because they’re just not going to be that active, they’re not going to ask the custodian to do that much, so it’s going to keep that account pretty inexpensive for them. On the other hand I would say a good 90% of the people I talk to say, no, I want to go out here and I want to do what Mitch is doing.

I want to go find these solo three two starter homes, I want to make an offer, I want to take them to market, I want to get, provide owner financing. They want to be involved because they’re comfortable with that aspect, that’s something they understand a lot better than the stock market.

Well in that case Mitch, they have to have a plan that allows them to do that. They’ve got to have checkbook control, they’ve got to be in the driver’s seat so that they can react instantly when they see a deal with what I call meat on the bone. Boom, they can write an offer, attach a check, get it accept and get on with that investment.

For long, long time all we had to work with were self directed IRA’s, and so you used the tool you’re given, right? In 2002 Congress in its immutable wisdom, for whatever reason, and we’re happy they did, decided to open up the availability of a different plan. Not a new plan, just one that we couldn’t participate in before, and that was what has now been nicknamed a Solo 401k.

The actual legal tax name is a One Participant 401k, and when they did that they did a magnificent job, and we can’t say that about Congress too much really, that they really knocked it out of the park, but this time they did because they left it alone, they made it simple to get involved and they gave us the control as real estate investors that we crave, in fact we have to have in order to do the deals we’re wanting to do.

Mitch Stephen: Yeah, and that’s an important point that you make, is I like it that you take the time to people up front and find out what their goals are, and make sure that we’re in the right place for the right business. I took, I’ve never opened my accounts with any more than the minimum and the part, the problem that people struggle with, when you open a self directed retirement fund with the minimum saved, what is the minimum these days 500? Mine was 500 at the time, what is it now, do you know?

Dave Cole: I see, basically 100 bucks, you can really open up an IRA with it.

Mitch Stephen: Yeah, and so then people say, well what can you do with 100 bucks, or what can you do with 500 bucks? You certainly can’t run out and buy a house. I say, well you can’t buy a house, but you can direct your retirement fund to get a contract on a house and just put up the interest money. When I started out I was just getting properties under contract for my retirement fund, and then I was directing the retirement fund to sell the contract.

Well I did that a handful of times and I looked up and I had 15, 20, $30,000 in the account and now I could actually go buy a house. I never put any more money into that account than what I started it. I must say, I didn’t put any money in. I didn’t take any money out of my pocket and fund it, like a capital injection, I didn’t do that, I took the basic meager amount of money that I had in there when I opened it and then I just started to multiply it by whatever strategy would work with those few dollars.

Certainly putting it up $100 from an interest money contract and then telling your retirement fund to sell the contract to another investor like you or me, I was able to sell those contracts sometimes for 5, 6, $7,000 of profit, to turn, to direct my IRA, to turn that contract over. That’s how I started from nothing, and built it into large amounts of money, in anybody’s book, really proud of how it’s gone, and then they started getting bogged down, because the ideal of IRA’s and doing these kind of deals got popular.

You could feel the bottleneck, you used to be able to get things done in a day or so and now it was, you kept getting switched to new people, and then those people really didn’t know what they were doing, and then they were on vacation while your deal was trying to close. I got really frustrated. That’s when I met you and found out the significance of the 401k with checkbook control. Tell us a little bit of the difference between the traditional IRA’s or Roth IRA’s and the 401k with checkbook control.

Dave Cole: Okay, and I’ll share that information, I want to go back and make a comment on what you just shared, because the wisdom, that pearl of wisdom that you just shared, should be setting off a light bulb for people. Because when you really have control of your retirement nest egg, when you are the custodian/trustee, when you have the checkbook in your hand under your control, a whole world of possibilities opens up to you, that right now if you’re in traditional investing isn’t even allowed.

Wall Street doesn’t allow you to put money into real estate, because it doesn’t make Wall Street any money. When you have control of your plan, I tell people it’s not about how much money you have, it’s about what you do with it. The strategy that you use, because again I get people, they call me up, and I can hear the embarrassment in their voice or the disappointment, because they’re saying, Dave I’ve been pretty much wiped out, got hit a lot in the recession, I kept with the stock market, I’ve been hit hard ever since, I don’t have much left.

In some case nothing left, they’re starting over completely, and the the thing is, that if you have the right tool Mitch, if you have a plan that gives you the freedom and flexibility you need, you can start over from scratch. You can do what you’ve done, put $500 of cash in the thing, and go out there and find other ways to make money, whether it’s the wholesaling concept you just talked about, whether it’s partnering into another deal, you found the property, they loan the money to your 401k.

There’s all of these things that open up if you are taught what these things are, and that’s the relationship that we have with our clients, as a coach, and we coach them on a personal basis to understand how to apply these strategies inside of the right plan. It’s got to come back to what kind of investor you are, so again a self directed IRA custodian will work for people who just aren’t that active.

They move some money into the account and they go buy a performing real estate note, that’s now the asset owned in their IRA, and now those payments are being directed to there, and they’re not going to have much activity for a while. The moment that they need to be more creative, the moment they want to open themselves up to the possibilities that the universe will present to them, then they need that control, they need that ability to move quickly.

Again what I’m finding, our typical client is an individual or a married couple, they’re sick and tired of the roller coaster, they know that they want to diversify into real estate, so they’re looking for two things Mitch, they’re looking for what is the best tool to use, that gives me that checkbook control and freedom and flexibility, and what’s the system or the blueprint I need to follow?

