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Dave Dubeau [00:00:09] Everyone, this is Dave Dubeau with another episode of the property Profits Real Estate podcast today, zooming in all the way from beautiful Vermont. We’ve got Aaron Fragnito, how are you doing today?
Aaron Fragnito [00:00:20] Are doing great, Dave. How’s your day treating you?
Dave Dubeau [00:00:23] You know what? No complaints. A little bit smoky up here and usually beautiful British Columbia. But at the time that we’re recording this, we’re in the midst of fire season. So we got a crap ton of smoke pot round, which is kind of no fun, but is what it is. So hopefully you guys don’t have any of that.
Aaron Fragnito [00:00:40] Yeah, we’re getting a lot of rain over here, so we’re getting all that rain
Dave Dubeau [00:00:44] That’ll be great. But Eddie, after I got there, so Aaron is a very accomplished real estate entrepreneur and a syndicator, and he does a lot of education with his prospective investors around how they can use IRAs for investing in real estate investing. So yeah, we’ll talk a little bit about everything, but I’d like to kind of focus on that because that’s something that I think is of interest to a lot of people. We’ve got a lot of listeners in the states. We’ve got a lot of listeners in Canada, up here in Canada, are you guys IRA is the equivalent of what we call RRSP. Same idea. Registered funds, you know, government says we can put aside tax deferred to save up for our retirement. So Erin, I believe you’re going to be talking about how to wrestle control of those investments from your financial planner who’s got them stuck in mutual funds. And God knows what other kind of craft and actually start making some money with it. Is that correct?
Aaron Fragnito [00:01:47] Yes, yes. And your financial planner may tell you, no, you can’t self-directed your IRA. It’s like I’ve had many those
Dave Dubeau [00:01:53] American financial planners pull out dirty trick. Do I
Aaron Fragnito [00:01:56] get it? It’s like, Hey, you know, you go up to your finance, say, Hey, can I take all my business away from you? Of course, it’s like, No, you can’t do that. That’s a bad financial decision. You give your investment to someone else. That’s a bad financial position now. Well, of course, you know, so you can self-direct your IRA. There are absolutely limitations to what you can invest in, and there’s a process to doing it the right way. What if you do it the right way and work with licensed IRA custodian is going to guide you in the process? It’s really quite simple and really only a few hundred bucks as well. It’s pretty affordable, at least in America. So, you know, for the first step is you select an IRA custodian and they’re just starting
Dave Dubeau [00:02:35] to jump in there. But let’s I just got to like to step back and let’s take the thirty thousand foot perspective on this. So you, as the deal maker, you as the person winding to get people’s IRA funds, what’s the big benefit to you for bringing investors on board this way?
Aaron Fragnito [00:02:57] Sure. So we buy apartment buildings and we buy short term rental properties, right? And these types of real estate aren’t high demand markets. They’re professionally managed. So they’re good long term investments for individuals and people like real estate who produces cash flow and grows in value over time if you manage it right in in the right markets, really. So the idea is that we will have individuals take some of their IRA or solo for one K. Not all of it, some of it and diversify into real estate. I’m not of the opinion you should be 100 percent invested in the stock market. That’s not diversification. In my opinion, diversification is truly investing a third, perhaps of your IRA or sold one for one K and into brick and mortar, professionally managed real estate, which is a real estate syndicate and real estate syndicates. When you pull capital together and buy a larger building. So that way someone can take, say, thirty thousand dollars in their IRA, put it into a real estate syndicate and get in on like a five million, 10 million dollar building. That’s going to be a stronger asset to be in, rather than some flimsy to family or something like that, which is, you know, we’re thirty thousand so right. The idea is, you know, you’re working with professionals, you’re getting into larger buildings and you know, there are rules to using your IRA. But we’ll kind of go over that in this podcast, right?
Dave Dubeau [00:04:14] So from your perspective and from our perspective, if we are the active partner, if we’re the capital raiser, the big benefit to this is a lot of people have a crap ton of money in their IRAs and 401Ks.
Aaron Fragnito [00:04:28] Oh, not trillion. It’s like three trillion is in IRAs, and I think one to three percent of them are self-directed. So if you’re a guy like me out there raising capital, putting real estate deals together day in and day out, you know, you get to know people the IRAs because most of the time IRAs are making four to six percent. And if you’re a good real estate operator, you can put our water in a oh for sure.
