WS1896 Leverage Retirement Accounts to Invest in Real Estate | Highlights Mat Sorenson

In today's highlight episode, we feature tax lawyer and self-directed IRA expert, Matt Sorenson. Matt shared his extensive knowledge on how investors can leverage their retirement accounts to invest in real estate and private companies.

Matt Sorenson is a tax lawyer by trade and the co-founder of KQS Lawyers. He became an expert in self-directed IRAs, focusing on how people can use their retirement accounts to invest in real estate and private companies. Recognizing the lack of information in this field, Matt wrote the book "The Self-Directed IRA Handbook," which has become the go-to resource for government agencies and industry professionals.

Matt emphasized the importance of investing in assets that investors are passionate about and understand. He highlighted the vast amount of money sitting in retirement accounts, approximately $35 trillion, and how it can be used to invest in alternative assets like real estate. Matt explained the difference between Roth and traditional IRAs, with Roth IRAs offering tax-free growth and withdrawals, making them particularly advantageous for investors.

For investors looking to utilize their retirement accounts, Matt outlined the three-step process: opening a self-directed account, funding it by transferring money from an existing retirement account, and then investing it in real estate or other opportunities. He also provided valuable insights for capital raisers, explaining how they can tap into the vast pool of retirement funds by educating potential investors about the possibilities of self-directed IRAs.

Click the links below to tune in to the full episodes and learn more about real estate syndication and how to build wealth in the industry. Don't miss out on valuable insights and expert advice from industry professionals.


https://lifebridgecapital.com/2023/10/05/buying-real-estate-with-iras-401ks-mat-sorensen/

https://lifebridgecapital.com/2023/10/06/capital-raisers-and-retirement-fund-investments-mat-sorensen/

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Transcript

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, we've packed a number of shows together to give you some highlights. I know you're going to enjoy the show. Thank you for being with us today.

Deana Berg : Kat Sorensen, welcome to the show. Thank you for being here today.

Mat Sorenson: My pleasure. Excited.

Deana Berg : Well, why don't we get going? I mean, you have quite a broad array of, of background and experience. So why don't you give us a little background where you started and then we can move through according to how we can apply those things to our listeners.

Mat Sorenson: Awesome. So, I mean, I'm a tax lawyer by trade. I mean, that was my profession. I was a prosecutor. I went into corporate America as a business and tax lawyer, and then have my law firm KQS lawyers with my partner, Mark Kohler, and we got 60 plus legal team helping clients across the country from a business and tax standpoint. But what I did as a lawyer is I got focused in on how people can use retirement accounts, which there's $35 trillion in retirement accounts, but how can people use that money to invest in real estate or private companies, small businesses? And we had clients in our law firm that just wanted to do it. And there was not a lot of good information out there. Wasn't on the bar exam, didn't learn it in law school. There was no good books on it. So I just got hyper-focused in that area as a lawyer. I love the strategy on how IRAs, 401ks, Roth IRAs can buy real estate and invest in funds and all these other things. Then I wrote the number one book in the field on it, which is my book, The Self-Directed IRA Handbook, which government agencies use my book, by the way. The National Association in my industry uses the book as part of a certification training program. So I became the expert in like one little thing, how a retirement account can buy real estate in private companies.

Deana Berg : I love this. Okay. So when you were little, you're like, I want to grow up and be an attorney. And then you grew up and you said, I want to be a tax attorney. And then you stumbled into this, like back up just a little bit more. You found this niche and you're just owning it. This is great, but back up just a little bit. And then it's kind of like your main gig now.

Mat Sorenson: Yeah. I mean, it's the main thing I'm keeping the main thing too. So. It was just, I just was super attracted to it as a strategy. One, because I knew it was underserved. I was like, people don't know about this. Even yesterday I was meeting with a bunch of business owners. These are people that run large organizations and like one of them out of 10 had heard about this. And so I'm like, this is, there's a big market of people. First of all, there is $35 trillion in this that don't even know you can do this. And so many people are so frustrated because they have an IRA or 401k, but it's invested in something they're not passionate about. They don't care about, and they don't know much about. Right. And so we're like so disconnected from that money, but it's such a big part of our financial security and what people want to retire on in later years. So I was like, this could be really cool. So I just dug into it and learn everything I could about it. The nice thing was that clients pay me by the hour to figure it out. So I got paid for that, which was great. But I like it myself. Like this is what I do with my retirement account. Like my IRAs own rental properties. Right now, my retirement account does private money lending exclusively. I'm lending to other real estate investors to put it on deals. They need capital to do deals. I need deals and I want to get my money out, right. And invested. And so it's like a win. So I just love the topic, but it's actually funny because my main business now is directed IRA. That's our IRA company where we handle self-directed IRA accounts, directedira.com. You can find us, but we have 1.5 billion in assets in the last four years. We're setting up 30, 40 accounts a day for people that want to go invest in real estate or a private company. And so, but that's what I'm doing every day now, transitioning from being a lawyer, advising clients, But honestly, I went to law school wanting to own a business, not just a law practice, but thinking there was some other thing I could find out from the expertise and connections of being a lawyer. That actually was my plan. I mean, it seemed, and that's what happened. And so I love the law. Don't get me wrong. And I love being a lawyer, but as a lawyer, you trade time for money. You know what I mean? You have, you bill and then you get paid and then If you want to make more money, you've got to go trade more of your time and bill to get to make more money. So.