Because that’s the disconnect for a lot of people. See I can set them up with checkbook control, they both can sign the checks, they’ve got control of their money, a lot of times it’s in a local bank that we work with, and everything’s ready for them, but now if they sit there and go, now what, what do I do? If they don’t have a system, a blueprint to follow, then that money in that account isn’t doing them any good.

To me, the way I see it Mitch, is what you do, you teach people, assist them in a blueprint that you went out there for what, 17 years or more, and busted your hump to learn it, figure it out, figure out where the hard parts are, how to get around them, how to do it right. Once they have that information and then they have control of the retirement plan, now you have a system or the components to really start creating wealth.

That’s where I do my part, to get the journey started by getting a plan set up that gives that kind of control. When I do a comparison, the self directed IRA next to a one participant 401k plan, the benefits are massive. The choice for most people is obvious and I just have to make sure that their circumstances qualify them for that and it fits them in the right way. Really it’s handing them the keys to the golden kingdom, the retirement plan, but it comes back to what do they do with the money.

That’s, a lot of the strategies that people would learn from you Mitch for example, are all usable inside the retirement plan, and that’s pretty cool. I tell people once you know what to do, you get to choose which checkbook to do it with.

Mitch Stephen: I want to give everyone here the link in case they don’t have time or they can’t finish out here, they want to revisit. You’ll go to reinvestorsummit.com/401k to revisit this podcast. I just want to make sure you guys have that up front and early. It’s reinvestorsummit.com/401k.

You’re absolutely right Dave, the right vehicle in your case and then the right strategy. You’ve got to put them together, and a lot of that depends on how much money you have to work with, as to what strategy you can use. As you get more and more money built up in this tax deferred retirement fund, then you start to have more and more choices and more and more options and more and more strategies become available to you.

In the very beginning you’re limited, but you deal with, like you said, you deal with what you’re given and then you move forward from there. I have been so blessed to have learned about these systems, and I want to tell you, I once paid $3,000 20 years ago, not, didn’t count airline tickets, didn’t count hotel rooms, didn’t count food, didn’t count anything, just to have a chair, to sit and listen to a man tell me what I, what was possible.

This man was holding a two day seminar, and I literally walked out of that seminar on the, after the first day and said, I can’t take any more, my head’s exploding, I know exactly what I’m going to do, I’ll have to come back and revisit the second day of this, but I can’t handle any more information, I’m already on fire with what I know I can do. I did, I walked out of that seminar in San Francisco, and I didn’t go back Sunday morning, I just went out to watch the street performers and let everything settle, because it was so amazing what I had heard, even in just the first day.

People laugh at me, I said, I left that thing early and it was like drinking water out of a fire hose, I couldn’t swallow any more, I had to just go do what I knew I needed to do. Without, your guidance has been really helpful, tell us more about, these laws that are passed, they don’t send out any announcements to us little peons about this. It’s been a stack of papers of, free building tie of all the laws they passed that year. They actually passed these laws for themselves and then we eventually find out about them maybe.

Here you are going to get to find out about a great one, so where do we go next in our conversation Dave?

Dave Cole: Well that’s a good point, I’ve been doing this Mitch for, I’ve been in business 30 years, I’ve been specializing in this area for around 20, and I have a team, I’ve been working with our pension and tax attorney, who is brilliant, for 17 years. His entire world is, he’s monitoring and watching what Congress does in the realm of retirement plans, and then making sure that we understand how to use that properly within the context of the law etc.

When they made this change that opened up these 401k plans for us, it literally was two sentences buried in over 300 and some pages of law changes. Two sentences, and that’s all it took to open these up for us. Because he’s on point, again he was aware of that and we knew ahead of time what was happening, and we were well prepared to be able to introduce these plans and help a lot of our clients.

Yes, the general public is not told about this Mitch, in fact neither are their advisors. I have a lot of CPA’s that are clients, and they’ll tell me, Dave, we’re not taught this information. Because their knowledge, for financial planners and CPA’s and all these other people, is doled out, controlled and manipulated by Wall Street, by insurance companies, by the big banks, so everything they teach these professionals they want to bring money back to them, right.

Mitch Stephen: Right.

Dave Cole: Why would they include teaching them about, oh by the way, here’s a plan that you can show your clients, they can have 100% checkbook control of every penny, the can invest it in real estate, whatever they want, be sure to tell them about it.

Mitch Stephen: Yeah, and don’t gamble, and they don’t have to gamble in the stock market, they can take control of it.

Dave Cole: Yeah.

Mitch Stephen: Yeah.

Dave Cole: Yeah, so why would they even teach them? They don’t.

Mitch Stephen: Yeah, absolutely.

Dave Cole: I get people that are literally mad at their CPA. Why didn’t they tell me about this? When I show them it’s true, and they can verify it and see this has been around for 14 years, almost 15 years, why didn’t they tell me about it? Don’t blame necessarily your advisor, because they’re not taught this information. You have to go out to other sources.

It’s exciting people, it’s like throwing a life ring to somebody, in the middle of a turbulent stormy ocean, who are trying to stay alive, which is our economy, and they’re splashing around, they’re trying to get enough money in to take care of all the bills, and their family and to build money for the future, and they don’t know what to do.

