Kurt Power, a Certified IRA Specialist at Quest Trust Company, joins us to discuss investing using retirement funds and the amazing power of real estate investing through your self directed ira.
Connect with Kurt & Quest Trust at https://www.questtrustcompany.com/.
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Transcript
Devin Elder:
Kurt, welcome. Thanks for jumping on the podcast today. How are you?
Kurt Power:
I’m doing well, Devin. Good to see you. How’s things going over in San Antonio?
Devin Elder:
Going good. Staying busy. We’re recording this kind of end of year, I think we’re kind of missing the window to actually close deals in 2021 now. So, we’re looking at stuff and have stuff in escrow that’ll push to Q1 2022, but it’s an exciting market. Lots going on in San Antonio. So, it’s good.
Kurt Power:
Yeah. I’ve got a lot of friends over there in the industry, especially in New Braunfels area and up in the Hill Country Pipe Creek that speak very glowingly about the market. So, that’s good to hear.
Devin Elder:
Yeah. It’s been interesting. New Braunfels is its own animal. That’s for sure. Really incredible. I was talking with somebody last night, it’s in Seguin and even Seguin, which is a little bit east, you still kind of have that Austin, San Antonio connection, all the surrounding areas and then bleeding out to Hill Country. It’s pretty incredible, but it’s all good stuff for real estate.
Kurt Power:
It’s a good time to be [inaudible 00:01:02].
Devin Elder:
Yeah, that’s right. Well, we’re going to jump in and talk to talk about IRA stuff today. Probably 20, 25% of our investors in projects are using a self-directed IRA. We see the light bulb go off a lot for people that realize, “Oh, Hey, I don’t have much investible capital in my checking account, but I’ve got a couple of hundred grand in this IRA,” that they didn’t even realize they could use. So, I wanted to just jump on in on that, learn about your company, learn about how people are using IRAs, do’s and don’ts, and just kind of have this piece of content, be an educational point of reference that maybe we can point folks to that are not currently using an IRA. And look, I know you guys have that conversation all day, every day. How about a little bit about your background for folks that haven’t met you or haven’t engaged with Quest? How’d you end up in this space?
Kurt Power:
Yeah, almost by chance. So, I’m a self confessed meathead, lift weights. I was a power lifter and strongman competitor in college. My brother and I owned our own gym. And then, when I graduated with a bachelor’s degree, I started my career in the fitness industry as a personal trainer and worked my way up into management. But, what I learned as a trainer was essentially that you’re building a business, even though I worked for one of the largest privately-owned corporate gyms in the world. You had to operate as though you are your own independent business owner and build your business. So, having a bit of an entrepreneurial spirit and learning how to build up my business quickly is really what led me to real estate. And, it was actually one of my clients at the gym that got me in with a company in Kansas City, where I lived for 11 years, that was this gobbling up companies all over the country.
Kurt Power:
And, one of the companies that they bought was the REI Expo out of Dallas. And, they brought me on to work on their events team. And that was my entry to real estate, was more on the event side. But, once I got into it, I fell in love with it. I was hooked immediately and I kind of took that. And, we built from REI Expo. We built a company called Think Realty, which is now the world’s largest media platform for real estate investors. And after that, man, I was just, what more could I do? So, I moved to Houston in 2019 to be the vice president of investor relations with Pinnacle Storage Properties, which is a self-storage syndicator here in Houston that had properties all over the United States. They recently sold their portfolio. But, that was where I really got a lot of exposure to self-directed IRAs because as the VP of investor relations, one of my main roles was raising money.
Kurt Power:
So, about 20 to 30% of our investors were using IRAs to invest. And that got me asking a lot of questions of, “Well, why would they do that? Why wouldn’t they just use their own funds?” Just kind of basic questions. Then once you start peeling back the onion, it was like, “Oh, this is a no brainer,” to passively invest inside of what I now know is a tax exempt entity. So, that brought me to Quest. I kind of felt with the pandemic and using my parents as a case study of where the market was going with early retirement, et cetera, I felt IRAs were going to be one of the big explosions in real estate in the next decade. And, that’s what drove me to Quest Trust Company, who also was a client of mine in the past, and now I’m on the other side of it. And, just having a blast, educating people. You kind of alluded to it, this kind of aha moment when people have of, well, I don’t have $50,000. I have a hundred thousand dollars to invest in your deal.
Kurt Power:
You have an old 401(k), you have an IRA. Yeah. It’s doing nothing in the stock market or I’ve got some mutual funds. Cool. You can transfer that or roll that over to an IRA quest and now you can go invest in that deal. So, those are fun discussions that we get to have every day at that you see people light up when they think that they don’t have funds. And then they realize, “Oh God, I’ve got more than that,” and then some.