Deana Berg : So this is the best of both worlds. What's your favorite lawyer joke?

Mat Sorenson: My favorite lawyer joke? I don't know. I don't know. There's always like the ones like, what do you see? I don't know. I've got a good lawyer joke off the top, actually.

Deana Berg : It's if you're the lawyer, you can say the joke, but if you're not, you wouldn't be saying that.

Mat Sorenson: I know. I don't want to get kicked out of the club, be disbarred or something, so I'm not going to give one to you.

Deana Berg : Your role is secured. Um, okay, let's, so what do you do for investors? Do you then host a platform? Let's kind of back it out. Let's say I'm somebody who has a 401k and it's not self-directed, which is untrue. I do have a self-directed 401k and it doesn't fit in real estate investors. But like, let's kind of break it right down for the listeners, like you said, never heard of this before.

Mat Sorenson: Yeah. So. What we do is, one, we just want to educate people on what they can invest in. I'm not telling people to invest in real estate. Invest in whatever you want. Invest in what you know and what you're good at and what you're passionate about. What I'm out there telling people and educating is you don't just have to buy an ETF or a mutual fund. And so we spent a lot of time, like tomorrow, I'm going to be speaking in Dallas to a group of real estate investors. I'm going all over the place. I'm speaking in Seattle to a group of private equity investors that are basically investing in small, medium-sized businesses they're trying to grow, right? And so I don't care what you're interested in, but I'm just telling you, most people are not interested in an ETF or mutual fund. And sure, you might want to have some of your money invested in that, but we've just been brainwashed. That's the only option for your IRA or 401k. And of that $35 trillion that's out there, I mean, this is the most investable piece of money, period. There's no more money anywhere to invest in anything than U.S. retirement accounts. And we, it's a lot of money and we all have a little sliver of that. And someone listening, I think you have an IRA or 401k and do you even know what it's invested in? Your friends and family do, your spouse might like, and just know that you have options. And so that's what we're doing. And at Directed IRA, we handle the accounts. So if you want to use an IRA or an old employer 401k, you need to have a custodian for the IRA and you can self-direct a 401k too. I don't know if you have a solo 401k or what, if you're self-employed, there's lots of options there. I wrote a whole fricking book on this stuff. So, and I have a two day conference on it, so I can talk forever about it, but. But so you have to have a custodian, just kind of like you have to have fidelity for your IRA or TD Ameritrade or whoever you're using when you're buying stocks or mutual funds. If you're buying real estate, it's the same thing. You need to have a custodian of the IRA. And that's what directed IRA does. So we're like a fidelity or a TD Ameritrade. We provide the account. We do all the tax reporting. And we qualify it from a tax standpoint so that you don't pay taxes. Right. Cause that's your IRA or 401k is the same thing. Like, like this, I just want to make sure everybody sounds the concept here. Let's say I buy Facebook stock, a hundred thousand of it, and it goes up to 150 grand and I sell that 150,000. Now that 150 grand of stock, the cash from it goes back in my retirement account. Right. I don't pay any taxes. That account at Fidelity, it's not hitting my 1040. It's all building up in my retirement account. Now I got 150,000 to invest. Well, it's the same thing for real estate, right? If I bought a property for a hundred grand, it goes up to 150 and I sell it for 150. That whole 150 goes back into my retirement account. I don't need to do a 1031 exchange and meet some deadlines, right? It's like the whole 150 goes back to my retirement account. And now I can invest in the next deal. It's not going on my 1040. It's not going on my personal tax return. It's growing to later come out in retirement. So that perk of not paying tax when you're making money, whether it's rental income or gain on a property, or you're investing in a fund, whatever it may be, that same tax benefit you get on a stock or a mutual fund is the same for real estate. It's all tax deferred for your traditional accounts or tax free and retirement accounts. It's not hitting your 1040.

Deana Berg : Beautiful. Okay. So, so let's say I'm somebody and I want to get rolling. I go to your platform. Like, is there an amount that is too small to do this? Like, is it worth it for any amount? Let's say somebody doesn't have, let's say somebody does have a lot. Would you advise them one way or another based on what they have?

Mat Sorenson: I would say the average investor needs 50 grand. If you're an average investor, and I mean like you're not a professional in the space, you're not in the real estate space on a daily basis, you're Like me, I'm an average investor, okay? I didn't buy my first property in my retirement accounts, I had 40 grand. I just bought a single family rental. Is in Indianapolis, I sold it for 185, five years later, had a 250% return on it. Way better than the S&P 500. I'm an average investor, okay? But right now, I just private lend my money and just think of 50 grand. I can lend that at 12% in two points right now. It's good, hard money lending rates. I get it secured on property. It's way better than I'm going to get in the stock market at that rate. That's a 14% annual rate when I click my private lending.

Deana Berg : I didn't know this. This is great. Yeah.

