10 Questions With - Ace Capital

Today's installment of "10 Questions With" offers an overview of land banking with Ace Capital. We love land banking in a retirement account since it is by nature a long-term appreciation building investment with very little maintenance. And this particular company is offering land banking in the Antelope Valley area of Los Angeles, which we feel is about to explode with clean energy development. Check out this segment from NBC news that outlines the vision of the Valley from the current political leaders.

I invite you to learn more about land banking with Ace Capital. Please take a read and let me know what you think.

1. Tell us a little about you and your company.
ACE Capital Group is a real estate company. We are not real estate brokers or financial advisors. We are the principals who purchase and sell carefully selected California pre-developed real estate.

2. Please tell me about your real estate opportunity.
Our programs and services are offered with the primary purpose of using land banking as an easy, secure and superior alternative for building sustainable wealth:

• We effectively use the strategy of long-term appreciation in land ownership by purchasing and selling property in the growth path of major metropolitan centers.
• We help qualified retirement account holders to roll over their funds from the volatile stock market into more predictable California real estate. Of course, we also work with cash. In addition, 1031 Exchanges are an ideal way to move money into a Land Banking strategy.

3. Where does your opportunity exist?
Ace Capital Group has perfected the formula for making sure the land we purchase in indeed in the path of growth and will be in a position to appreciate at a safe and predictable rate. The best place we have found is right here in Southern California within a sixty mile radius of Los Angeles.

4. How long have you been offering this real estate opportunity?
Our business has evolved from the extremely successful personal investments of our founders. Since 1974 their enterprises have helped over 10,000 individual buyers build their personal wealth with land banking. Our proven three step formula provides individuals and business owners with an innovative option to secure a better retirement, a legacy for their children and grandchildren; and we have voluminous testimonials from our buyers attesting to their satisfaction.

5. Does your opportunity help investors build long term wealth, immediate cash flow or both?
Land Banking is a term used by both individual investors and corporate land developers. It is the strategy of purchasing a parcel of land and holding (or banking it) it for typically five or more years for future sale or development.

Land banking is a proven long-term appreciation strategy for building wealth and providing individuals with a safe and profitable alternative for building their retirement nest egg. But, successful land banking requires planning and patience

6. Is financing available for your opportunity?
At this time there is no financing available for our process. We focus on helping people make their retirement funds work smarter and harder than they can in traditional methods. Therefore, it is cash that is already available but performing at less than the optimum capacity.

7. Are there any special tax advantages?
If using retirement funds then the tax advantages are great, especially if held in a Roth account.

8. Why is your opportunity ideal for self-directed IRA investing?
IRA monies are already set aside for long term wealth building. This is exactly what Land banking is all about. It is a long term strategy that blends perfectly in the IRA model.

9. How does your company make money?
ACE Capital makes it‘s money at the time of purchase. Our acquisition department is second to none in finding properties that meet our specific formula specifications that ensure appreciation. We buy direct from private owner with cash so we are able to strike great deals. We do not buy from the MLS or brokers so the prices are much better. As we are able to purchase the properties at well below market value we are able to cover our expenses and still offer the properties back out at below fair market value. The appetite for profit is low as we are able to help many people move into Land Banking. Therefore, volume sales help keep the prices where we can put people in equity position right away.

10. What type of results can investors expect with your opportunity?
First and foremost, we have never lost anyone’s money. It is a tangible, grant deeded, title insure piece of property. We have statistical data provided by an outside source that shows the appreciation rates in the area where we focus has been able to provide consistent 18-20% compounded annual appreciation for years. Specific information is available upon request.

10 Questions With - Hanover Investments

Congratulations on your brand new self-directed retirement account! Now what are you going to invest in?

I've been finding that some new investors when confronted with this question aren't sure how to answer it. They're enchanted by the freedom of controlling their retirement account and the range of investments the self-directed environment provides. So they take the first step and open a self-directed account. But when it's time to make an actual investment, they are frozen with indecision by the same, unlimited choices that they were initially attracted to. In essence, their path to financial freedom is mired in a money market account making 1% instead of the larger returns they envisioned.

We believe one way to thaw this indecision is with more in-depth knowledge on what's possible, how these investments work and who is behind them. We are currently adding a new section to our site entitled "10 Questions With". For every opportunity we believe in, we're going to ask 10 questions to the provider allowing them an opportunity to explain how their investment works and why it is ideal to hold within a self-directed IRA.

The first few will be posted on this blog, so check back often. For today, I invite you to learn more about "Go Zone" investing with Hanover Investments. Please take a read and let me know what you think.

1. Tell us a little about you and your company.
My name is Matthew Stearns and I am Vice President of Sales for Hanover Investments. Hanover is a subsidiary of Guterman Partners which has been around 40+ years. We are fund advisors, developers, real estate investors, and property managers.

