How to Create Business Out of Nothing
I know the tales. Everyone is crying that buyers are skittish, the market is down, and no one has any money. Wouldn’t it be nice if you could find a buyer who was looking longer term than the next five years? Wouldn’t it be nice if you could find a bunch of buyers who could see that the market is the best market for investing that has existed in 20 years? And, if you could find these elusive, imaginary creatures – wouldn’t it just be amazing if they had money – and lots of it? Guess what? You can!
The Baby Boomers Have It
Many agents are focusing on the first time buyer market right now. They are seeing low prices and low interest rates and figuring that first time buyers are where it’s at. The problem with this idea is that first time buyers are always skittish and afraid. And in this market, their inherent fears about becoming homeowners are compounded by the market decline and economic woes. It’s enough to put many first time buyers into a tailspin. And they will never buy in that state. It’s the Baby Boomers you should be looking at. But, you may say, the Baby Boomers have just lost a good portion of their wealth in the stock market crash, they have no money! Not entirely true. They have less money than they once did, and they are more conservative about how they are spending it, but they have it – it’s just not liquid.
IRAs and 401Ks Hold Billions in Untapped Dollars
Individually, people in the Baby Boomer category hold tens of thousands of dollars in their IRAs and 401K plans. Many of these funds can be tapped for use in real estate investing. There are some rules and restrictions that come into play depending on the type and nature of the investment plan. For IRAs, if they are not currently Self-Directed IRA programs, they can be converted into a self-directed program. 401Ks are a little trickier if the person is still employed by the company directing the 401K plan. A financial advisor with knowledge in this market can help you get the details ironed out.
Self-Directed IRAs
A self-directed IRA means simply that you get to decide where the money is invested. Unlike most IRAs where your investments are typically stocks and bonds, a self-directed IRA allows you to invest in real estate and business ventures as well. If you’ve never heard of this before, you’re not alone. Most financial companies don’t talk about this instrument to their clients because they only make a commission once or twice rather than every time they buy or sell stocks and bonds. It’s been around since 1974 though and it’s a time-tested way of creating real estate investors.
401K Dollars from Layoffs
I spoke with Adam M. Wood of Baystate Financial Services in Boston when I was doing the research for this article; and one of the things he mentioned to me was a beneficial side-effect of people being laid off. When someone gets laid off from work, they can take their company 401K and turn it into an IRA. This is the perfect time to approach people about buying real estate as investment property. The downside is that they can’t take any of the profits out without paying an early withdrawal penalty. But if they are laid off and looking for work, they might have the time to do a fix and flip or two on the side.
Over $100K Earners
Anyone earning over one hundred thousand dollars each year is likely to have the extra cash in their IRA to start purchasing property with a self-directed IRA. (They also might have funds to purchase investment property in general – especially when you tell them about the great tax benefits of owning investment property.) Here’s the key – the person to educate them is the person most likely to get their business. That means you need to learn enough of this stuff to get their attention and then have the right people to pass them off to for getting all the details handled.
Partner with Professionals and Run a Seminar
One of the best ways to identify these buyers in bulk is to offer a seminar or two. You could do one seminar specifically for people who have been laid off. Another for high net worth individuals looking for high-return investment opportunities (and there aren’t many of those around right now). Get your financial planner and your CPA involved. Do a joint seminar with them on the benefits of investing in the real estate market today, both using their IRAs and just in general. Be prepared with statistics about the market in your area, historical appreciation rates, and current rental prices and vacancy rates. Have a mortgage officer on hand to talk about investment mortgage products.
You Don’t Have to Know Everything – You Just Need to Know People Who Do
Agents often look at me and say that they don’t want to have to learn about the financial end of things – that numbers just aren’t their strong suit. Here’s the deal. You don’t have to know all of the numbers and how they work together. You just need to have enough knowledge to speak intelligently about the issue and then refer the client to a professional for the rest. If you can open the door, there are many professionals out there waiting to shepherd the client through the process from there.
Get a free copy of a white paper “Buying Real Estate In Your IRA” and a banner ad that you can post on your website to educate your prospects. This white paper also includes links to several brokerage companies that specialize in creating and managing self-directed IRAs. Information is courtesy of The Real Estate Training Center.
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