Mat Sorenson: Yeah. Yeah. I love doing this. This is where I'm, what I'm doing with most of my money now. And so, um, But now if you're a really good investor and a pro, which we have lots of them, they can come in with a $6,500 one-year contribution, any retirement account dollars to start with, and they just throw a one-year Roth IRA contribution in of 6,500 bucks, and they can go wholesale a property or do an option deal or Get in on some deal that they can turn that into 50 grand or a hundred grand. And so they have enough deal flow and opportunities where they can turn that into a large gain. So I'll give you an example. This was a client that had 10 grand in a Roth IRA. This was the moment I decided working with this client that this is what I want to do forever. Okay. Let's hear it. He only had 10 grand. Now this was a pro. Okay. He's a real estate investor and developer. There's a piece of land that was up against the highway that was agricultural land. Now my client knew that the county and state were going to put an exit off that highway there where this land was, and that this was going to go from just agricultural property to like highway commercial. And so he went to the landowner and he said, Hey, I'll give you 450 grand for this property, but I just want an option to purchase. I want a five-year window to acquire this property for 450 grand." Now, at the time, the property was worth 300, 350 maybe. And so, the owner of the land for the agriculture was like, what do I care? If you're willing to pay a hundred grand more than it's worth, I'll go buy land down the street. This is agricultural land. I don't care. And so my client bought an option with his Roth IRA. So his Roth IRA gave the guy $10,000 as a fee, as an option fee to have the right to acquire the property for $450,000 within five years. Okay. Now this is a client that does this all the time, right? He's always optioning out properties and stuff personally, but when he sells those things, he pays tax and he's in high tax rates. Right. And so. He wanted to do this in a Roth IRA. Okay. So now fast forward three years later, the highway exit comes in and now there there's people wanting to put in a gas station, right? They want to put in a convenience store. They want to put in a subway.

Deana Berg : One question, just to clarify for listeners, what exactly does an option do from the standpoint of an investor?

Mat Sorenson: So from the investor, you have the right, but not the requirement to buy the property at the agreed upon price. So they agreed that my client would buy the property for 450 grand and the seller had to sell. And so my client had that five-year window to buy that property.

Deana Berg : If they have to sell, they can't say, I'm going to hold onto the property.

Mat Sorenson: They have to sell. Okay. And now it depends on how you wrote it up, but that's generally what it is. Now, if you're an owner of property, you're not going to just give options all the time, but my client gave him 10 grand. Okay. He said, here's 10,000 bucks. So I'm serious. I'm securing this right. And it was a price over what the value of the property was at the time. So the seller was like, sure, whatever you want to, I'll take your money. And but his Roth IRA did, this wasn't him personally doing this or his personal LLC or corporation. This was his Roth IRA.

Deana Berg : Now, why did he use a Roth IRA? Roth IRA LLC or whatever.

Mat Sorenson: Yeah. Yeah. It was actually just done out of his Roth IRA. He uses an LLC now, but you could do either way and we can talk about that. But now why would someone use a Roth IRA though? Because it's no tax. Okay. This client's in his fifties. And so what happens later is this property ends up being worth one and a half million dollars. Okay. That's the value of the property. So he sells the option to another developer, someone he knows, he's in the business, right? So he's doing this all the time. Sells to someone he knows for over a million dollar gain. He doesn't buy the property. His Roth only had $10,000. Oh my word. He sells the option for over a million dollars because it's worth 1.5 and he has a million dollar gain go into his Roth IRA. Okay. So now this is the moment I was like, all right, this is what I need to do. This is pretty cool. This client paid zero tax on this, and now he has, he's got a 10 million plus account now, but now he had a million dollars in his Roth IRA. And no tax. And now he's, so a lot of people need like, like me, I'm a base hitter. Okay. There's home run hitters out there that we've got lots of them. Like guys like this, they hit home runs. They do, they turn $10,000 into a million in a deal. That's not me. Okay. I'm just a base hitter getting my 12% interest or my cashflow on a rental and some appreciation when I sell. But that's way better than an ETF or mutual fund for me. So, um, so you could be a home run hitter and you could be a pro and you can just have 6,000, 10,000 bucks in an account. If you're just kind of a novice at real estate or you're somewhat, you got a day job or a business and you kind of invest somewhat on the side, you might need about 50 grand. But let me go back to that client. Cause I want to see what I think about that guy. That guy, when he ended up finishing this. Okay. Yep. I had a call with them. He's like tidying it up, making sure he did everything right. And we finished the call and I was like waiting for high fives, right? Nope. He went on a little rant and he was pissed off. Okay. Well, hi. Because nobody told him he could do this before. Oh, and he's like, I have the big CPA firm, the big law firm, a financial advisor. All these people knew I made money in real estate and hate paying taxes. Not one of those dummies told me, and he was dropping some F-bombs here. I'll save everybody from that. Yeah. Not one of them told me I could do this. He's like, I had to go self-discover it. And then he found me to teach him how to do it. And. But he was super pissed off because he's like, I've been buying mutual funds and he's like, I don't know what the heck I'm doing there. And so, so that brings a really important principle that we've tried to do, that we've instilled in our company at Directed IRA. That's even kind of guided my own personal investing philosophy is invest in what you know. And you have, people have these retirement accounts sitting out there and they're investing in stuff they know nothing about and go look at the history of it. Has it done well? And if real estate, why aren't you investing your retirement account at that? And so, I don't know, that was kind of a, a wake up moment for me. And I was like, this is what I need to do. There's a lot more people out there like this guy, not necessarily home run hitters, just some base hitters too, that really need to know they can use this strategy and invest in what they know. Real estate has been one of the tried and true methods to grow and build wealth in our country. And we just have not thought about it for retirement accounts.