2. Please tell me about your real estate opportunity.
Our opportunity is ideal for every day business professionals that want to invest in real estate passively and are looking for strong returns and tax breaks with a turn key strategy. Because of the current market conditions, and the low cost of purchasing as opposed to developing, we are currently buying in bulk directly from developers of new condominium and townhome projects with our own cash. The in bulk discount we receive is passed on to investors who purchase the individual unit or portfolio of units from us at today’s current market value as an investment vehicle. We also offer a “total leasing program” which contractually guarantees 30 months NET cash-on-cash returns from the day a purchase is made. At the end of the 30 months, the investor can continue to hold and manage the unit, still with positive cash flow, or sell it at current market value.

3. Where does your opportunity exist?
Our opportunities are in “make sense” markets. The primary market of focus right now is the Gulf Coast of Mississippi in an area called the Go Zone. The Go Zone is short for The Gulf Opportunity Zone Act of 2005, signed into law by President Bush on December 21, 2005. It contains significant economic incentives to rebuild the Gulf Coast, as well as to attract new investments to the affected areas. This market was rated #1 by realtor.org in 2008 and offers huge tax incentives to investors and home buyers. We have limited inventory and demand is high down there because of the strong condition of the housing and jobs markets in Mississippi.

4. How long have you been offering this real estate opportunity?
As I mentioned earlier, Hanover is a subsidiary of Guterman Partners which has been around 40+ years. We have successfully deployed this business model for the last 40 plus years, starting in New York with apartment buildings in the late 60’s. Currently, we have been focused on the Gulf Coast since the Go Zone legislation was enacted in 2005. We currently manage 25 plus complexes Nationwide and have over 500 units in our "total leasing program."

5. Does your opportunity help investors build long term wealth, immediate cash flow or both?
These opportunities build both. Investors will see cash on cash returns during our lease as high as 40% for the term. And this doesn’t take into consideration the tax benefits or future capital appreciation potential that we believe the Gulf Coast offers.

6. Is financing available for your opportunity?
Yes. We have non recourse lending institutions for those investing in their IRA and private, portfolio, and conventional banks for those that want to purchase with cash. We still go as high as 90% financing for investors purchasing with a conventional or portfolio lender.

7. Are there any special tax advantages?
Yes. The "Go Zone" offers a 50% bonus depreciation in the first year they place the property into service to offset other gains. Please see your CPA for your specific scenario. This is the biggest reason to purchase in the Go Zone. Take a $200k offering. You can depreciate 50% of that asset in the first year you place that asset into service minus that tax bracket you fall into, to offset other gains!

8. Why is your opportunity ideal for self-directed IRA investing?
This is a fully managed real estate that cash flows from day one. It’s as easy as watching your IRA statements coming to you in the mail. Moreover, non recourse lenders for IRA’s are just like commercial lenders and they look at the performance of the asset, not the individual. This makes the approval process very easy. Investing in real estate through your IRA is becoming the latest trend!

9. How does your company make money?
Hanover makes money by subletting the unit out to other renters after the investor purchases the property. The investor will cash flow on the lease with Hanover and we will cash flow with our tenant. This is possible because when we purchase from the developer we purchase with cash and in bulk. That discount is passed onto the investor through the "total lease program", a discount they could not obtain on their own. Our profit is solely made by subletting and managing the unit. The investor utilizes our discount to hedge any risk on the property making it a safe and secure investment from day one. After our lease is up at 30 months, we can continue to manage the investment for the investor and take a management fee that is originally covered through our lease until the day they sell.

10. What type of results can investors expect with your opportunity?
All investment opportunities result in positive cash flow from day one through the life of the investment. As stated previously, it’s a managed real estate investment with minimum assured 30% cash-on-cash returns. Additionally, investors can take advantage of the "Go Zone" tax credit, if they apply.

Why Real Estate in an IRA?

I stumbled upon this blog entry by a individual that manages "traditional" retirement investments. His posting was fraught with inaccuracies and bad information so I felt compelled to answer. So first, his blog entry which was found here, then my response. Enjoy and please feel free to comment on either entry.

IRA Real Estate –a Bad Idea

Even with the bloom off the rose, investors still have interest in using real estate in IRAs. The interest and use of real estate in IRAs peaked with prices. Even as the real estate market cratered, real estate professionals with sagging commission income pushed IRA real estate (often mistyped or incorrectly searched as IRS real estate) on investors dissatisfied with stock market returns. But IRA real estate is a bad idea for IRA savings. Here are five reaons why real estate is a bad idea for tax sheltered retirement investing.

You lose the depreciation deduction. One of the nice things about owning apartments or rental homes is that the cash flow is partially sheltered from income tax by the depreciation deduction. Since an IRA does not pay current tax, IRA real estate loses the deduction. Why would someone knowingly lose a tax deduction? Because they are likely sold on the idea of real estate in IRAs by a zealous real estate sales person. Or, they may only have liquidity in their IRA and no cash outside their IRA. If you don’t have the cash outside the IRA, then pass on an IRA real estate purchase.