Dave Dubeau [00:04:50] And then here’s the other big benefit. You know, it’s a little bit more challenging to find people who are 30 50 $100000 in liquid cash is a lot more of them that have that that money tied up in their IRA.
Aaron Fragnito [00:05:03] Right? Yeah, yeah. And I don’t know about you, but my checking account, liquid cash, I kind of hold more value. To that in my IRA, money is like, yeah, you know, it’s
Dave Dubeau [00:05:12] your money, right? It’s kind of like, Hey, buddy guy, do they right?
Aaron Fragnito [00:05:15] Even I’m guilty, and I’m a money guy of being like nonchalant about my IRA, you know?
Dave Dubeau [00:05:19] Wow, that’s another fantastic idea. Hold on to that thought for a sec. We’ll be right back. Now, are you a real estate investor? Was ran out of cash or credit to grow your portfolio? Are you looking to grow your portfolio using other people’s money and raising capital? Well, I want to show you how to raise six figures or more in six weeks or less at my upcoming Investor Attraction workshop.
Aaron Fragnito [00:05:40] You can get
Dave Dubeau [00:05:40] your ticket and find out all about it at Investor Attraction Workshop dot com. We’re going to spend a full day taking a deep dove into this road map that I’ve used to raise millions for my deals and help other people
Aaron Fragnito [00:05:51] just like you cumulatively
Dave Dubeau [00:05:53] raise hundreds and hundreds of millions of dollars for their deals as well. So again, you can check that out at Investor Attraction Workshop dot com. And as a loyal listener to the podcast, you’ll get 50 percent off your ticket when you use the Discount Code podcast. That’s right, discount code podcast at Investor Attraction Workshop dot com. See you at the next workshop. Yeah, yeah. So again, it’s a couple of huge benefits from our point of view. As a capital raisers a, there’s a ton of that money, like you said, $3 trillion, probably one or two percent of its actually self-directed. That means there’s a huge untapped market there. Second thing is, people in your experience, if I’m understanding you, is people are less uptight about their IRA money than they might be about liquid cash or home equity or some other.
Aaron Fragnito [00:06:43] I wouldn’t say less. It’s so, so important that your nest egg is protected. Yeah, I would say most people with IRAs are not saying, I need to double my IRA overnight. You know, I need to make a killing on this. Most is OK if I can make a 10 percent cash on cash return year over year in a well-managed good asset that I know people need a roof over their head and people like living in North Jersey, you know, it’s really not going anywhere. So at the end of the day, that’s what people do with their IRAs. And when I work with perhaps more aggressive investors that have cash, they want to move, they’ll say, I need to make twenty five percent return on this this year. Listen, that that’s hard. You know, I can’t promise you that and you’re going to have to go elsewhere for that. So that’s the idea. You know, it’s just as important the capital. But the demand for the returns seem to be a little softer on the consumer.
Dave Dubeau [00:07:34] Do you, Aaron, do you find as well that people are not as concerned about getting that monthly cash flow check if it’s in their IRA, that it doesn’t, you know, it can be quarterly payments or semiannual payments or even annual payments, or perhaps even balloon payments because.
Aaron Fragnito [00:07:51] Yeah, absolutely. And that’s the idea of the real estate. We’re buying mismanaged apartment buildings like the one you see behind me here, and we need to remove the bad tenants. We need to renovate the apartments. We need to get moving tenants and market rates. We need to fix everything that’s broken. And this takes like two years to do and get it really up and running properly. And then we have to have a couple of years of good tax returns. So the bank sees that we’re making money and collecting rents and paying our debts, and then we can go ahead and refinance and get that big lump sum of capital into our investors pockets, but that’ll take four years to get there. So if you’re sitting there with your money in your checking account and you’re thinking you’ve got to double it by, you know, the end of the year, then you’re really not going to do that with the real estate Sandy. You’re going to need about a four to five year period or
Dave Dubeau [00:08:36] a home equity line of credit that Jimmy repaying on paying down every single month that that could be a little bit stressful as well. OK, great. Great stuff. We I think I get the gist of it now, IRA. Now I know you’ve got a whole presentation on how you explain this to a prospective investor. Can you give us kind of the Coles notes version of how would you explain the concept of a self-directed IRA to a potential investor?
