Better Returns: Invest Like a Pro

6. What Wall Street Does NOT Want You to Know with Josh Plave

November 27, 2022 Josh Plave Episode 6
Better Returns: Invest Like a Pro
6. What Wall Street Does NOT Want You to Know with Josh Plave
Show Notes Transcript

Although many investors don’t know this, it’s possible to invest in real estate using a retirement account. It’s a great tool to make your nest egg work for you. Here to shed light on this topic is Josh Plave. In this episode, we hear how inheriting IRAs when Josh was young led to a fascination with retirement plan investing.


  • Through careful research and structuring, Josh has learned how to successfully pivot existing retirement accounts invested in the stock market into commercial real estate and shares how to do this.
  • By creating the real estate industry’s only UBIT Calculator, Josh is able to provide investors with an idea of what total take-home returns might look like when investing in apartments with an  IRA.
  • Josh explains what type of apartment investment deals are best for those who are using retirement account funds and also which markets he is looking in for new apartment deals.
  • When vetting who to invest with, keep in mind their track record, if they have taken deals full cycle and if they provide consistent communication.
  • Most apartment investments now use an investor portal. Through this tool, investors can view all the details of their investment at any time.

“I started looking into what I could do with the inherited retirement accounts. I realized that there was this world of self-directed IRAs. I started looking into real estate and as I was kind of doing both those simultaneously, I learned that I wanted to passively invest in multi-family with my retirement accounts. That's what I ultimately landed on.”

“Getting the full understanding of one topic at a time is a key aspect to, not just being a business person, but also an investor.”

Josh is an apartment owner and operator who specializes in helping investors use their retirement funds to passively invest. As a general partner on over 1,500 units across the country, Josh runs Wall to Main, where he provides education and investment opportunities structured specifically for IRAs, 401k's and everything in between.

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welcome to better returns where you will learn how to escape the volatility of the stock market by passively investing in real estate like a pro 90 of millionaires earned and maintain their wealth by investing in real estate we will share real-life examples from Savvy investors so you can do the same he still rides roller coasters with both arms in the air your host and my dad Matt Hansen I'd like to welcome to the show my friend Josh plave Josh is an apartment owner and operator he specializes in helping investors get their money out of Wall Street to Main Street he's a general partner in over 1500 units of multi-family across the United States and you've got he's got some excellent educational materials on his website about IRA and 401K rolling those over to self-directed Ras and that's kind of what we're going to talk about today he is the specialist in this all my friends that are syndicators are in the business we go to Josh for help on this stuff and I think he's even talked to some of our investors too he's that good so I'm very excited to have you on the show Josh and so let's uh let's start with share us a little bit about how you got into multi-family and then into specifically the IRA and the retirement fund how to use those yeah absolutely thanks for having me that I'm really excited to be here um so I I guess I'll kind of start the two stories kind of go hand in hand so I like to start sort of why as a 32 year old talking about retirement accounts why have I come to have some like knowledge on the subject so uh I actually have been doing it for about half my life uh started when I was 16 years old I was working a summer job that year and my mother and my grandfather who were both CPAs suggested that I should open up they'd always come educating me on on investing and they thought I should open up a Roth IRA so I took all the funds that I earned that summer put it into a Roth IRA started investing from there and I've been contributing to it ever since and I've been using that account to you know to grow my future fast forward about 10 years from then uh as my my mother and my grandfather who I booked that I mentioned uh they both unfortunately had passed away at that point and what they did they were nice enough to leave my sisters and I with their retirement accounts it wasn't like a life-changing amount crazy amount of money but it was enough that I needed to make sure that I was going to be looking after everything they'd earned for their whole life so uh when I started looking into what I could do with my retirement accounts the inherited retirement accounts I realized that there was this world of self-directed IRAs I started looking into real estate and as I was kind of doing both those uh simultaneously I learned that I wanted to passively invest in multi-family with my retirement accounts that's what I ultimately landed on um and so in in doing that I needed to make sure how I was going to best execute those accounts how I was going to make sure I could make the best use of the funds that were there put them into the lowest fee most the easiest to use you know structures essentially uh and that's sort of what I've found and put together uh and then I ended up bringing it to my own investors as a multi-family syndicator and and that's kind of like what I focus on is helping people with their retirement accounts excellent excellent so let's we're going to dive deeper into that a little bit more because you are the expert on this so I'm I'm a guy that it's got I've got a past employer that I'm retired or maybe not retired but just a past employer and that's the key thing it can't have a current employer because like Fidelity and Vanguard they don't let you do that if you have a past employer you have the ability to do it so