You throw them this life ring and the relief that people have, they’re going, oh my gosh, there is a way for me to rebuild, if I need to, or create additional wealth to what I have right now. It’s so cool to listen to people get so excited now that they have a plan, a system, a one, two, three step system that they can follow. This reminds me, can I share a story about one of our common students you and I both have?

Mitch Stephen:Sure.

Dave Cole: She called to chat to me, I think it was her CPA or somebody that sent her to me, no, heck it was you. You did, you referred her …

Mitch Stephen: Go figure.

Dave Cole: She’s asking about, yeah about retirement plans at, and you said, I think it was one of your coaching calls or something, you said, listen do you know what, go see, go talk to Dave and he’ll figure out what works best for you. I did, in fact she met me, I was down in Phoenix on business, she met me in Phoenix. Which was nice, because I don’t get to meet a lot of my clients face to face, and so we talked about her situation and what she wanted to do, and she said, Dave here’s my situation.

I’d built up a  nice chunk of money, it was six figures in my retirement plan, and then she says, I had a stockbroker lose every penny of it for me, gone. She said, terribly discouraged but I wasn’t going to give up. She said, I went out and did it again, did I with a different company, and went and started building up that money, and she’s said, we started to grow and so forth. She said, I lost it again.

She got wiped out in one of the downturns of the economy. She said, I went in, did exactly as I’d been taught to do, followed it to the letter, and she said, I got wiped out twice. She said, is it possible with your plan giving me control, can I find my way back to build a retirement plan, to take care of my husband and I? I said absolutely. I said, one, you’ve got one component right now, you’ve got Mitch, you’ve got access to his training and his proven blueprint.

Do what Mitch does. Every step he teaches you, do that. She said, Dave, she said, I hardly have any money. I said, one of the things you can do is partner up with someone who does. I said, is there anybody among family or friends, that has a nice chunk of money that they could use to help you with your plan? There was a gentleman, a close friend of the family, he and his wife they had the capital.

I just showed them how to do that, so she took your training Mitch, she went out and found the deal, so she did the leg work, the grunt work, she identified the deals, he funded those, so he’d loan the money over to her retirement plan to fund the deal. They had an agreement that she would earn about 45 percentage I guess, or a portion, a share of the profits on that deal. That’s how she got started.

I talked to her just, I don’t know, three or so months ago, and she now owns nine houses inside her retirement plan, using your system, owner finance, she doesn’t need his money any more, because she’s been able to sell a number of these, and now she’s even teaching her son and her daughter how to do the same thing. She’s paying it forward. It’s not hopeless if you have the right plan to use and then you have the right coaches and information to help you kick start and really get that plan going in the right direction.

I was thrilled because she came back and said, if Mitch hadn’t told me to go talk to you, she said, I wouldn’t know where I would be today. She ended and said, do you know what, I don’t worry about my future, I don’t watch the evening news with dread to see what the stock market did.

She said, I now have peace of mind. I mean I’m in this business to make money Mitch, but the reward for me is hearing people tell me that I helped them get their life back on track and literally threw them a lifeline for their family’s future, and that’s awesome, and I know that’s what you do for people.

Mitch Stephen: That’s a great story, yeah we do things for monetary reasons, but if there’s no emotional satisfaction out of them it’s just a drudgery and a job, so I find myself still, I’m doing podcasts and still talking about real estate after 22 years, and what keeps it new and exciting is that we’re changing people’s lives and giving them hope and then they were able to act on it.

The 401k was developed because, and I’m putting this in my words, you can straighten me out when I’m done here. There was these employee matching plans, and so you could work for an employer and you could put some money into the retirement plan and the employers would match you, but there was never anything for the solo guy, for the independent entrepreneur who had his own business.

This is how it came about that they made the Solo 401k plan for an independent, and so what do you have to do to qualify to be in the 401k?

Dave Cole: Well again, when I said earlier that Congress knocked it out of the park, now this is what our attorney and myself, when we were watching this, we were so shocked. I mean we don’t always expect what Congress talks about to come out the other end and be as good or better, so we really didn’t anticipate them having a good program, and we were just elated when we saw it. We think the intent was just to encourage more entrepreneurship in this country.

They know that some of us are going to start little businesses in our bedrooms, spare bedroom, and some of us are going to turn that into a real impact on the economy. Well certainly real estate investing does, you went through one time Mitch, and showed me all of the ways a real estate investor stimulates both the local and state and national economy, and I’d never thought of it that way, they really do. They get properties back on the tax roll, they rehabilitate them, they get families into them, like there’s a lot of good that real estate investing does.

When Congress did this, and opened the barn door, they really opened it wide open. The definition of qualification for, excuse me, a one participant 401k plan is first, you have to have some kind of legitimate business activity. The key word there Mitch is activity. I didn’t say entity. You don’t have to be an LLC or a C-corp or anything else, you just have to have activity.

Now there’s certainly benefits to being an LLC, for example, from asset protection and tax benefits, and it’s well worth consideration in your tax plan, but Congress didn’t require that, they said, any business, any activity, any non-employee or any, excuse me, let me go back. Any non-employee activity, worked on a regular and consistent basis, meaning putting some effort into it each week, with the intention of making a profit and maintaining your business records and claiming the activity.