Aaron Fragnito [00:09:04] Sure. So it’s quite simple. Your IRA is your money. You’ve decided to let the government hold on to it for the next how many years until you’re fifty nine and a half or so and start pulling it out. But you’re allowed to do what you need to do with that money as long as it’s within the rules of the IRA and the IRA is shooting will guide you there. So the first step is determining, you know, what you want to do with your IRA. Where’s your passion? You know, do you have a passion for real estate? You know, a lot of my investors like being able to drive by buildings and tell their wife, Hey, I own that building. I’m only a part of that going. Tell your friends, Yeah, I just invest in a $5 million building in Newark, New Jersey, where we’re building up Newark. You know, we’re bringing it back. People love that it’s a lot more fun than buying an index fund. And what the heck do you own with an index fund, really? You know, so at the end of the day, the idea is to see a tangible effect with your IRA diversifying to something that’s going to produce consistent income and be backed by solid assets. So real estate a tried and true asset for that. So the first thing you do is you select an IRA custodian, you have to work with an IRA custodian. And let’s say you’re IRAs with Fidelity, OK, so you’re going to select a custodian, let’s say you select the next generation trust, OK, there’s over 50 of them out there. You want to pick the right one for you now. So your IRA custodian, next generation trust is going to contact Fidelity and say, OK, we’ve engaged with this client. They’ve signed the forms and they’ve asked to move $50000. The IRA over to next generation trust. OK, so Fidelity can’t do anything about that. This is your IRA. You’re allowed to do this, and Fidelity is then going to send that $50000 dollars over the next.
Dave Dubeau [00:10:41] Are they going to kick and scream a little bit about it?
Aaron Fragnito [00:10:43] They’re going to kick and scream. Your financial advisors are going to tell you don’t know what you’re doing and you hired me to invest your money. You’re a fool. You know, do you cut your own hair? Let’s say the same thing. I know you’re so if you don’t say that, you should take all your money out to either church. All right now. But you know, the bottom line is you’re not cutting your own hair, you’re investing. Ideally, a real estate said, Well, you can’t go do a flip, but let’s not get ahead of ourselves. So you’re going to hire that IRA custodian. They’re going to call Fidelity. The 50000 are going to be moved over to your New IRA custodian. Next generation trust. All right, great. Now sitting there now, it’s not doing anything. Next generation trust does not give you any returns there. These are not a fun book. They’re a custodian. They’re a middleman. All right. And at this point, you’re going to say, OK, I’ve done my research on People’s Capital Group. I went to their website, I read all their blogs and their podcast. I talk to their references. They have a good track record. I like the deal they’re put out there. I want to invest in this apartment building. OK, great. You’re going to contact People’s Capital Group, be qualified. We’re going to send over our documentation to your custodian operating agreement. Offer a memorandum, membership certificate, IRA docs. I mean, the LLC Docs information, the I. All right. So your IRA custodian is going to review all this information. You want to work with the real estate operator who knows what the custodians are looking for? OK? Because it’s a big waste of everyone’s time. If I say in my operating agreement, the IRA is on the hook for the mortgage, right? And I assume that operating agreement to the custodian. That’s a no go. And IRA can’t be on the hook for a mortgage because there’s a limited amount of funds. It cannot take on debt. Right. And IRA, that’s a different presentation. But essentially, you want to work with operators that know what the IRA so they’re looking for. Make it nice and pain free when you’re moving your capital into that asset. And that’s what we do. We know what the IRA are looking for. We’ve structured funds that are IRA friendly. All right. So that’s so the IRA. So he’s going to review your information there and say, OK, this operation checks out. We’re they’re going to sign the offering to sign the operating agreement. You’ll probably side read an agree. OK, you’re also going to review the operating agreement. And then at that point, they’re going to wire the funds to the attorney. Doing the closing will close on the real estate. The cash flow checks will be sent back to your IRA custodian recorder. The updates and the financials are going to be sent to you so you can keep track of your investment and you can get your financials and all that. But they’re also going to be the K-1 tax forms are actually going to be sent to your IRA custodian filed under your IRA custodian. I am not getting into the nitty gritty here, right? So essentially your IRA custodian is going to get those cash flow checks. They’re going to get the lump sum upon the refinance and that’s going to build your IRA faster. OK? It’s not a way to pull from it early. It’s not a way to beat the taxman and trick everyone and pay for your kid’s college education. You know, you can’t take your spouse out to dinner. You can’t buy a vacation property down the shore. Take your family there for free every two weeks a year. There’s limitations. All right. You cannot. You know, you can generally invest with family members that are horizontal on the plane. You can invest with your brother in that tech idea. He’s always been nagging you about. That’s fine. You cannot invest in your son’s, you know, new tech idea. OK. Your IRA history will guide you there, and they will either approve or disapprove the investment.