You lose financial leverage. When you purchase real estate outside of an IRA, you can typically put 20% down and borrow the rest. So when the property appreciates 20%, you have doubled your investment–a 100% return on your equity. But an IRA real estate purchase cannot be done with any mortgages as IRAs cannot have debt. So you must make the purchase for all cash. Now, when the property appreciates 20%, you have a 20% return on your money, not 100%. Therefore, you lose the leverage of “other people’s money” when you consummate an IRA real estate purchase.

You turn the best capital gains asset into ordinary income. Because of the leverage explained above, you can have very large capital gains on real estate. Not only do you lose the large capital gain potential because of losing leverage, you have turned a capital gains taxed at reduced rates (15% to 25% on real estate), into ordinary income (rates as high as 35%). There is not such things as capital gains on IRA real estate because everything withdrawn from an IRA is taxed as ordinary income.

If the rental property in your IRA needs a new roof, you must use IRA funds to replace the roof. You cannot use your own funds as then you as an individual are deemed to be in business with your IRA and this is a prohibited transaction which could cause your IRA to become taxable. So you need to always have plenty of cash in your IRA for repairs, insurance payments and property taxes. This means you need to keep funds liquid in 1a 3% money market and sacrifice the potentially higher returns of other investments. Need yet another reason?

Your IRA fees are likely free at your brokerage firm or bank. To hold real estate in IRAs, you need a specialized IRA custodian willing to do this and the fees range from 40 to 150 basis points annually–i.e. hundreds of extra dollars in costs.

And just in case you still want IRA real estate, if you should make a bad deal, your loss will not deductible inside an IRA as it would be as a non-IRA transaction. If you line up 10 people that tell you placing real estate in IRAs is a good deal, you will find 10 people that earn commission by selling real estate. If you want real estate in your IRA, then buy shares of real estate investment trusts or other real estate securities.

1. David Coe Says: Your comment is awaiting moderation.
   December 10th, 2008 at 3:00 pm

   I guess I’ll start off with the fact that I am a real estate professional that specializes in IRA real estate purchases. Why? Because real estate is an EXCELLENT investment to hold within an IRA. Let me give you 5 reasons why.

   1) Create Leverage: Your IRA can absolutely borrow money! National American Savings Bank (www.nasb.com) is one lender that does non-recourse loans to IRA holders. They usually require 30% - 40% down and want to see positive cash flow in any deal, but you can create leverage with an IRA. By the way, you could also borrow money from another IRA holder since lending money is also allowed by law.

   2) Tax Free Cash Flow: A successful real estate investment can provide monthly cash flow to help grow your retirement along with any appreciation earned in the property itself. Since the asset is held within a tax-free environment, there are no taxes to worry about. Any profit withdrawn from the IRA is income based on your tax rate upon withdrawal. And since you’re in retirement, your taxed at a lower tax rate based on the limited income you make. And if you own the asset in a Roth IRA, the monthly cash flow and capital gain are TAX FREE.

   3) Control: Want to improve the value of your investment? Add a new roof. Put in carpet. Do landscaping. Add new fixtures. All of these improvements can increase monthly cash flow and ultimately improve the value of your asset. These costs do get paid out of your IRA, but name another investment class that you can improve with your own free will. If you own mutual funds, CD’s, stocks, you’re along for the ride and your return is completely independent of your effort. Not so with Real Estate.

   4) Inexpensive Custodian Fees. Self Directed IRA custodians get paid based on the size of your account, usually 40 basis points or less. So if you have a $100,000 account, your annual fee is in the $450 range. But that’s it. Other banks and brokerage houses don’t charge you a fee because they make their money from the limited investment products they offer. Own mutual funds? Their fees can include management fees, redemption fees, exchange fees, account fees, purchase fees, distribution fees and operating expenses to name a few. Usually these fees are TWICE as much as what a self-directed custodian will charge.

   5) Diversification. Real estate offers a great way to diversify your portfolio. How many people had ALL of their retirement portfolio in the stock market? Nearly 70%. Use real estate as a way to generate leverage, produce monthly cash-flow and long-term appreciation. But also use it to balance your retirement portfolio, along with other asset classes, so retirement doesn’t get postponed due to a bear or down market.

   I offer that if you find 10 people who advise against real estate in your retirement account you’ll probably find 10 people that LOSE money when their clients shift assets to a self-directed account and out of their control.

It's not the 401(k) that needs fixing

With pension plans becoming extinct, more and more corporate Americans are using 401(k)s as their primary retirement savings vehicle. But the rapid decline in value of these accounts is raising questions about the viability of this system. But is the 401(k) really to blame for this mess or is it the custodians that set them up and manage them?