That can all be just your personal name and adding a Schedule C to your tax return and saying, hey I’m doing my best to make money, I’ve had some expenses, I made a little bit of money and here’s my profit, or maybe no profit at all because the venture’s new. It’s very easy to qualify, but that is a qualification, so not everybody can have a 401k. If there’s no business activity, and they’re not willing to do anything whatsoever, they will remain in the IRA world because that’s what will work for them and what they qualify for.

Mitch Stephen: Yeah, but it’s easy to open up a business and have activity. I mean you have examples of saying, well if you don’t have a business right now let’s open up a business. You can go to eBay and bid on products, you can, there’s all kinds of things you can do on the internet that you can open up and say, this is my business and this is what I’m trying to make a profit at. You just have to choose a business and get it started. It could be even an MLM, a multi level marketing company, whatever, so it’s not hard to get passed that hurdle.

One of the hurdles I struggled with, it says, you couldn’t have employees making over X, they’re working X amount of hours or whatever, and can you tell me what that is? That you can’t have employees over how many hours?

Dave Cole: Well Congress said, 1,000 hours a year. If you had part, they’re talking about W2’d employees. If somebody is a part-time assistant and they don’t even work 1,000 hours a year, you don’t have to offer them a 401k plan. However the moment that you have an employee, even one, and they’re over 1,000 hours a year, now you’ve just complicated matters because you have to step away from the one participant over to an employee driven 401k, and they are a lot more money to maintain and a lot more reporting, they’re a very complicate program, so we tell everybody …

Mitch Stephen: Let me toot your horn here, because I wanted to get to this point. I had a daughter who had worked for me, for full-time for years, and so I’m thinking to myself, well I’m disqualified from what I really want to do here, and I’m stumped there. Then I said, I’m just going to call Dave and tell him my problem. I said, well look, I don’t think I can qualify for this, well okay because I’ve got this full-time employee, she’s certainly worked more than 1,000 hours and I’m not going to let her go. I mean what, am I just sunk?

Dave immediately came up with a suggestion, he said, do you have a corporation Mitch? I said, yes I have a corporation. He said, well just make her, give her a small percentage of the corporation, which I had no problem doing, she’s my daughter and had been with me for years and years. He said, and now she’s a paid owner and not an employee, and voila.

Dave’s brain and expertize solved the hurdle that I thought I was sunk at, so my hat’s off to you because we’ve been doing that, and my daughter is more than happy to own a small percentage of my company.

Dave Cole: Yeah, well I wish I could take all the kudos for that, but again, behind me, when people work with our company they get me on the front end and, I’ve been a real estate investor for 30 years, I’ve helped my students do hundreds of millions of dollars in deals over the years, teaching them how to do it and so forth, so I’m very comfortable on the front end. I get asked legal and tax questions, so a lot of times I go right back to our pension and tax attorney and make sure that I get accurate information for them.

People’s relationship, yes it’s with us from an educational and coaching standpoint, but they have access to your tax attorney, so I went back to Tim, and I said, hey Mitch asked me, here’s what I think but, and so Tim did a little bit of research, just to double check and make sure everything was current, and so he said, yeah, he said, tell Mitch, this, this and this, so that’s what I did, I was just the conduit for information from him, but it solved your problem and yes that is something we’ve done for people over the years.

Even if it’s not a family member, but they only have one long-time employee, that is really like family, after that long they can give them a small non-voting piece of their company, that makes them now and owner/employee and boom, they can, we can put the 401k in place, so yeah absolutely, I’m glad it worked for them.

Mitch Stephen: Another way that it’s worked for me, and you made me untold amounts of, helped me find untold amounts of private money, because a lot of the people that have money to invest, they’ve got it tied up in more traditional IRA’s or Roth IRA’s, and they don’t even know if they can self direct their funds. I’m able to tell them, I said, you can invest with me, and I ask them, do you have any retirement funds, because they’ll say, well I don’t have any money that I can give you.

I’ll say, well do you have any retirement funds? They’ll go, well yeah I’ve got a lot of money in my retirement fund, but I can’t get to that. I’ll say, well yeah, maybe you can, and why don’t you talk to my friend Dave Cole and see just what your options are. Lo and behold, many of the times they’ve called you and they were, you showed them how they could self direct their retirement fund.

Because you opened that door for them, they were able to loan me their money, and this is a large part of how I raise private money, is getting people to understand that they can take control of their financial future, they can quit gambling and living by that ticker tape every day. Up and down, up and down, anxiety, anxiety, anxiety, and worrying when to get in and when to get out. They can loan me this money at a favorable rate of return, with real estate as collateral, and a real piece of property that’s very valuable.

They either, the worst case scenario, I mean they get paid or the worst case scenario, they get my property. Well no one’s ever gotten the property from me because there’s, I’ve never gotten to that point in my 1,500 house career, where I had to hand somebody back a property because I couldn’t make the payments because the business is just too lucrative. I do want to tell you this, you make me look really smart when they start asking me, well what about these self directed vehicles?

I said, I could start to talk to you about it, but why don’t you just get it from the expert, let me give you Dave’s number and you call him, and then when you’re finished talking to him, because he’s going to ask you some personal questions, that maybe you don’t even want me to know, but open up to Dave, your conversation with him is confidential, and let him show you what’s possible, and then if you’re excited about the prospects then call me back and we’ll get a plan to move forward.

I can’t tell you how many times I’ve done that, and how many times it’s been successful.

Dave Cole: Right, and thank you for that, because really I look at just being on the team. I’m on the team for this person, I’ll teach them everything I possibly can, I’m a huge cheerleader, I want them to go out there and be successful. There’s two things though that I tell everybody, is first of all, when we get it all setup and the money’s transferred in, and you’ve got checkbook control, I tell everybody, the first thing is just take a deep breath, clear your mind and then, I said, and then start to, you’ve got to take action, you’ve got to take the steps of Mitch’s system or whatever it is you’re going to be doing.

It’s taking action, that’s the key, not just getting a plan set up which after control that does you nothing. Be ready to take action, take your baby steps, gain your confidence, and after a while you’re going to be absolutely thrilled with what you can do, so …

Mitch Stephen: What kinds of things can you invest in with your 401k checkbook control account? Like what kind of things can you do and what can you not do?

Dave Cole: Oh wow, then this is going to be a seven hour podcast, right.

Mitch Stephen: No, just the high points.

Dave Cole: No, that’s a good question, people do ask that all the time. First of all let me tell you what you cannot invest in. That’s the simplest and then I’ll illuminate a little bit more. You cannot use a one participant 401k plan to invest in personal collectibles. Personal collectibles as defined under law are things like rugs, art, coins, antiques, things that people would collect or want to own personally. You cannot okay. Now that isn’t even an issue, I rarely have that ever come up.

However, let me qualify that, just to be clear, you can own silver and gold and platinum or whatever, as long as it’s approved on the list of the Federal Government, so bullion and coins, and if you are a one participant 401k owner you can actually hold those metals yourself, they don’t have to be held anywhere else. Honestly Mitch, 99.5% of everybody that wants to talk with us about a plan, they are real estate focused, what can they do?

Well again, they can loan money. I tell people, time is an issue and if you find yourself strapped for time and you still want to be involved at some activity level with real estate, why not loan money? There’s all kinds of people that know what they’re doing, they’re experienced rehabbers or flippers or they know how to acquire real estate at the right price. Simply loan the money, you’re going to do much better than anything a stock market will pay you.

You’ve got the hard asset behind your money, and now you’re doing a little more hands on. They can loan money, they can wholesale properties. Take a property off the market, assign it out to another buyer, and have them take over their position and close. They could buy performing real estate notes, they can build up non-performing assets, if they want to do. They can do Subject 2’s, to purchase homes, they can buy property and divide it.

Let me tell you, what I helped one of my clients do, he found 100 acres, I think it’s, if I recall it’s Tennessee. He called me up and he said, Dave I got an investment in my gun sights here, and he says, I want to take it down, but I want to talk with you about what you would do with this. I said, okay, I can’t tell you to buy the property, but tell me about it and I’ll tell you how I would analyze it. He told me all about it, 100 acres, heavily forested, and a nice, just gentle rolling area.

He talked about the zoning and everything else, and I said, okay, here’s what I would do if I were you. The first thing, I said, is I would check your zoning, you get everything verified, and next I would have that timber surveyed. What is on that property? What kind of timber, and come back and tell you in the survey what it would cost, or what you would make in a harvest, a selective harvest on the property.

Then I would do what I call a beauty harvest, and a beauty harvest is you take out certain areas of trees, but you leave majestic mature trees, you leave certain clumps of trees, you do it from a beauty aspect so that the land is still improved and very desirable. I said, I would take that money, now this is all inside his 401k, I said, I’d take that money he earned off the beauty harvest and I said, then I would pay for bringing in a road, any improvements.

Do the things getting it ready, and I said, then I’d break that down into two and five acre parcels and I’d advertise it like 997 down and hold the contract on those properties. Buy your retirement property or vacation property now at today’s prices, and have it there for the future. That’s exactly what they guy’s doing, in fact I think he even is going to work with a builder and get some money from a builder, and he’s just knocking it out of the park.

That, you can be so creative in the things that you do, that opportunities Mitch, that you never saw before, that never even come up into your consciousness, all of a sudden present themselves, or people to work with like yourself, that you would never have had the opportunity to work with before, all because you’re now in control of your money, you have the checkbook, and now the world looks different to you because you can move forward on things that you find.

That’s the exciting part of this, I’m sorry, I can go on and on and on, because it’s so important people know that they can do this. Anybody can do this Mitch.

Mitch Stephen: My plan is really simple, all I do is, I offer people an 8% return, somewhere between a 6 and an 8% return, depending on the risk, and of course there’s always a risk, there’s never, never not a risk, but the question is, how limited is the risk, or how calculated is the risk? What I offer people, I buy houses at steep discounted prices, because that’s my job, that’s … People say, how in the world do you find so many deals?

I even wrote a book called My Life and 1,000 Houses, 200 plus ways to find bargain properties. I’ve learned a lot of ways to find bargain properties in my 22 years. What I do is I find a house that I can buy for 50,000, that I know I can owner finance for 100,000 based on the rent. I always borrow the money from private people, almost 95% of the time, and I offer them real decent interest rates, somewhere between six and eight.

I pledge the property that I buy as collateral, which I’ve just said, that the property’s worth 100 and I want to borrow 50, and so the end all of the conversation is you either get paid the agreed upon interest rate, or you get my property. Now if they got the property they’d be a lot better off than if I just paid them the interest rate, but if you’re thinking that you’re going to get the properties from people like me, you’re probably not.