Dave Dubeau [00:14:10] All right. Very interesting. So. To me, it sounds like there’s a huge, huge, huge opportunity here, both on the side of us as real estate entrepreneurs, as another source of untapped capital. And then there’s all it’s a win because there is a massive upside for your investors as well, because this is a way for them to take their IRA money out of paper assets, just purely paper assets and investment in something solid, tangible bricks and sticks, right? So an actual real estate deal and get much, much higher returns than they’re accustomed to. Without all the fees and crap that financial planners are charging.
Aaron Fragnito [00:14:53] Yeah, I mean, heck, you can even start an LLC that’s owned by your IRA, but managed by you, and you can’t pay yourself like a management fee or anything like that. But you could go, let’s say $100000 is going to take 50. You’re going to go flip a property, get your hands dirty. You always want a fixed up property, make that dream come true. You take the other 50 and invest in a syndicate of professionals and just make sure your IRA doesn’t get completely lost. And that way, yeah, it’s a good way to diversify as well.
Dave Dubeau [00:15:20] Either way, all of the Profits have to go back into the IRA. Correct.
Aaron Fragnito [00:15:24] All the Profits have to go back. In that case, you’d have an LLC account, which all the Profits have to go back into. Now, in this situation where you start, the self-directed IRA LLC also knows a checkbook IRA account is the nickname for it. You’re really policing yourself, so I don’t advise this if you’re not going to do very active things with the capital, you’re just investing in the syndicate, you’re moving the capital once into the syndicate, and we’re sending pieces back as the property cash flows and makes Profits. So if you’re flipping a house, you need to pay your contractor and your plumber. You know that day, you know, so you need access to the money quickly, then you might want to consider starting that LLC that’s owned by your IRA and managed by you. But keep in mind, some IRA custodians won’t even allow you to do that. So you talk to your IRA custodian. I also know consultants that can I consult people on how to find the right IRA custodian. I think it’s like 15 bucks, and the kind of guy is probably over seven.
Dave Dubeau [00:16:19] That’s yeah, that’s a valuable service, that’s for sure. Aaron, time flies when we’re having fun, my friend. So if people want to find out more about you, if they want to maybe take a look at the presentation you’ve done around. Your own self-directed IRA type thing. What should they do?
Aaron Fragnito [00:16:36] So People’s Capital Group dot com is our website and we have recorded webinars there. How to self-directed your IRA and we have over 50 podcast episodes. You can apply to qualify there and get on our list as a qualified investor and produce about 10 years. So we have a lot of content there, a lot of information, and we focus on North Jersey and Southern Vermont. We have a new offering coming out actually all week so that people’s capital root.com.
Dave Dubeau [00:17:02] Awesome. Very good. Aaron, thank you very much. It’s been fascinating.
Aaron Fragnito [00:17:06] Thanks, Dave. Have a good day, my friend.
Dave Dubeau [00:17:08] You too. All right. All right. Take care and see you on the next episode. Bye. Well, hey there. Thanks for tuning into the property Profits podcast if you like this episode. That’s great. Please go ahead and subscribe on iTunes. Give us a good review. That’d be awesome. I appreciate that. And if you’re looking to attract investors and raise capital for your deals, mean we invite you to get a complimentary copy of my newest book right back there. There it is the money partner formula. You got a PDF version, an investor attraction book dot com again. Investor attraction, book dot com. Take care.