Devin Elder:
100%. Yeah. There’s kind of a process that I’ve seen happened to me early on of being turned on to real estate somehow, some way an event or a mentor, whatever the case is, and then realizing you want to do it and then kind of start to look around for money. And, you start to realize there’s some pockets there. Maybe you could sell some stuff and get some capital, but that retirement account is it’s like people aren’t even cognizant of it. A lot of the times it’s like a separate thing that they forgot about. So, it’s neat to see folks kind of light up and realize that hey, they can participate in this project. They’ve already done some of the work. They’ve already squirreled away some money, and now they’re just going to kind of repurpose it and put it to work.
Devin Elder:
So, I know you guys had that conversation a lot. How about a little bit about Quest? I mean, we’ve been working with you guys for years and years, and it’s interesting to hear you say 20 to 30% of the investors on the self storage stuff was IRA because that tracks about to what we see in our multi-family syndications and other projects. What do you guys look like today as a company in terms of, I guess, would you measure it as assets under management? Or, how do you guys like to look at that?
Kurt Power:
So, we kind of look at it from a few different standpoint. So with Quest, we have number one, we’re the largest self-directed IRA custodian in the state of Texas. And we’re the fastest growing in the United States. And we have about 23,000 clients across the US. So, even though we’re headquartered in Houston, we have offices in Dallas and Austin. We’re Texas-born company. We can service clients anywhere in the United States. We presently have just over $2 billion worth of assets under administration. We have a staff of about 135 employees, about 35% of our employees hold the designation of a CISP certified IRA services professional, basically means we’ve taken a lot of exams because we get paid to read tax code and we’re in good standing with the banking divisions. So, yeah. We’re growing exponentially and that’s what’s exciting is that we’re from well-established company, been in business for 18 years and there’s nothing but big things in front of us.
Kurt Power:
I mean, we see huge opportunities to not only continue what we’ve been doing, but also add to that so we can constantly be in front of the game to gain more clients, gain more business. So, it’s been very, very fun. So, yeah. We’re definitely a huge player in the IRA world.
Devin Elder:
Yeah. Outstanding. If you wouldn’t mind walking somebody through, what does the process look like opening an account at Quest? You’ve got an existing retirement account. You’re learning about real estate. You want to deploy some capital into somebody steel. Now, what? I’m going to call you guys. What happens?
Kurt Power:
Yeah. So, myself and the other IRA specialists, I mean, that’s our main responsibility is we help the client who’s calling to open an account, make things number one, very easy, very fast. But, we also do a full-blown 30 to 45 minute consultation so that they understand not only the Quest process of opening the account, moving funds, purchasing an asset, the name of the IRA, but also very importantly what they can and can’t do from an IRS perspective. We can’t give tax, legal, or investment advice. I have to say that any time we talked. Nobody at quest can give that kind of tax legal investment structuring advice. These are self-directed accounts. So, we encourage people to do their due diligence, talk to attorneys, CPAs, et cetera. But once they know that, the process with Quest is one of the things that really sets us apart. We’re very renowned in the industry for the education that we provide.
Kurt Power:
It’s free, whether you’re a client or a non-client, but those processing times, many of us are investors ourselves. So, we understand the value of time and you don’t want to miss out on a deal because the document wasn’t filled out correctly or processed in enough time. So, an account can be opened as little as 24 to 48 hours. That’s faster than anybody in the industry. Once that account is open, now we can work on funding it via rollover from an old 401(k) or another qualified retirement plan or transferring from that existing IRA, maybe to Charles Schwab or Fidelity. They’ve located their own investment. We make an introduction to our a-plus team and transactions, whether that’s in real estate notes, private entities, they get a dedicated member of that team that reviews all their investment documents and funds the investment on behalf of their IRA. We fund in 24 to 48 hours as well. So, education is one component of it. But now that you have the education, you have an expectation of great customer service and working very fast. And we check all of those boxes for our clients.
Devin Elder:
I love it. Well, thanks for the overview. And the speed is important and that’s worth underscoring because a lot of these projects, the way we run ours and the way a lot of sponsors is a first come first serve basis. So, you sponsor gets a deal under contract, they do their inspections and due diligence. Then they launched that out to their investors and say, “Hey, we’ve got this new multi-family deal. It’s $3 million of equity. And it’s kind of a first come first serve deal.” It’s pretty much how most folks do it, and there’s variation on that, but it seems like the majority. So, if you’re in a first come first serve situation, number one, you need to be educated. As an investor, you need to be educated first. You guys provide a ton of educational content, spend as much time as you need to getting educated first, obviously, before you ever get into a deal. But once it happens, it can happen. It can happen quickly. So, you don’t want to be tied up for a month, getting your account open and miss the boat on a project. So, speed matters in these cases.