you got a new investor comes and hey I want to put a hundred thousand dollars into this wonderful deal in Texas how would you guide them through that process they got some money sitting in a retirement again yeah so the process is ultimately pretty easy um and there are people along the way who will help you do it so there's really two different types of accounts that you can open up and they both have the first same First Step so the two different types are a custodian like a custodial self-directed IRA and then a checkbook control IRA and so what we're doing here and the reason we need to bring in a the first step is a custodian we need to bring our money from an old custodian that where the money is sitting at and we need to move it over to that new custodian who's going to facilitate alternate you know Investments of some sort so like as you mentioned a Fidelity wouldn't allow you to invest in real estate so we need to move it to a custodian who will and so the first step in both of these types of accounts is you're going to move the funds from one custodian to the next if you're using the custodial Ira it sits there if that's where it stops you just it sits within the custodian and then every time you have an investment that you want to make you send them paperwork information about the investment and they'll sit there and they'll kind of cross their T's dot their eyes do the whole nine yards on it and communicate with the syndicator whoever is in charge of the investment and get some more information that way if you are using a checkbook control account you'll actually be working with I like to call them service providers people who will essentially be doing this whole structure for you and they'll help you with all the paperwork and the transactions between institutions and while you're opening up that custodial account what they'll also do is they'll establish an LLC and that LLC uh 100 of the funds from the IRA get moved into that LLC and then once you have a funded LLC it's the same as any other business that you would run and you get to essentially create a checking account for it and wheel and deal that way and you don't have to ask anyone permission to invest you simply just issue a wiring buy a request with your bank pretty you know cheap and easy a lot more Nimble but it just takes a little bit more time to to set up in the end how long does that typically take that process from when they decide okay I want to lose my money yeah so it's I would say somewhere between two and four weeks what it really hinges on is your the custodian who has the capital right now um where it's sitting there are some banks that'll move fairly quickly if it's at Vanguard I can tell you it's going to go towards that four week period um it just at every bank is a little different though I will say if you want to go faster keep calling it every single day and ask them to process that paperwork just be the squeakiest wheel ever and you might get some Grease that's true I've actually got on the phone with um with financial institutions with my investors because they were dragging their feet and it's the smallers not the big players Fidelity is pretty simple they'll cut a check pretty quickly but it was I won't mention the name some other smaller funds out there that were like you know you're responsible for doing this they were really pushing them through the red tape and additional things and that's where it's great to have somebody like you Josh that's been through this enough to say okay what they're saying isn't totally true they should be able they should be more forthright now they can drag it out but as long as you're providing them all the data and that's beautiful thing is that you've got great stuff on your website educating and so the investors know what to expect so they can anticipate oh I need to do this this and this oh and then it should go Fairly smoothly other than dealing with the the financial institutions because Wall Street does not want you to take the money away from them no they make money on us if it goes up or goes down they get their fees and they're they're very resistant um what other things what other parameters I know there's things you can and cannot invest in using your your Ira money because it's still in the ira bucket you can't touch that you can't benefit so talk a little bit more about that yeah absolutely um so there's types of transactions so these are prohibited transactions so the way I kind of like to think about it is your IRA and yourself think of them like two different people and these two people you and your IRA they can't interact together they can't do any kind of business so there's there's one example I like to give that kind of explains both directions so let's say you use your IRA to buy an Airbnb you can totally do that if you want um you cannot actually go and rent that Airbnb out yourself because you can't benefit from it so there's two ways that it could work you could either rent it out for a dollar every day forever and you would benefit quite substantially from your IRAs actions uh because you're getting a little you know low red house or you could rent it out for ten thousand dollars a night and then you're pumping even more money into your IRA and your IRA is benefiting from your actions so basically you can't use your IRA to invest in anything that you're involved in and vice versa um yeah you just need to make sure like if I'm a general partner on a deal I can't invest any of my Capital into my own deal but then there also goes that's it's not just limited to myself there's also things called uh prohibited sorry disqualified persons uh and those are anyone who's a linear ascendant or a descendant so we're talking about Grandparents parents and grandparents and children and grandchildren and also your spouse any of them they can't invest their retirement dollars into something that you're working on so you really need to be careful about who you're investing with but if you're investing with the you know a peer or a colleague or a brother or sister that's fine you can use your retirement account