Because I mean I’ve never turned back a property in my life, or been foreclosed on, I’ve never filed bankruptcy or Chapter 13 or anything like that, because the business that I have is lucrative and the spreads are big enough that even when things don’t go as I want them to go, my private lender never even knows about it, because whether I collect the payment from my property or not, my person gets paid their interest every year.

I borrow the money at 8%, five years interest only, give them a first lien, there’s one lender, one piece of collateral, one borrower. Nothing to worry about with like SEC rules or anything like that, and it’s just a basic loan, and so when I’m talking to people about what they might be able to do with it, that’s my angle for them, unless they’re really active deal finders in my area, which that happens sometimes too. Mostly I’m just helping people get their money out in a position to where you either get or you get.

Dave Cole: Yeah, and Mitch, the system that you’ve built up over all of these years, and I mean like 15,000 homes, I mean this is proven, you’ve been out in the trenches doing this, is there anybody that you can show them your system, your agreements, everything they need to do, really is there anybody if they’re determined that can’t do this, really?

Mitch Stephen: No, you have to apply yourself, because we’re not talking about, there’s no easy money, and I get sometimes frustrated with guru’s out there and all that stuff, there’s no easy money, you’ve got to apply yourself. You want to … I actually believe there’s no such word as passive, because if you don’t keep an eye on your monies, then watch what happens. You’re always being vigilant and you’re always being smart and you certainly check out the people that you’re dealing with before you jump in and loan people money.

You also want to make sure that you get the right legal documents and that it’s going through a title company that it’s being done the way you should do it and the way that everything is documented and followed the core how, and everything’s done to the T. Bone up on your skill, you’ve got to get some education, from the education will be your confidence.

Dave Cole: Exactly. Pull the trigger. Right.

Mitch Stephen: Then pull the trigger, because you’ve got to pull the trigger.

Dave Cole: Yeah exactly, and that’s what I tell people all the time, pull the trigger. Do a small deal, get your feet wet, gain your confidence and then naturally evolve in your skills in the deals that you’re doing. There’s one other thing I’d like to share, and I don’t want to go over the time limit with you on the podcast, and I don’t know where we’re at …

Mitch Stephen: No, we’re good. This is all interesting, keep going.

Dave Cole: This is so huge, I would say 75% of our clients work with us because of the benefits the plan brings to them, that an IRA can not do. Again, during the recession, I’d worked, Wells Fargo was one of the banks that we used for years to set up the checking accounts, and they don’t have anything to do with the retirement plan, we just use them to set up checking accounts.

I knew, a lot of, some key executives here in Arizona and whatever, and I was told, I think it was back about 2010, one of the executives they said, never before in the history of Wells Fargo have so many people walked into the branches and liquidated their IRA’s. Regardless of tax consequences and penalties, pull out and liquidate them. The reason was that people had no place for other money.

Or they were so frustrated with what was going on that they were willing to pay the taxes and fees to get a hold of the money to go out and invest in hot real estate deals that they were finding. When we set up a plan for people, this one comment still comes up. I say, do you know what, this is an amazing plan, that we’re going to show you how to build wealth, massive wealth for tomorrow, but I said, you still have the challenge of living today. You still have expenses and bills and cash flow that you need today.

Maybe your income or your level of lifestyle isn’t quite where you want it to be. I’m going to show them how to use the 401k to make money today, while at the same time they’re making money tomorrow. In our plans, that are designed by our tax attorney, we have the personal loan provision, and what this means is, is if a person has money inside the 401k that we set up, and they have a need for capital, for money to do something outside the plan.

This is just like a personal credit line. Let’s say that they find a really sweet, perfect little three two starter, at the right price, and if the jumped on it that would be a perfect real estate note, but they want those note payments to come to them as today’s income, they don’t want this to be owned by the 401k, but Mitch, they don’t have the money to get the property.

Instead I would talk with them and say, well let’s look at taking a personal credit line loan out of your 401k, which you can do, it’s up to $50,000, depending on how much money you have in the plan. You use that money to acquire this property, own it inside your LLC for example, now you get the cash flow off the property and all you have to do is pay the money and some interest, which you’re paying yourself interest, how cool is that? Pay that back to the 401k and you have five years to do that.

I show people how to start banking on themselves. How to use that money to make money today, now all the money that’s left inside the plan, because they can only borrow up to about 50 grand, that’s still, they invest it, they still are putting that out there to make money, but now I’m doing double duty, and that is so cool because today’s life is changing and getting better while at the same time they’re building that nest egg for future security.

That is when the light bulb goes off, and people say, wow, this is the plan I’ve been looking for.

Mitch Stephen: Now I also happen to know, you can borrow that money for anything right, it’s up to $50,000. I think it’s, you can borrow half of what you have up to $50,000. I think to get the 50,000 you have to be at least at 100,000 in your account, is that right?

Dave Cole: Yeah, the minimum loan Mitch is $1,000, so you can give yourself 1,000 bucks if you want. Anything up to either 50% of the value, and that’s cash and investments, the value of your plan, but it is capped at 50 grand. You can use that, no there’s no rules, there are no requirements whatsoever.

Mitch Stephen: Because I’m bringing this up because there are some great strategies, and some people want to go out there and they really want to take someone’s course, and the course costs $10,000, and they don’t have the money. You can actually borrow the money to get your education, so that you know what to do with the rest of the money. You have to pay it back in five years, and you have to pay it back at some reasonable interest rates based on reliable, some kind of …

Dave Cole: It’s just 2%, whatever Wall Street prime rate is it’s just 2% over that. Right now if you borrowed money from yourself, you’d actually just, you’d be putting a little bit more money back because you’d charge yourself 5.5% interest as of today’s rates.

Mitch Stephen: You can borrow your own money right now as of today’s rates, at 5.5%, and you’ve got five years to pay it back, and you can take up to $50,000 and use some it to get your education, or use it to buy that $100,000 house that you know that you can get for $50,000. What a great and tremendous tool. You get to keep that money, because once you loan the money from your retirement plan, it’s just like, it’s your money, it goes into your bank account, it’s your private deal on the outside of the account and that’s a tremendous asset too.

Then talk about people that do have IRA’s, traditional or Roth, you can roll them over into this 401k and it’d be a non-taxable event, right.

Dave Cole: Congress clarified that for us, back in 2006, with what we call the portability provision, and they identified all of the plans that could move around. When we set up a 401k for our clients, and we check with them what kind of plans do they have. Do they have old IRA’s? IRA’s will be like, a simple IRA, a set IRA, a traditional IRA, do they have previous employer 401k’s? Did they come out of the Federal or education market? Do they have 457’s and 403b’s and etc? All these things can be all gathered together and brought down into one plan where they have checkbook control.

Now they’re focused on that plan, they’re not scattered, they’ve got all that capital in there, I call it their investment horsepower, and they’re ready to go. However, there’s one plan that cannot roll directly into the 401k Mitch, and that’s a Roth IRA. Yeah, Roth IRA’s are after tax, so they’re not tax deferred money, because all the money in a Roth grows tax free for ever. Here’s the really cool thing, and this is a whole, another podcast we ought to talk about, but our plans are designed so that every single one of our clients receives a complete after tax Roth 401k.

No they can’t roll the Roth IRA into the Roth 401k, Congress still hasn’t approved that for whatever reason, but we give them the power of a plan where every penny they make inside that Roth is theirs the rest of their life. They do not give up one single cent to the IRS during retirement on the income coming out of a Roth 401k. That’s another component we’ve added in our teaching and coaching to show people how to use that plan to legally remove their income from the US taxation system.

Mitch Stephen: Let me break this down to like the simple terms for simple people like me. It basically means if you start our 401k with 500 bucks and you build it into $10-million dollars, and it’s Roth-enized, it’s a Roth, then when it’s time to retire at age, when you’re fully invested, or I don’t know the words that you use, but at 59 and a half you can start taking the money out and you could take out all that money at one time if you want to, and never pay tax and not have to pay tax on it because you funded it with after tax dollars.

You had to make like $750 to clear 500, so you paid the tax on that money already, you open the account with the 500. Over the years you build it up to $10-million, and I’m using an outrageous number just to make a point. You build it to a large amount of money and at 59 and a half, when you’re fully invested, you can start taking out, it’s either 59 and half, or if you’re over 59, or five years, the account has to be, you can’t take it out for five years or until you’re 59 and a half. Am I right about that?

Dave Cole: Correct, yes that’s correct, yes.

Mitch Stephen: You definitely want to Roth-enize immediately, as fast as you can, then let’s talk about how much you can put into a 401k every year. Let’s talk about that.

Dave Cole: Well that’s, oh yeah, so say again, the plans are such a powerful financial tool, they fit each person they way they need them to fit them. Let’s say that we have a real estate investor married couple, they’re out there just kicking butt and taking names. They’re making all kinds of money. They probably have some tax pain, so how could the 401k help them with tax pain in this example?

Well they can make some massive contributions to the traditional tax deferred 401k, that creates a tax deduction to reduce their overall taxes. Depending on age and income, there’s two levels of contribution. The first being they can put in a personal contribution of between 18,000 to 24,000 in round numbers. That’s actual money where they stroke a check from themselves personally and put it in the plan.

That’s way more than an IRA right there in most cases, but because our attorney has designed these as a profit share plan, their business can also put a contribution into the 401k for their benefit. That again reduces their taxes right, because that’s a write-off for the business. If you were to take their personal contribution plus contribution or profit share from their company, their real estate company in this example, and they’re over the age of 50, that combined total would be be $59,000 maximum.

Mitch Stephen: A piece right, for a married couple.

Dave Cole: A piece. Both spouses. That’s 118,000 bucks that you can shelter from taxes, and that is, that’s a big chunk.

Mitch Stephen: This makes be so excited because, because I met you, I was feeling some serious tax pain, well I do every year now, but one of my first instances, when I looked at my income, and I thought, oh my gosh, what am I going to owe in taxes, this is going to, this is going to really hurt. Then all of a sudden I had the idea, I remember talking to Dave Cole and he said we could put in 59,000 for her and 59,000 … Well it’s 59,000, half from you personally and half from your company, and then another 59,000 for the other spouse, half from personally and half from the company.

All of a sudden I moved 100, what is that, $118,000 out of my taxable income and into my retirement fund, and that was a tremendous tax advantage, and do you know that my CPA when I told him this was what I wanted to do, didn’t have a clue, and it blew his mind that I could do this. I was educating my CPA.

Dave Cole: Yeah, like I said, they’re not taught about these plans at all in most cases, so that’s cool. The other thing is Mitch, that we teach people how to work with the Roth, and a lot of people I talk to say, well I can’t have a Roth, because they make too much money, they can’t have a Roth IRA, so it’s never even been on the table for them, it’s never even been an option.

With a Roth 401k, I don’t care if you make 5-million bucks a year, there’s no income cap, everyone can participate in a Roth 401k, and again depending on age and income, up to between $18,000 to $24,000 a year contributions can be made to the Roth. It’s just, it, every single year you adjust the plan to fit your financial situation, it’s up to you on how to use it the best for that year.

You’re never locked into one rigid plan and that’s your only option, and so, and you have tax to pay, boom, you could have created a deduction that kept that money in your pocket. We even know, with our tax attorney and his expertise, he’s recognized nationally, we know exactly how to take money in a tax deferred account, move it over to a Roth account, so from the 401k taxable over to the Roth after tax, and he can legally wipe out 80%, maybe even more of the taxes you would otherwise pay. They go away, and that’s all based on solid court cases, so we help do that.

Mitch Stephen: We may have been remiss, we need to explain the difference to someone, will you please tell the difference between a traditional IRA and a Roth IRA? Just in the most simplest terms if you will, because some people may not know that. We may be taking some things for granted.

Dave Cole: Okay, I understand, we talk all this all the time, a traditional IRA, when you put money in a traditional IRA, the IRS allows you to reduce your income by that contribution. You pay less tax, so if you put $6,000 in an IRA, you now have $6,000 less income to pay tax on. That’s called being tax deferred, or what we call a traditional plan. The Roth IRA is the opposite, you pay tax already on the money you put in the Roth, so there’s no deduction to you for the money you put in, but the benefit is, if that Roth grows to however huge it is down the road, you keep every penny for the rest of your life.

To me, I’m not, unless I need a tax deduction, I don’t  personally want to put money in the traditional side as much as the Roth. I’m 59 years old and I want to be able to retire on money and keep every penny I can for down the road. My focus would be on the Roth in fact.

Mitch Stephen: Yes, but there’s time for both, and you can have …

Dave Cole: Absolutely.

Mitch Stephen: You can have both Roth-enized money and traditional money in one 401k, and you can track them separately, right.

Dave Cole: Yeah, well actually they’re in two separate checking accounts, so that’s easy to do.

Mitch Stephen: Okay. Well look, we’ve covered a lot of ground, like Dave said, we could talk about this for a long time, because we’re trying to cover every scenario. What will be a shorter conversation is if you guys out there call Dave Cole and talk to him about your specific situation. That will eliminate the tons of rabbit holes that we’ve been running down on this conversation, or that you could go down. Because when you start talking about a finite set of situations, then we don’t need to talk about all the other what ifs.

I strongly suggest if you don’t have a self tax deferred retirement plan, you have to get one. Even if you just open it, because we never know when they’re going to shut them down, right. One day these options may be shut down, you need to open your accounts while the getting’s good, even if you just open it with the tiniest amount and then learn after that what you can do with it.

Talk to Dave Cole about your possibilities, what’s open for you and what you’d like to do with things, or how you see the world, and watch how this plan comes together, your individual plan. I want you to go to reinvestorsummit.com/401k it’ll also be in the show notes, and you’ll get to see, you’ll get the contact information for Dave, and get your own personal consultation. Is that how it works?

Dave Cole: Absolutely, you bet, and we’ll, well usually about 30 minutes or so and we’ll go over all your options and I’ll present you what your choices are, and my first concern is the person I’m speaking with on the phone. Yes, I hope to earn your business, but there’s some people Mitch, that I just say, do you know what, you don’t need the horsepower of this plan, here’s what I would do if I was in your situation. I don’t make a penny off that, but I believe if you treat people fairly and that is always, will always come back to you.

They can be comfortable, this isn’t session to high pressure sell anybody, I just want to educate you and show your options and let you make a decision as to what works the best for you.

Mitch Stephen: Yes, that’s what I love about Dave Cole. Hey and so it’s been a wonderful conversation, I hope that the people out there give you a call because it’s quite an eye opener, the possibilities are wonderful and many, and I just want to thank you so much for taking the time because you are an invaluable resource. I cannot tell the listeners out there enough how invaluable that 30 minute conversation is going to be to their future. It’s just going to be tremendous.

Thank you Dave, I really appreciate it. Did we miss anything? Anything you want to say before we go?

Dave Cole: I think if we do any more in this podcast, they’re going to have to do like you, and run out of the room and stop and put their hands on their head, because their brains going to explode, so I think we’ve reached our limit.

Mitch Stephen: Right, go to reinvestorsummit.com/401k as in kite, and that’ll wrap it up. I want everyone to go out there and get you some all right, and this is Mitch Stephen with the Real Estate Investor Summit podcast, and we’re out of here.

You’ve been listening to the owner financing master, Mitch Be the Bank Stephen on the Real Estate Investor Summit podcast. Let us know blatantly without apologies, Rod Newport’s financial freedom by offering you a whole bunch of free stuff. Go to reinvestorsummit.com and get you some, and you all come back now, you hear.


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