Kurt Power:
Well, it matters to you, the sponsor as well. And, I’m coming from the other side of my previous experience of self storage. And when it comes down to close and fund, it’s time to close and fund because going forward, that affects sponsor from the favorable bank terms you get, the loans you get, refinancing, sourcing your debt. So, it kind of encompasses everything. Yes, it’s very important for the client. On the other side of that, you’re the sponsor. You got to close an X number of days when you need that money there. And if it’s from an IRA, having a custodian like Quest that works very, very fast, it can be a lifesaver when it comes time for the sponsor to close. At the end of the day, it’s your reputation on the line with the banks, lenders, et cetera.
Devin Elder:
Yeah, that’s right. I mean, you got to have the money in the account and you got to fund it. And if you’re getting checks 50 or a hundred catered time, like a lot of sponsors are, you can’t be waiting on half a million bucks to come in before you close. You got to have it all and send one wire over to title when the time comes. So, that speed’s really important, and we’ve enjoyed working with you guys over the years because of that.
Devin Elder:
Let’s talk a little bit about some of the proposed legislative changes that might’ve gotten some headlines or folks that have IRAs, might’ve gotten their attention. Obviously, you guys are paying attention and I’ve had offline conversations with you or with your team about the impacts or potential impacts. But, I’d love to just kind of get a rundown here. We are late 2021 on what’s on the table and what impacts we could potentially see.
Kurt Power:
Yeah. It’s important to stress that this is proposed legislation. Nothing has passed. They’re still having meetings ongoing about this and it’s great. I have a lot of the connections, have a lot of connections politically. And I was able to get us on a panel with the American association of private lenders, [Derek Long 00:12:32]. One of our senior IRA specialists actually spent a day on the hill arguing on behalf of IRA holders, arguing on behalf of people like you that raise money from IRAs. So, we had an opportunity to share our side of it in a very professional manner of, “Hey, here’s some unintended consequences that can happen if this infrastructure bill passes.” So, if you’re not privy to it, I would invite you to really perk up and listen. And if you are privy to it, I would say the same thing perk up and listen, because very specifically, there’s a misconception that this is only going to affect the “wealthy”. Nothing could be further from the truth. This is going to affect the mom and pop investors, the mom and pop syndicators. This has far reaching effects that are not being discussed.
Kurt Power:
So, when we talk about what’s being proposed, there’s some very specific bills that you want to pay attention to and I’ll run through them very quickly. 138301. All this means is, if your retirement account is worth more than $10 million, you cannot make a contribution to it. Well, you might be thinking less $10 million. That’s not me. That’s the wealthy. Great. You just told me this doesn’t just affect the wealthy, well that affects the wealthy. Well, stay with me here because this is where it starts to get serious. 138302, required minimum distributions. Now, traditionally, this is for any pre-tax account. When you reached the age of 72, the government steps in and says, “Hey, you got a big bucket of money that hasn’t been taxed yet.” Every year until the year you die, you’ve got to take out a minimum amount.
Kurt Power:
Well, if your a over $10 million, RMDs, required minimum distributions will apply to any account over $10 million. This includes a Roth IRA. That’s very important. Here’s where it gets very real. 138311. The backdoor Roth conversion will be eliminated. What’s a backdoor Roth? I make too much money to contribute to a Roth IRA. So, I make a non-deductible contribution to the traditional IRA and I convert it to a Roth. I pay taxes when I do the conversion, but now I’ve got that Roth IRA that grows tax-free. If 138311 passes, no backdoor Roth IRA, or anybody. Now for the purposes of our conversation with syndication commercial, et cetera, 138312, if you’re not a “accredited investor”, you could no longer invest your retirement account in syndication. You can still do note investments. You can still buy real estate, but I would argue inside of an IRA, really any investment.
Kurt Power:
Commercial does have the most risk. I think, we all know that. It also has the most upside. So, you’re taking an option off the table, taking away a choice for an individual who maybe, I’m an expert in self storage. Maybe I’ve built self storage. I understand it. Or apartments, multifamily, whatever it is. Just because I don’t have that specific accreditation you’re saying in this bill, I can no longer invest in your deal. I can no longer invest in an apartment deal. That’s very, very important. And that’s where it has far reaching impacts on the sponsor because if this bill passes, within two years, if I’m an IRA investor, Devin, in your deal, in two years, I have to distribute that to myself personally, causes a bit of an equity crisis for the sponsor now.
Kurt Power:
And that’s where those far reaching effects of … Banks probably aren’t going to give you those favorable loans anymore. They’re probably not going to refinance the way they were previously. This is where it starts to have that ripple effect where now multiple assets, multiple components of an investment become under siege. And then lastly, 138314, the “checkbook control” IRA. Your IRA owns an LLC, a trust, et cetera, solo 401(k). If 138314 passes, those are out. Those are eliminated forever.
Kurt Power:
So, in short guys, gals listening, make noise. Contact your congresspeople and not just in your neighborhood, not just in your district. You can go online and write any congressmen, any congresswoman across the United States and voice your opposition to this bill. So again, it’s just a proposition at this point, but the more noise we make, the more noise people of influence make, then I think the less likely this bill would be to pass. So, it’s very, very important as far reaching effects. So, just keep your ears open and know what’s going on because this infrastructure bill, if it passes, if these bills pass within that, it has some severe ramifications to those of us who like to do our investments inside that IRA.
Devin Elder:
Yeah. 100%. Do you guys have some resources for folks in terms of form letters or lists of people to contact, things like that?
Kurt Power:
Yeah. Here’s a great place to go is handsoffmyira.com from the great [John Hire 00:17:48], one of the great IRA attorneys in the world. If you go to handsoffmyira.com, there are form letters. There are ways in which you can reach your congressmen or a woman in your district and also people across the United States.
Devin Elder:
Right. Perfect. Okay. Handsoffmyira.com. That’s an awesome resource and that easy to remember a set up there. Now, this sounds like kind of everything in the kitchen sinks in there, hopefully it doesn’t all pass, but is this a situation of throw it against the wall and see what sticks from a proposal standpoint. What is your sense of that?
Kurt Power:
To me, and again, this is Kurt Power. Don’t take this as Quest Trust. I’m not speaking for Quest Trust. And I say this, it’s a response to the Peter Thiel mega Roth IRA. So, late summer, late spring, and during the summertime, a lot of articles are written in Wall Street, Money Watch, Forbes, et cetera about Peter Thiel. If you don’t know Peter Thiel, he’s the founder of PayPal. And back before PayPal was a publicly traded company, Peter Thiel purchased shares of PayPal with his Roth IRA about 1600, two grand worth of shares. You look at the tax code 4975, he should have never been able to do that. You can’t invest your IRA in a company you own control, manage, or are highly compensated by. Long story short, I mean, give it a Google, it’s worth the read, just Google Peter Thiel mega Roth IRA.
Kurt Power:
He grew a 1600, $2,000 Roth IRA to 5 billion, with a B, $5 billion. So, it got the attention of a Senator out in Oregon that basically saying, “Hey, Roth IRAs were meant to incentivize the middle-class retirement via tax shelter for the wealthy.” Well, I say kind of nuts to that because you can’t say that it was built for the middle class, but as we just alluded to, then take potentially the most lucrative investment vehicle off the table to the middle class, which is using an IRA to invest in commercial syndication. So, [inaudible 00:20:07]. And I think, if you really appeal this, the bill back, you realize there’s no revenue generated from doing this. And, it’s unintended consequences of a reaction to something that bluntly, they should have taken care of yourself [inaudible 00:20:22]. So, the first two bills, the $10 million ones, that essentially would solve it. If you can’t grow your IRA past $10 million, that kind of solves the Peter Thiel issue. All these other ones have severe collateral damage. So, can’t emphasize that enough, handsoffmyira.com and voice your opinion, voice your displeasure.
Devin Elder:
Yep. That’s great. That’s a good resource. You mentioned something about really kind of what we would call no self-dealing. Can you dive into that a little bit for somebody let’s say that opens an account with you guys? What are they limited to investing in?
Kurt Power:
Yeah. So, I can invest in your deal because you’re not my father, you’re not my son, my grandfather, you’re not lineal ascendant or descendant. So, when we talk to our clients about all the great things we can do with the IRA, we have to touch on people restrictions and transaction restrictions, investment restrictions, that simple. My IRA can’t purchase life insurance contracts, or collectibles, baseball cards, alcohol, paintings, et cetera, classic cars. They don’t have a hard appraise value. It’s more sentimental. But when we talk about people restrictions, we’re specifically talking about IRAs dictating or saying that there are people who are disqualified from the IRA. And the short version, layman’s version, is the disqualified persons are you, the account holder, your spouse, lineal assonance or dissonance, their spouses and companies they own control, manage, or highly compensated by.
Kurt Power:
They can’t do what are called prohibited transactions, can’t buy, sell, trade, loan, extend a service, or receive a direct or indirect benefit. What does that mean? I can’t purchase with my IRA a house up in Austin, Texas, because my son’s going to University of Texas. I can’t purchase a home in my IRA and let my son live in it. I couldn’t let my son live there. