[Note: To follow is an excerpt of an interview with Curtis L. DeYoung, Founder, President, and Chief Executive Officer and Jim Allfrey, Vice President for Qualified Retirement Plans, for American Pension Services, and Michael Madsen from RealSource Retirement Services. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/121008.]

Mosca: Can you share with us the history behind your company, American Pension Services?

DeYoung: In 1982 we started American Pension Services to allow the more attuned investor to invest their own retirement funds in what they wanted to invest in as opposed to what was being offered. Throughout the history of our company, people have wanted to buy and sell real estate in their retirement plans. In the 1990's, because of the boom of the Internet, people actually started to buy stocks and bonds and mutual funds inside of their retirements as opposed to real estate. So, real estate has always been the gold standard. It fell out of favoritism because of the ease of access of the Internet and the stock market. Well, as we continued to grow, people continued to see that real estate is a stable place to put their money and we now have 6,000 accounts and over $300 million in retirement plans.

Mosca: Jim, are there characteristics or a demographic profile of a typical IRA holder who self directs their accounts into nontraditional assets like real estate?

Allfrey: The principal characteristic here is somebody who decides self-direction is the key. Very often, these people are self-employed. They own their own business, they want to take control of their lives, and they want to move forward in that direction. It's just a tremendous growth opportunity and tremendous investment opportunity for everybody involved.

DeYoung: Only about two percent of the American population even know that you can self direct a retirement plan and most of them are afraid to do anything other than what their financial advisors tell them to do. Unfortunately, national advisors tell them stand still, don't do anything, that the stock market will come back. The problem is a lot of people need their money today. They don't need it next year. Income producing property continues to produce income doesn't it guys?

Mosca: Mike, are your experiences lining up with what Curtis and Jim are talking about? Are you finding more investors coming to you and asking how you can help?

Madsen: No doubt. People are realizing that diversification of investments can mean greater long-term assurance and less short-term volatility; that diversifying within the stock market isn't true diversification; it's simply the same kind of asset.

DeYoung: Here's what these people can do right now. Most people have a 401(k) or a deferred compensation plan that acts like a 401(k), or there is usually a borrowing provision. Most people can borrow 50 percent of their vested interest, not to exceed $50,000. So, with $100,000 in your 401(k), you can borrow half of it from yourself. You get to borrow your own money from yourself, and then you have to pay yourself back with interest. Who is the best borrower you know? With the money you just borrowed from yourself, you invest it and buy a piece of real estate that cash flows and now you're making cash on the money borrowed from yourself. Plus, the investment gives you depreciation and tax write offs because you're in business for yourself, and you can take additional write offs for traveling to look at properties. You can alos set up a home business and take that deduction. You can deduct computer expenses because you're using it to manage the property. By using what you have in your retirement plan, you can do this usually a week.

Mosca: How long does it take to have that money available to put into real estate?

Madsen: The longest period of time is going to be to take your money where it's at and to get it into a self-directed account. As soon as your money is in a self-directed account, we've seen things happen within two weeks. As long as you're motivated to make it work, we can make it happen in a timely manner.

Allfrey: The real time delay is moving it from the old administrator to the new self-directed administrator. On average, that is 14 days. At American Pension Services, helping people get into the investment they choose is what we are all about. To add to Curtis' example, if $50,000 is going to be 20% percent down on a $250,000 property, understand that you could partner with other people. Two people go together and buy a $500,000 property pulling $50,000 out. This is a way for them to pull their own money out, use it for down payment, and the property remains in their name and therefore all the depreciation ends up being a tax benefit in their name. What a fantastic deal that can be. While you're borrowing your own money, you're also increasing your tax deductions even beyond the business. You're getting all of the depreciation right off that investment property as well.

Mosca: Can family members partner like that?

Allfrey: Absolutely. In retirement plans there are prohibited transactions but in the example that we just drew of taking your money out of your plan, that is just your money. You could partner with anybody. Inside of your plan, you can direct the investment to anything you choose as well. There are no prohibited transactions when it comes to partnering your IRA plans together. The transaction that would be prohibited would be if you are buying and selling from the prohibited parties and those are usually lineal descendents, a father, a mother, a grandfather, a grandmother, a son, a daughter, or their spouses. Pretty much anybody else is legal.

Mosca: [listener] I am a firm believer in the power that a self-directed IRA has to offer, but with 90 percent of the retirement accounts down at least 50 percen it makes it hard for a person to consider a transfer. Other than the benefit of the new investment and claiming a loss on your taxes, which can be spread out over several years, are there any other benefits that I don't know about? Would it be beneficial to do a show that explains the tax benefits and recovery time on a loss?

DeYoung: A loss is one that you decide to keep. If you like the way your portfolio is working for you today, then keep it. However, if you don't like it, there is no time like the present to change investment strategies. Remember, when the stock market burns down, what do you have left? Nothing. How did that work for the people who owned Enron? When your income-generating property burns down that you own inside of your retirement plan or when your apartment complex has a fire or a flood, what have you got? Homeowners insurance. You have it fixed and immediately get it rented again and producing income. Real estate does not go away. It's real for a reason.

Mosca: I couldn't agree with you more. Jim, is it true that can loan yourself the money and take that loan and put it into real estate?

Allfrey: Absolutely. There is really kind of two schools of thought we want to look at here. When we first started Curtis had mentioned for the listeners benefit the fact that you wouldn't even have to have a self-directed IRA, that you could pull the money if you have a 401(k) using loan provisions or partnering with other people's loan provisions. Let's talk about the full self-direction capability. If you have a self-directed IRA or a self-directed 401(k), you could then invest directly in any investment. You don't have to pull the money out, the investment can be held directly by that account. We've got people that do fix and flips, all different kinds of things, options and loans, hard money lending, all kinds of things just to expand the possibilities inside of that retirement plan because the options are legal and are allowable by law. Another big point is the fact that you can leverage your retirement plan. You can actually get a loan in the name of a retirement plan. It has to be what's called a non-recourse loan and it typically requires a higher down payment.

Mosca: Mike, how does RealSource go about doing this for investors?

Madsen: We provide many different opportunities. We pick different markets. We have helped people in the past participate in some of our tenant in common deals, which provide the passive income and also allow them to leverage their funds into these projects. We can also help these people find loans that they can get a non-recourse loan and find properties to invest in individually. For someone that has $50,000 and wants to take advantage of everything we are talking about, it's a great way to jump in with everybody else, get started and still be a part of a large apartment unit that's producing income and economies of scale.

Mosca: What is your golden nugget?

DeYoung: Do something today. Do not wait until tomorrow or some future date that may never come. At the very least, make sure that your beneficiaries of your retirement plan and of your life insurance are correct. Do not name a living trust as a beneficiary of a retirement plan it doesn't work. If you name an individual as a beneficiary like a child, they can inherit a retirement plan and use it as their retirement plan for the rest of their lives. They can continue to have it invested and have it grow. They can't put more money into it because it's an inherited retirement plan and the person that owned it has passed away. Number two, change your life today, stop suffering in the stock market, move it over to cash and take out the 401(k) loans and start investing in and changing your life.

Madsen: Anybody looking to diversify some of their IRA funds outside of the stock market, e-mail me at madsen@RealSource.net. I will send you some samples of properties our clients have recently closed on and show you different avenues that you can invest in and move forward.

Allfrey: If you don't have a 401(k), you should start one. If you don't have an IRA, you should get one. The amount of money you can save with contributions into 401(k)s or into an IRA, the tax benefits and the tax breaks available to us for creating these retirement plans are just fantastic. If somebody did a 401(k), they can put as much as $46,000 per person into a 401(k) and get tax breaks for doing it. What a tremendous opportunity.

DeYoung: Tomorrow never comes, yesterday is passed, you only have today. Make a move, do something today that will change your life today. Everything you do will change your life. Make it positive.

Mosca: Excellent Curtis. I just wanted to take off on what Jim said with the financial planning. Last week we had a gentleman from Money Mastery on. We're going to have him on again for the January 7 show and they talk a lot about financial planning, what you can do, what tax benefits you can derive and all of those types of things. Jim I think you hit something very important right there. Mike Madsen, do you have a golden nugget to leave the listeners with today?

Madsen: I just want to remind everybody of something my Grandfather told me: seventy-five percent of the millionaires in this country have made their money in real estate. You might want to consider that when you're thinking about where to diversify your IRA assets.

Published: January 15, 2009

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Peter L. Mosca is president and founder of BAK Communications, Inc. He has over 22 years of communications and media consulting experience, serving a variety of nonprofit organizations, including the CCIM Institute and the REALTOR Association on all three levels – national, state and local. He is the Spokesperson Trainer for the CCIM's Jay Levine Academy and trains hundreds of residential REALTORS nationwide to be effective industry spokespeople. He is consistently ranked as "excellent" by about 90% of those who attend his presentations. While his principal consulting focuses are public speaking and media relations development and content delivery and management, Peter is also the host of the Voice America Network's weekly radio program, "Income Property Investment Talk," a one-hour program that brings the powerhouses of commercial and residential real estate to property investors every Wednesday at 11 a.m. EST. Peter is married 17 years to his wife Barbara. They have two children: Ashley, 15 and Kelli, 12. Hence, the name BAK Communications, Inc.