Deana Berg : So that retirement account now has millions in it.

Mat Sorenson: I mean, yeah, he's got a 10 million plus account. I mean, my largest client is a real estate guy too. He has a $300 million Roth IRA.

Deana Berg : Dang. Dang. Okay. My mind just got a little bit blown because. I had Roth IRAs in a little box over here. I didn't realize how rapidly you could scale it. So I have a question. Help me and our listeners understand the difference, even from a tax purposes reason why a Roth IRA is different from a self-directed 401k, what you can and can't do with one versus three, or can you do the same?

Mat Sorenson: Okay. So in the, you have. In the world of retirement accounts, we have 401ks and IRAs and Roth accounts and traditional accounts. So hang with me here because this is a little complicated. All right. 401ks are like when you have a job, you work at a big company or you're self-employed, you can have your own 401k called a solo 401k. Maybe your own business that you own with employees, you can have a 401k. In a 401k plan, you can have it be self-directed. where you could invest in real estate or other assets like this. The problem is most people that have a 401k plan at their day job, you know, you work for a fortune 500 company or whatever, like they're going to let you buy mutual funds and that's it. They don't let you buy real estate or self-directed. So in the 401k space, that's all employer-based plans. Now, but you can have Roth or Tradition. I'm going to come to Roth and Tradition here in a second. IRAs are individual accounts. Anyone can have an IRA, you just have to be an individual. Most IRAs are funded from an old employer 401k. I worked at a company for 10, 20 years and I saved a bunch of money in it. My company did matching and now I've left. And that 401k that's at Vanguard, I've rolled over to an IRA at Charles Schwab or at my XYZ bank or credit. Now I'm buying stocks or whatever I'm doing. Yeah. That's a huge piece of the industry. That is the largest piece of where retirement account dollars are right now. They're in IRAs, but they started in an old employer 401. There's almost $15 trillion of that $35 trillion I mentioned. 15 is that alone. Okay. Now, when you get to IRAs, you have traditional and Roth. Traditional is what we call tax deferred, or I like to call it tax laid See, when you put money in your traditional 401k at work, or you put money in a traditional IRA, you get a tax deduction. If I put 5,000 bucks in my 401k at work, it's a traditional account, or my IRA that's a traditional IRA, I put 5,000 bucks in, I got a $5,000 tax deduction that year. It saved me tax, it lowered my taxable income. But there's a catch on a traditional account. It's tax deferred. It's cool that I don't pay taxes I'm investing, I'm making money. It's not hitting my 1040. I'm just growing the account. I get to reinvest every dollar. But when I start pulling money out at 59 and a half, which is the time, which is the age when you can pull money out, you start paying taxes.

Deana Berg : And there's no way to avoid that.

Mat Sorenson: There's no way to avoid that in a traditional account.

Deana Berg : Right.

Mat Sorenson: Okay. Now a Roth account is what we call taxed never. Okay. So we've got traditional think of tax later. It's going to get taxed on the way out at retirement. Now, a lot of people are like, well, but I'll be in a lower tax bracket. I won't be working or I won't have my business anymore. So I'll be in a lower tax bracket. So it won't be that brutal. And that can be true. There's a ton of traditional accounts out there. The Roth IRA, though, is tax never. Now, in a Roth account, when you put money in, and this could be a Roth 401k or this could be a Roth IRA. When I put money in my Roth IRA or Roth 401k, let's say I drop 5,000 bucks in, I don't get a tax deduction. Government's like, good for you, but we're not helping you save taxes today, but we're going to let that investment grow. And you don't pay taxes. You're building it. When you pull it in retirement and you start taking money out, no tax on the way out. So our principle and why we love Roth accounts in particular, whether it's a Roth IRA or a Roth 401k. The reason we like it is we'd rather pay a little bit of tax now as you're putting money in on the seed, so to speak, than paying tax on the harvest later. And it's grown and it's big.

Deana Berg : That's so practical. So are both, can you get both in this self-directed vehicle?

Mat Sorenson: You can self-direct both. We have thousands of traditional IRAs that are self-directed. And actually out there in general, there's more traditional IRAs than Roth IRAs. Because people like the tax deduction now and they've been around longer. Roth IRAs are a little newer. They've been around now for almost 20 years, but you know, but traditional IRAs are definitely. They've been around for 40 years.

Deana Berg : So if you want to get in and start hitting home runs, let's say IRA is the vehicle.

Mat Sorenson: Exactly. Yeah. Even if you're someone in your forties or fifties, like you, you're not going to draw on this thing for 10, 20 years. And if even if you're a base hitter, the Roth IRA is where to go. Definitely the home run hitters. That's a given, right? That's it. That's an easy one. Like my client with the 300 million Roth IRA. He doesn't want to pay tax pulling that stuff out. Right. And he knew he was smart. He's successful. Going to do a Roth IRA.