to invest with them in anything they're doing you just need to be careful when it's someone who's really close to you good good point there's other types of assets we'll talk a little bit about those I mean we really the show is focused really on real estate and that's where majority of I would say most self-directed probably goes into real estate what other things can you invest in can't in general yeah so this I mean when they created the IRA they were really they never said what you could invest test and they just gave you a list of a few things you can't and so you've got life insurance policies s corporations and collectibles like art jewelry cars alcohol stuff like that um outside of that if you think it's a worthwhile investment you can go ahead and invest in I've heard of people you know buying racehorses and running stud operations and doing all kinds of crazy things and as long as you think you're going to make money on it your IRA can invest with it yeah and as long as you don't benefit from today right now as your individual your entity can your retirement can but you can't take benefits that's the big key you're right that's a good thing exactly um what other questions do I have for you because I have you here in terms of um what about tax benefits you hear oh tax benefits are so great passively invested in real estate but when it's a retirement account what does that mean yeah so um it's pretty straightforward so there's two different styles essentially if you're going to be buying buying a house purely in cash you maintain 100 of the tax deferred benefits of the IRA if you're investing in something like multi-family or in any kind of real estate or investment in general that will be using leverage that's incurring uh attacks and so the way this works is let's say you're buying a house um and we're going to be using 75 leverage so 75 of the funds that are being used to buy that house are coming from a non-tax deferred outside Source There's A lender or Bank um and those obviously aren't IRA funds so if the investment was to earn um let's say a dollar 75 or 75 cents of that would have been earned by the outside source and so it's eligible to be taxed 25 of it that's earned by your IRA uh maintains that tax deferred status but 75 percent of it is eligible to be taxed so that's a lot of people get pretty worried about that but the nice part is that you can actually use 75 of all the losses that are associated with your IRA so anything like depreciation operating and interest expenses anything that's coming off of the property as a paper loss or a real loss you could use less in this scenario 75 of it and helps to offset it quite substantially people need to be aware of and it's not as big an impact in the thing the things that because you the real estate is you know one of the best risks adjusted Investments you have that your returns are usually a little bit higher so if you do have to pay a little taxes within your IRA it's usually not devastating it's still better than most other options and that's what's great I like your message there is that people get frightened when they hear oh you can be taxed inside your retirement account it's limited and and I I will um I know you're gonna offer this later you've got it you would you beta calculator which is a pretty cool it's the only one I've ever seen that actually helps an investor take a look and say what my potential impact be inside my IRA if I have taxes earned based on the deal structure and all that which is phenomenal so I know you'll share that with us the the link to that later um anything else on on IRAs things that you think people should be aware of before we move on to some something else no no uh outside of that no um I think my only suggestion really is if you if you plan on just being a passive investor with your IRA if you're just going to be limited be a limited partner into different deals I definitely suggest that checkbook control structure um if you're just investing in somebody else's deal you don't really have to worry too much about disqualified persons or prohibited transactions um if they're not one of those people and so I I wouldn't worry about someone being there to kind of hold your hand and check on all that different Investments you're making you probably have a very secure situation where you can just go ahead and invest if you do plan on doing other things and you know buying like an Airbnb or other kinds of Investments you might want to keep it at a custodian because they'll make sure that they're running through all the different scenarios and making sure that your money is is kept uh secure excellent excellent okay we're going to shift gears a little bit to you're you're an outstanding investor and general partner yourself I think last year you were in eight deals and you helped a lot of people get their money out of Wall Street into Main Street so let's talk about the deals that you like to do the things that you offer for your investors what type what's your criteria for the deals that you're looking for and what do you think are really good Investments now in the multi-family Market yeah um when it comes to kind of retirement accounts I'm looking specifically for things that will minimize so that tax we were talking about is called ubid and so I'm looking for deals that minimize the overall ubit impact so we want ones that are value-add opportunities technically the more value-added is the uh the lower the unit impact would be but at the same time and this time in the marketplace or recording this October 2022 I don't want to look for significant and value-add Deals we're seeing a lot of you know cost compression between a b a b class property and a C-Class property and I'd rather be in a well positioned b-class property that's going to be absorbing tenants from both directions a to c um instead of looking for a deep value-add opportunity so we're looking really for those b-class value-add opportunities I like to see deals that will refinance partial you know part of the way through because when there's a refinance it typically won't be a capital event and you won't incur any kind of tax alongside with it so you're going to get some of your proceeds or sorry from the refinance proceeds you're going to get some of those some of the capitalists you initially invested you'll get some of that back and because it's not taxed so you can then go ahead and reinvest it very quickly it keeps your irr nice and high and it just minimizes that that impact that's really what I'm looking for when I'm finding deals for my investors now uh specifically we're talking about the ubit taxes would it be better than if you see a deal that they've got maybe only loan to value you want a lower loan to value so there's more equity in the deal and less loan because the loans and stuff you're going to get taxed on within your IRA correct yeah so you'd want something that that's like 50 if somebody usually that's not the case but maybe 60 percent loan to value versus uh 80 is that correct yeah and it's a tricky balancing act because the ones that are like a lower loan to value are typically not going to have much of a rehab budget and the larger the rehab budget is the more that I'll actually offset the way that's calculated it actually ends up lowering your ubit total with a larger rehab so it's kind of a fine dance between I want low leverage but I also want some value add opportunity so you got to find kind of there's like a sweet spot there it's it's kind of it's not I wouldn't call it an art by any means but but there's there's lots of lovers and I didn't really consider that I was just thinking the loan to value thing okay excellent so what other What markets are you guys excited about right now what are the places that you like to uh help investors invest in what yeah so uh I mean we're pretty much looking across the Sun Belt but the ones that I'm most excited about are going to be in the Southeast so we're looking from Tennessee Georgia and Florida um have a few properties uh we're under contract on our fourth one in the Sarasota Bradenton Area um it's been I think the last 18 months the number one rent growth Market in the country uh it's just it's blowing up and um we keep looking for new properties there because it's it's got some really strong strong fundamentals seeing a huge demographic shift moving down there uh and the uh the man just sorry that Supply just cannot you know meet up with everybody so many people moving to Florida Texas and Arizona I think Florida's was number one I think it's number two I think Texas is number one now in terms of population growth just migration of people moving there and they've got to have a place to live and most people land in our apartment to begin with at least um what other criteria do you look for in the property specifically you're looking at sodium Bradenton like what type of properties do you guys like yeah so I I primarily would like the guy A to B Class Property um I don't want anything that's really um it has a lot of on uh what is it called uh deferred maintenance I don't want anything that's in in Dire Straits really so we want something that has good bones it's just the current owner isn't well capitalized you know they're they maybe have owned it for 10 15 20 years and so they did their own you know rehab process on it you know when they acquired it but they haven't had a new loan that allows them to go in and and rehabilitate the the entire property um so yeah we're not trying to re reinvent the Wheel by any means we're looking for things that we can come in and give a nice cosmetic lift help the property meet the market so that when tenants are coming in and they're expecting a certain inequality because they've looked at you know five other properties in the area we want to make sure we're meeting that that level of expectation when somebody comes and tours our units excellent excellent so that's the criteria now you're a very seasoned General partner and worked with lots and lots of deals so as a me I'm a brand new investor what are the types of things that a new investor should look for in a great General partner and I know you are a great General partner that's why I'm asking you do a great job of educating your investors but what should they look for um you know what what does a good General partner look like in terms of to an investor what should they be looking for yeah I mean there's really two different things you're I mean obvious one is is track record and you want somebody who's been able to perform to the expectations um and is is there constantly you know looking in the market and able to take deals full cycle um the the kind of unknown one until you actually get started investing and you won't realize this until and this is both for General Partners as well as limited partners you want someone who's good at communication um I've been a part of deals that had poor communication it's extremely frustrating um at least on the general partner side we make sure that our limited partners have um the a consistent type of message that's put out every month and they know the the general structure of how information will be put out and so it's really important as a limited partner you want to know when to expect information how to read it every month and to be able to pick up on issues that are cropping up or opportunities that have Arisen because if you're not getting constant updates you might be making a ton of money you a won't know it and B your it doesn't matter how much you know it's doing well you're in the back of your mind you're going to be worried to some degree so you want to make sure somebody's actually out there constantly being very transparent about their communication and you use a portal right yeah some type of investor portal tell us what that looks like yeah I mean the the whole move to these really um modern portals have been really nice uh there's some great Services out there so basically when you sign up for a deal you get to do all of your reviewing of the documents and e-signing through there but at the same time we also push out all of our updates through that portal and so you have a whole it goes to your email but you have you can go into the portal and you have a whole historical look at performance for the property you get to look at all your distributions in the portal as well um and get a feel for how you know not just the properties performing but how your own individual investment is doing as well yes that's a huge change because when I started passively investing in apartments probably six or seven years ago they would get this 145 page PPM in an email that you had to sort through and figure out what do I fill out I am a IRA or a single entity and there's like four or five different categories and it was so frustrating now we have these portals you can go on and log on and it will tell you I'm going to be investing with the trust you hit trust and it will take you to those fields you need to populate in that 145-page document so I love the fact that I think most all of us now use those because so much user friendly and then 24 7 they have access to all the information of the updates and all that in addition to the the email communication so I love that that's great you're on top of that stuff I know your job um let's see what other things we want to chat about we talked about the markets talk about Ira what you look for in a sponsor well I think you covered all the any other key things about a new investor should be looking for no you got it covered and you're so good at it that so well now it's time for our um rapid fire five these are just five fun questions that we're gonna ask Josh to get to learn to know him a little bit better so the first one is what is your favorite vacation spot uh it's the the mountains so if I could pick one specific location I would say Steamboat Springs Colorado I like skiing uh it's got the some of the best snow out there excellent let's do a mountain bike as well I don't I wish I mean I need to get into it at some point which I will I can see you'd be a good one mic uh are you a morning or a night person night person 100 percent Kindred Spirits there definitely him as well um if you could only eat one food for the rest of your life what would that be uh okay so if it's a specific dish I would say uh shakshuka which is an Israeli dish um and I say it because it works really well for breakfast lunch dinner um it's basically a little dish that's got roasted tomatoes an egg sometimes has chickpeas sometimes has some roasted chicken it's uh it's a nice savory morning breakfast dish um but it's it's super well spiced and it's really tasty let's try this someday yeah we've got to go to specifically to an Israeli type restaurant is that yeah something that served in the other type of restaurants I mean you might see like a American Fusion type of place but yeah something that has like Middle Eastern food in general should carry some sort of a shakshuka that's on my list that's on my bucket list I gotta have that yeah well if they do it sometime when we're in Dallas together we'll have to find a place yeah I'll look out for one okay uh simple one pineapple on pizzas yes or no no hurtful that's a little hurtful Josh I mean I I don't mind I love pineapple and I love pizza and the two of them together I don't know okay I'm putting I'm putting a book together on that one okay and then the final question is uh what's one piece of advice you'd give to a new investor to help them get better returns what's the single nugget the most important thing get the best returns for a new investor um the most important thing well it's I mean what I ended up finding was focus on one thing in particular I'd say uh I when I was and it kind of it bleeds into me also being an active uh General partner as well but when I started focusing on specifically one asset type that's when I really started seeing more returns because I was able to essentially instead of trying five different things and educating myself to 75 percent on all of those I now am 100 educated on one topic once I'm there I can now move to a second topic entirely on that and get myself fully educated on that and so getting the full understanding of one Topic at a time I think is a really key aspect to not just being a business person but also an investor and so I think that also bleeds into being a passive investor I you can try multiple asset classes but maybe until you're starting to see distributions from one and you fully understand the mechanisms of how that that investment is working um I would at least suggest focusing on one thing at a time well I think that's an excellent piece of advice I hadn't heard it's like you're right and same thing like I want to invest with somebody that's specializes in multi-family or at least it has been doing it for many many years before they started adding other asset classes that they've got a deep understanding because you're investing their money and your own money in those deals so excellent advice that's very good well Josh thanks so much for all the value delivered to our listener tell us how people can get a hold of you and most importantly your ubit calculator which I think is fabulous yeah so I built a calculator that helps to understand uh all those taxes and you can kind of plug in information from every deal that you do into that calculator you can find that at ubit u b i t and then you can find more information about us at and those will be in the show notes excellent resource my wife and AI actually use it too and I've told Josh that hey let me go and read your stuff because I need to make sure I'm up on everything and you are always current and all that stuff and you are the expert in our group on that so I do appreciate your time today Josh you're wonderful we'll talk to you later thanks again thank you bye bye and that's a wrap thank you for listening to better returns brought to you by Hanson Holdings if you enjoyed this episode please leave a five star review because it helps others discover this valuable content if you would like to earn truly hands-off passive income go to where we help you invest in large apartment complexes to grow your family's wealth see you next week with another awesome episode have a great day