The 401(k) is rightfully expected to go under the microscope with the new administration and overwhelming popular sentiment that retiring at 65 for most Americans is a pipe dream.
But don't blame the 401(k). The 401(k) is a well structured retirement vehicle that encourages employees to save with tax deferred contributions. It also allows the corporation or small business to contribute to the employee's account and earn tax savings of their own. Someone under 49 years of age can contribute up to $15,500 a year tax free. If you're 50 or older, the maximum is raised to $20,500. When you add whatever corporate match your company provides, these numbers are significant when done over the course of a career. Your 401(k) can provide a significant amount of retirement savings if the contributions are invested wisely. So what's the problem?

The problem is that most 401(k)s are managed by banks and Wall Street custodians that only allow investments from their portfolio of products. Want to own a duplex that produces monthly cash flow and long-term appreciation? Too bad. How about a parcel of land in the path of development? No way. Your neighbor's ice cream shop that has an exciting new business plan? Forget about it. Since the custodian doesn't profit from these types of transactions, they aren't allowed. But are they legal? Absolutely. Do these types of investments allow a better diversification of your retirement account and help protect your nest egg when the stock market declines? Without a doubt. Then why don't more corporations allow them?

When the 401(k) and IRA were first created in 1974, the law required a 3rd party custodian to manage the accounts. Wall Street quickly seized this role and made stock market investments the centerpiece for growing wealth. To date, nearly 85% of all assets owned in 401(k)s and IRAs are invested in stocks and mutual funds according to the Investment Company Institute. And for the first 30 years the stock market produced unusually high gains so no one questioned this model.

In 1974, the Dow Jones closed around 1,000. In 2000, the Dow closed at 11,000. That produced almost a 10% compounded annual growth rate. For the century, the Dow produced a 5.3% growth rate. So for the first 25 years that the 401(k) was in effect, the market was delivering a return that was TWICE it's normal rate. Everyone was making money, so no one questioned the system. Since 2000, the Dow has been losing money at -3.6% every year. Naturally, questions are arising and Wall Street is digging in its heels.

I argue that it's not the 401(k) that needs to be fixed but the current system that perpetuates this over-investment in the stock-market. We need to wrestle away the control of our retirement accounts and start exploring a greater range of investment options. If you're not sure what to invest in, get professional guidance through a FEE-based certified financial planner that makes their living on growing your account, not by selling you a specific set of investments products. And being a real estate guy, I encourage you to explore real estate. Eight out of ten millionaires made their fortunes through real estate. It's a proven long term asset that when invested properly can substantially grow your retirement account.

Should more Americans save more money? Absolutely. And maybe if more investment options beyond the stock market were available, they would.

West Coast Markets Povide Solid Investment Opportunities

There are many fundamentals that drive a successful real estate market. But the two most important factors are job and population growth. A market that has strong projected population growth will of course need additional housing. And if jobs are helping to spawn that growth, chances are income levels will rise as well. A growing population that has rising income levels will eventually push real estate prices upward.

It's shouldn't be a surprise that a majority of the markets that are projected to provide the best value for investors are on the West Coast. In this article published by Forbes, Seattle (#1), San Francisco (#2) and Los Angeles (#5) are 3 of the top 5 cities projected to provide solid commercial real estate investing opportunities. (New York and Washington D.C. round out the top 5.)

It makes sense. More and more people are flocking towards the Pacific seeking better weather, dynamic downtowns and opportunistic economies. According to a UCLA study, California's population alone is expected to grow 39% by 2020!

So how will this affect the residential market? Well, there's no guarantee that an improved commercial market will lead to an improved home market. However, investors have a better chance of seeing home prices rise in fundamentally strong markets like Seattle, San Fran and LA than in struggling cities like Detroit. So if you're contemplating investing in real estate, and NOW is the time to invest in real estate, head west young man.

You only get one future

Are you too busy to take an active role in your retirement? Do you truly believe that the stock market will grow and protect your retirement account? I hope the turmoil of the last 2 months has been a wake-up call and you've learned that since you have funds in a retirement account, you are an investor. How do investors...invest? They actively look at a range of opportunities and spread their dollars over the investments that pencil best for their needs. If you need help, it's out there. You just need to spend a little time to get the ball rolling.

This is a great story in the New York Times about the types of self-directed IRA investments folks are making. A bowling alley in Brooklyn. Residences that have fallen out of escrow. Rental properties in Las Vegas. Chicken manure. Cypress tree farms. There is an almost unlimited number of opportunities that you can invest your retirement funds in. You're only limited by your lack of knowledge and desire.

What's the craziest investment idea you've heard of?

How much do you need to retire?

It's never too soon or late to start planning for your retirement. If you don't have a clue on how much you need, this article gives you some things to consider as well as a link to retirement calculator at the end.

How much do you need to retire?