invest in real estate with a cias & secure your future today!

Secure Your Future: Invest in Real Estate

Presented By: Mark Rusnak

Copyright © 2012 Charfen Institute, LLC

Copyright © 2012 Distressed Property Institute, LLC

What Will We Cover?

1. How real estate compares to other assets for growth potential

2. The benefits of investing in real estate

3. How you can use retirement funds to invest in real estate

This presentation is designed to inform you of your options regarding residential real estate

investments. In it, you’ll learn:


Tenets: My Promise to You

1. I always do what is best for you, and will never let you close on a bad deal.

2. Real estate should be purchased for cash flow only; appreciation is a bonus.

3. Real estate investing is a non-emotional event; I always do the math.

4. You, as an investor, play a vital role in the real estate market and deserve to be treated accordingly.

I am committed to providing the highest quality service to you through focus, honesty, and integrity.

As a CIAS, I adhere to the following tenets:


Real Estate vs.

Other Assets


Bonds and Certificates of Deposit

Bonds and CDs typically have low rates of return


Mutual Funds

•Often underperform the market

•Average 3.66% 10-year return (2000-2010)*

•Managed by someone else

•Dividends reinvested, not paid to investor

*Source: http://screen.morningstar.com/FundSearch/FundRank.html


4 Total Years of Negative AppreciationMax. -13%

Real Estate


11 Total Years of Negative AppreciationMax. -38%

S&P 500


Stocks

Stocks in S&P 500 averaged a 1.82% dividend yield from 2000-2011


Real Estate

Real estate values increased in thelast decade despite the market cycle


Real Estate vs. Stocks

$100,000 invested in real estate in 2000 would have generated $77,755 of cash flow by 2010


The Benefits of Real Estate


Cash Flow Can Be a Steady &Significant Stream of Income

• Most stocks don’t provide cash flow• Cash flow increases over the years• Cash flow is liquid and can be invested


Appreciation

•Appreciation should always be considered a bonus

•Yearly home appreciation averaged more than 5% over past 40 years

•You can help property appreciate (improvements)

•Home appreciation less volatile than the stock market


Appreciation

Source: HUD Historical Data: www.census.gov/indicator/www.newsreconst.pdf


Leverage

Most investments don’t offerleveraged buying power


Leverage

• Earn returns with other people’s money• Leverage is a key way to increase your

returns• Leverage is largely unique to real estate


Tax Benefits

•Depreciation allows yearly deductions on improvements to the property

•1031 Exchanges defer capital gains taxes

•Other benefits



Investors Can Deduct the Following Items Related to Rental Property:

•Advertising

•Cleaning & Maintenance

•Commissions

•Depreciation

•Employees, Contractors, Non-Employed Staff

•Insurance

•Interest


• Legal Fees

• Local Transportation Expenses

• Long Distance Travel

• Losses

• Professional Services

• Repairs

• Utilities


Investors Can Depreciate Property as Tax Deferred


How Depreciation Works

1. Purchase a property worth $100,000. $85,000 worth is attributed to the improvement (house).

2. The basis for depreciation is $85,000.

3. Calculate the first year’s depreciation based on the month of purchase.

4. Every year afterwards (until 27.5 years), deduct 3.636% from the basis.

5.Every year, deduct $3,090.60 in taxes.


Using a Self-Directed IRA to

Invest in Real Estate


Traditional IRAsIndividual Retirement Account (IRA):

•Held in trust by bank, credit union, savings and loan, or other IRS-approved institution‣Custodian distributes, receives, and holds funds for the investor

•Shelters retirement savings from certain taxes and lawsuits

•Typically invested in stocks, bonds, and mutual funds


Self-Directed IRAs

• Same rules and restrictions as traditional IRAs except...

• The investor directly chooses how the IRA invests his or her funds

‣ Can invest in real estate

‣ Generally, any retirement funds can be rolled over into an SD IRA


Retirement Savings in the US

• 44% of retirement savings in mutual funds‣ 3.43 trillion dollars in mutual funds

‣ 90.2 million individual investors

• 52% of retirement plans in other investments‣ 4.05 trillion dollars in other investments (stock market)


• 4% of retirement plans in SD IRAs‣ 0.27 trillion dollars, or 312 billion dollars (other investments)



SD IRA Permitted Investments

• Residential Real Estate• Single Family Homes

• Multi-Family Homes

• Apartments

• Commercial Real Estate• Undeveloped or Raw Land• Real Estate Notes (mortgages & deeds of trusts)• Promissory Notes• Private Limited Partnerships, LLCs & C-Corps• Tax Lien Certificates


Borrowing Money with an SD IRAIRS requires a non-recourse loan

•Non-recourse loan restrictions‣Loan-to-Value Ratio (max):

- 70% for Single-Family Residence- 50-65% for Multi-Family & Condo

‣Debt service Ratio: varies- Typically 1.25, depending on property

‣Interest rate: typically 1-1.5% higher

‣Reserves: 10-20% of loan (depending on property)


Two Scenarios:

Investor A and Investor B both contribute $5,000 annually to an IRA

Investor A: Traditional IRA‣Invested in mutual fund earning 5% annually

Investor B: SD IRA‣Purchased a property for cash flow in addition to 5% annual appreciation


SD IRA Invested in Mutual Fund

$100,000 invested in a 5% mutual fund


How an SD IRA Invested in Real Estate Can Perform Better

In addition to 5% annual appreciation:

‣Rent: $1,200/month

‣Expenses: $325/month (including SD IRA fees)

‣NOI: $874/month ($10,500/annual)


SD IRA Invested in Real Estate

For a $100,000 property appreciating at 5% annually


SD IRA vs Traditional IRA

SD IRATraditional

IRAContributions:

Interest:

$25,000$30,256

Contributions:

Appreciation:Cash Flow:

$25,000$27,628$52,500

Total: $55,256 Total:$105,128

SD IRA earns $49,872 more after

5 years90% more


Thank You!

Mark A Rusnak

RE/MAX Allegiance @ Loehmann’s Plaza

4000 Virginia Beach Blvd # 164Virginia Beach VA, 23452

Phone: [email protected]

www.MarkSold.com

invest in real estate with a cias & secure your future today!

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