Deana Berg : So what does the conversion process look like for a self-directed Roth IRA?

Mat Sorenson: Okay. Well, there is something specifically called a Roth conversion, which is actually, when you say that word, so I want to, it may not have been your question, but I want to say what a Roth conversion is, if you don't mind. No, that's fine. Okay. Is that if someone has a traditional IRA, they can turn it into a Roth IRA. And so if you're like, oh, I've got a hundred thousand traditional IRA, but I'd rather have a Roth IRA, well, you can do You convert it from traditional to Roth, and the IRS is like, cool, we're gonna let you do that. But there's a catch. That 100,000 account is now taxable in that year. So let's say you had an account with us, a traditional IRA with us, and you're like, all right, Matt, I want it to be a Roth. I get it, I want tax-free on the way out. I don't wanna pay taxes in retirement. Convert it. We're gonna send you a 1099 for 100 grand. And that 1099 is going to go on your 2023 taxes from a hundred thousand of income, which if you're in a 30% tax bracket, fed 5% state, that's 35,000 in tax you're going to pay. But if just think about this, if you turn that a hundred thousand into a million within 10, 20 years, whatever your horizon is 30 and investing, you've paid 35,000 in taxes instead of 350 grand, assuming your tax rate was 30% and 5% in retirement. So it's a, we're kind of like paying the price now to get to that tax-free vehicle later. But you can convert to Roth and we're doing it every day. Someone's converting to Roth here. We have more Roth accounts than anything, so.

Deana Berg : Wow. I'm just wrapping my mind around all of this. That's amazing. I guess I only knew a very small portion of the power of these vehicles, but that story about the options, I mean,

Mat Sorenson: Yeah. I mean, it's, and, and all like, just think I'll just give my example, because I think some people are like, like me, like I hear that example that gets me excited, but I don't have that deal. So like, to me that it's a cool thing and it was a guideline for me and like, oh my gosh, there's people that need this strategy that could do like amazing things, but. Even just think of like the private money lending. I know it's boring. It's not as exciting as going out and doing a million dollar option. But if you think of like lending your money at 12% interest and two points, that's 14% annual return. I am doubling my money every three and a half years at that rate.

Deana Berg : Nothing to sneeze at.

Mat Sorenson: Okay. The compounding of that, that's pretty great. And I remember the reason I got into that is I had a client that had about six or 700,000 This is 10, 15 years ago. He had about six or 700,000, worked in corporate America, left, put the whole thing, rolled the whole thing in, and started self-directing. Only thing he did was private money lending. And his account's 10 million plus now, because he's been doing it consistently for that long. He's not hitting home runs. He's hitting maybe doubles. But he's just consistent, and he's getting a better return than he can otherwise get in the market. He's investing in what he's passionate about, and he knows, and he spends his time.

Deana Berg : Matt, you also have a lot of experience raising private capital. This is very applicable to a lot of our listeners. So let's pivot and spend some time there. What can you tell us?

Mat Sorenson: Well, thanks, Tina, for having me back. I appreciate it. I think, and I know we talked about self-directed IRAs before and from like the investor standpoint, but if you are someone raising capital, I just want to make sure everybody here understands this. This is the easiest long-term spot of money where you can go raise capital. IRAs and 401ks. We talked last time there's 35 trillion. I don't know if you heard last episode, anybody, but there's $35 trillion in IRAs and 401ks. That's more money anywhere to invest in anything. And so if you're someone who raises capital to do deals, I don't care if you're getting private money loans, you're doing little partnership LLCs where you have some investors and you're the deal person, you got a fund. The money where it's most likely someone's going to have a hundred grand to give you long-term, it is more likely they're going to have an IRA or 401k than a savings or investment account. IRAs and 401ks is where we have been told and where we have stocked money away as Americans to invest.

Deana Berg : It's true. It's so true. We, I mean, I'm just kind of, after I got into this real estate syndication space, really realizing the power of this money, that just seems like it goes into a closet in the guest room. That's what one pays are, are assumed as. So. Yeah. I'm going to take people down to the guest room. We're going to open up the closet.

Mat Sorenson: I like it.

Deana Berg : And so if you're a capital raiser, let's talk about your strategy and how you can convey and communicate this effectively.

Mat Sorenson: And I think. The first thing is for a capital raiser, know it yourself, understand the strategy. And if you don't want to have an IRA or 401k yourself, you're like, I don't care about that, man. I want to make money today. Cool. Don't have one. You don't need one. But I'm just telling you the people you're already talking to, the people who may have already invested with you, have money in an IRA or 401k, they would love to invest in real estate or a private company. They are like, board of the mutual fund or ETF. They don't even know the name of it. Okay. I'll just give an example. We had a, a real estate fund that worked with us down in Texas. They had about a thousand people that invested with them over about 10 to 15 year window. And they're pretty successful. They've been around for a while and we did two webinars with them. They'd never, they've kind of broached the topic a couple of times. They'd worked with another company, but they never like connected it to their investor base. I'm serious. We did two webinars and open up 300 plus accounts and they had 30 million invested within 90 days.

Deana Berg : Boom. That's significant. I need to sign you up for some capital. We'll take care of that after the show.

Mat Sorenson: I mean, I was like next week, I went to Seattle, do it for another group. It's just like the strategy, you just need to know how to ask the question. And what they needed is they're like, we need to just roll this out to people that already trust us, but we've never really asked the question effectively of, do you have money in an IRA or 401k? Can you access that to invest it into our deal? And so. It's just a super powerful question. Even at this desk right here, I did a webinar. We do directed IRA webinars. I'm here in my studio for anybody on video at least. And I had one of the guys that does a lot of deals. He's here in the Phoenix area where I'm at. He's flipped 250 houses here. He just flipped single family houses, but he funds them with private money. He says 60% of my investors use IRAs and 401ks. And the only reason why is because he knows the strategy, right? But here's the thing that he told me, and I've heard from other people, is why he loves doing IRAs and 401ks. He'd rather have someone's IRA or 401k money than their personal funds, because it's long-term money. They don't want it back. When that deal is done, they're like, when's your next one? I'm 45. I can't use this money for 15 years. I need it to go in another deal. Rather if it's their personal money, they're like, well, I've got this new car I want to buy. I got the second home I want to buy. I got whatever, my kid going to college now, I need that money back. And so it's long-term money too, which is awesome from someone raising capital because they want it to stay invested. And when that deal's done, they're like, can you just throw it in the next one?

Deana Berg : Yeah, that's really true. It sometimes feels, and I'll say this personally from my own self-directed money, it kind of feels like monopoly money, just a little bit, because I know, like you said, I know I'm not going to see if I make a mistake while I've got years because I'm 20, right? Forever. And then I agree with that. There's some psychology there.

Mat Sorenson: Yeah. And I mean, and it's built into just like what retirement accounts are for. It's also like. You can't tap it until you're 59 and a half, right? So you've already thought of that psychologically, whatever it may be, that this is, I need to just keep it invested. I'm not looking for that return to come back on whatever deal you have so I can spend it on something. In fact, when it comes back, I'm like, it's more work for me now, because now I got to think of what I'm doing with it next.

Deana Berg : Motivating to roll it over. Yeah. Yeah.

Mat Sorenson: So I think. So let me just summarize a couple of those points. One, it's where all the money's at. There's 35 trillion. Two, it's most likely the people you're already talking to have this money and you've just never had the conversation. And you just ask, do you have money in IRA or 401k? What are you making on it? It's been in the stock market. It's been a roller coaster lately, right? And then also realize that money is generally going to be long-term. They're not going to be asked. They're not that investor. It's like, how's this thing going? When am I going to get my money back? Are you going to sell that property? Is this still happening? You know what I mean?

Deana Berg : You know what I mean? I mean, investor relations.

Mat Sorenson: Exactly. The IRA and 401k ones, they're like, just keep it invested. I don't want to hear about it.

Deana Berg : So good. OK, so you just really broke it down very simply. Do you have any money? What's I mean, I'm curious, do people know what it's making? If you ask them that question, do they have?

Mat Sorenson: No, they don't. And that's perfect because they don't know, but they've been kind of through like most people, at least in the stock market, which is typically where you're invested, whether it's a mutual fund or ETF, they've just seen their account go like this. Over time it goes up, but you know, we're down from where we were a couple of years ago still. The market's been coming back slowly, but it's down from where it was a couple of years, whereas real estate hasn't really. And so. What's interesting is it kind of, it's almost like a, like I was teaching a group of commercial real estate agents, this top, this topic. And I had a couple of them come after me and talk about this and they're like, man, I'm just going to look so smart with my clients now. Like I know this strategy and I can sell them more real estate using this strategy. And I think it from someone raising capital too, it's like, it makes you seem like what the heck you're doing. Like how IRAs or 401ks can invest in real estate. Not only for that, there's a huge opportunity out there. So I think it ups your game in terms of like your appearance and that you know what you're doing. You can use retirement account dollars, but you don't have to be an expert at it. Don't feel like you need to read my whole book. Like I wrote a whole book on this. It's like 300 pages. It's got over a hundred plus legal citations. It's a great book. I want you to read it, but you don't have to. You just need to know the strategy enough to know, Oh, that's a 401k and an employer you don't work at. Oh, you have an IRA at TD Ameritrade that can move over to a self-directed IRA. Here's a company directed IRA. That's our company, but whoever it is, here's a company that'll help you roll it over to invest into real estate or to invest in my fund. You can be an LP or invest whatever it is in my deal. And so. But that's what my team does. Right. They'll take the call. They'll figure out what type of account that person had. They'll transfer over the money for them. Right. They don't have to do this. You don't have to be an expert in to handle this. Like we do it for you. You're the custodian. Yeah. We're the custodian that holds that account. So like if they got money at Fidelity and they're, they call it Fidelity, like, Hey, I want to invest in the XYZ LLC fund. That's buying a value add multifamily property in Tucson, Arizona. Right. Fidelity is going to be like, you can't do that. And that's not because IRAs can't invest in an LLC fund like that. That's because IRAs at Fidelity can't. All right. So they need to move the account from Fidelity to a company that lets them do it. And there's 30 companies that do what we do. I mean, we're not the only one out there. We're just the best. So. So they can move their account from Fidelity to Directed. There's no penalty, no tax. If it was a Roth IRA at Fidelity, it's a Roth IRA at Directed. If it was a SEP IRA at Fidelity, it's a SEP IRA at Directed. If it's a traditional IRA, if it was an old employer 401k, traditional account, it's a traditional IRA at Directed. And so we just help facilitate that and have an actual custodian that invests it wherever they want. So when they have an accountant with us as a self-directed custodian, we're like invest in whatever's allowed by law. As long as it's allowed by law, we'll let you do it. And so, but real estate syndications or private funds are actually the most common investment here. We do a lot of them. So it's very popular and our team's definitely equipped to help people sort through that process.

Deana Berg : So what sets you apart as a custodian from the Sola 401Ks, the EQRPs of the world, the other custodians?

Mat Sorenson: So what sets us apart is we know what the heck we're doing. So we're like, I would say we're the true experts in the field. Like my book really is the number one book. Federal regulators, state regulators literally have used my book and buy it from me. The National Association in my space uses my book. for certification training. And so we're like the place you can rely on. We're a licensed and regulated trust company. We're audited by, by RSM, which is a top 10 CPA firm. We have bank examiner audits as part of our licensure. Not all of our competitors do. Ones that are still doing solo Ks and EQRPs have zero licenses and credentials. Like just like you, you'd go set up an LLC and do this tomorrow. It's freaking scary. And so. But we know all the strategies too. And so whether you want to do an IRA, and by the way, an EQRP is just a solo 401k, but it's just a marketing name. But solo 401ks are super popular. I love solo case. There's a whole chapter in my book on them. Like I frankly was one of the pioneers on the solo case as a lawyer on how to use these in real estate and. And, but that's a limited strategy for certain people. The only people who can do a solo 401k are self-employed people with no employees. So I love the solo. Okay. And what that is basically, it's like a 401k plan for someone who is solo. They're the solo solopreneur. And so Congress was like, well, if someone works at a big company, they get a 401k. But what about the self-employed person? They don't really have anything great. Then they created this and allowed you this solo 401k. But it only works if you're self-employed with no employees. Well, most investors, if you think someone raising capital, They work at fortune 500 company or they're in corporate America or in small business. They can't do a solo 401k, even if they own the business, right? I'm a business owner. I can't do a solo 401k because I have employees. I'd have to offer it to every employee I have and do all this crazy matching, which you'd never do. So. So basically the, we are going to know what strategy works for the right person, what account type to set them up in. And that's the problem because what happens in the industry and why we're different is, and I, it seems like I'm, we know what we're doing, but like, I really believe in our team believes in making it easy. Doing it right, but making it easy because in, in investing complexity is the enemy of execution. And if you make it too complex, they're just not going to do it. They're like, that's why they're in an ETF. Right. They click some buttons or they filled out a form 10 years ago and they have no idea and they've just haven't done anything else. Yeah. Cause it was easy. And so you got to make it easy to get through that. So our team is focused on it, but also on doing it right. And a lot of people have to say this, the biggest noncompliance in our space is people with solo case and EQ RPs. I'm just telling you, we, we fix one of those every day because they're done wrong. There are people that don't have them right. And I've talked to very sophisticated people that should have known better that have them. And I'm like, you actually don't qualify. And so. So we want to make sure it's done right, but also make it easy. And that's kind of a, an ethos within our company here at Directed IRA. But we also love it. Like, if you just look at our five-star reviews, people can look at what we do and that's, we just are passionate about it and helping clients. So.

Deana Berg : I love that. And it seems like you really are adding value to multiple parties. So if we had capital raisers who are listening to the show right now, you can add immediate value. to them, equipping them, and then they can add immediate value to their investors, who then are going to add value to you and your business by continuing on with the great and excellent service that is legal, licensed, all of that stuff.

Mat Sorenson: Because I think when you're working with investors in particular, right? I mean, you need to come off well and you want to look like you know what you're doing, that you have good third parties. And I know this. I mean, the reason I set up Directed IRA is because I was a lawyer. I wrote the number one book. I would get five emails a day of someone like, I read your book. I need to know, where should I set up my account? Who do you recommend? And I was sending to a bunch of companies that I liked, but like just didn't do a great job. They didn't make my job easy. I'm like, guys, I'm laying these people up for you. And they're coming back to me, asking me all their questions about what form they should fill out on your website. I'm like, do your job. So, so we're very aware of that on our side is like, we will be the experts on that. We'll take ownership of that to get the client set up, get the things steps done that needs to get done, make it easy, but take ownership of it. And that's, I think from a capital raisers and that's what we, the feedback we've got, we have a whole business development team and everything that works with capital raisers to make a streamlined process. So we know your fund, we know your subscription docs, we know the process that you want. You have a single point of contact, whatever you need, we kind of dialed that in. But in the end, our goal is we want to open an account and have it invested. The best outcome for us is the same thing for you. An opened and funded account that's invested.

Deana Berg : And then when people come and they open their accounts and they're new to this and you're like, where do I invest? Like, how do you invite your clients? Are you not allowed to advise them or do you have a suite or a menu of options? Or how do you educate them and stay legal?

Mat Sorenson: So we can't give any advice, investment recommendations. So we will get into structure of someone's like, I want to invest into this. How do I do it? Like we can do that. But in terms of what to invest into, we don't give any advice and can't as part of our license. So. So we just don't. And that's, frankly, that's not our expertise either. Like I'm not the person that's like, here's the best deal doing the best thing. And everybody needs to go over into this. That's not me. Like I'm more of the technical expert and our team is too. And like, oh, you want to do that? Oh, you want to invest in Mexico? Oh, you want to go invest in a private fund? Oh, you want to go buy crypto? You want to buy a Mexican soccer team? I had a client do that. You want to own a racehorse? I've had clients do that.

Deana Berg : You're his Roth IRA?

Mat Sorenson: Yes. Yes. Like we've had clients do, I mean, a lot of pre-IPO companies, but it's also like, you want to own the duplex down the street. You want to lend to your friend on your bowling team that, that flips properties. I don't know. Like, like we know how to, what you're going to need to get set up and what it's going to take to pull it off. That's where our expertise is.

Deana Berg : Yeah. The pre-IPO company reminds me of the options story that you gave in the previous episode. If you didn't listen to that, you should go listen to that. It's an incredible tax advantage way to massively scale, well, without tax. That's great. So let's say we have a capital raiser. What chapter would you direct them to in your book?

Mat Sorenson: So I have a chapter on private companies and funds. That's the chapter. I think the other thing that's really important for someone raising private capital to know is the basic process for someone. And we kind of touched on this a little bit, but there's a critical question of can this, so if I identify someone that has an IRA or 401k, let's say I've got someone that's like, yeah, I got 300 grand and a 401k. Well, there's a couple of questions you need to ask to know, can that money go into my deal? Okay. And really the threshold question for a 401k, which is where the, where there can be some problems, the threshold question or someone with a 401k is do you still work there? Because if they still work there, many, most 401k plans lock them down. So if they're like 40 years old and let's say they work at Dunder Mifflin. and they get in the Dunder Mifflin 401k plan, they can invest in only the Dunder Mifflin investment options, which are going to be ETFs and mutual funds, right? Only until they quit, can they roll that money out to an IRA to self-direct and invest in real estate. So if it's a current employer 401k plan, those are A lot of times locked down. Now, if they've hit retirement plan age, 59 and a half or older. So let's say they're 62 and they still work at Dunder Mifflin. Okay. It's like Creed or Meredith or something. If you watch the show, like, even though they're still working at Dunder Mifflin, they can roll their money out of the Dunder Mifflin 401k to an IRA. Now that IRA can invest in your deal. Now, if someone has IRAs already, they're always going to be game. I don't care if they're at Fidelity or TD Ameritrade or Robinhood or their local bank or credit union, the IRA funds can always be moved to another custodian that will then let you self-direct. So that's kind of one area you got to know is the current employer 401k, when they're not yet 59 and a half, you can sometimes get stuck and not be able to tap in.

Deana Berg : But that's the major flag are just qualifiers. They're still the current employer that they have this account with.

Mat Sorenson: It's not eligible. Yeah, that's the one that can just get a little sticky. Now, there's some caveats to that. Sometimes they can do what's called an in-service rollover. There's a little more you can peel back there sometimes. But just know that's the one where it is. It can happen where you're not going to be able to get that money into your deal. Okay. But that's a minority piece of the money, actually. There's more money, like I've said earlier, there's more money in IRAs, actually, than 401ks in total. And IRAs are always fair game.

Deana Berg : Okay. Even at their current employer?

Mat Sorenson: Well, your IRA is an individual level. So you typically, your employer, it's not an IRA. Now there is a simple IRA that your employer could have, something called a simple IRA. But those you can move, those, even if you're still at a current employer, you can self-direct that.

Deana Berg : Okay. Okay. And then was there anything else you wanted to add to that in terms of as a capital raiser, kind of going through your qualification questions?

Mat Sorenson: Yeah. So once they're like, so the only other thing I'd add to that is once you're like, all right, they've got an IRA, they got an old employer 401k, now you have three steps. First step is they need to open a self-directed account like our company directed IRA. We're doing that, of course, every day. Second step is they got to fund it. Now you got to go get the money from this, from Fidelity or Vanguard or TD Ameritrade, whatever. And the IRA company should do that for you. And so what we do is we go get the money. We can request it company to company and the money comes over here. So that's step two, you got to fund it. Step three is that you have to invest it. And so the investor would then authorize us to invest in your deal and they will fill out your subscription agreement typically, but they're going to put it in the name of the IRA. So for Dena, for example, you're not putting your name, you're not putting Dena on the subscription agreement. You're putting directed trust company, FBO, Dena's IRA. Okay. That's who's going to be the investor in the deal. So it's those three steps. IRA companies should handle step one and two for you. And just remember in step three, when they're authorizing the investment and filling out your subscription, if they're going to use an IRA, the investor or subscriber, whatever it is in your docs needs to be the IRA, not the individual person.

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.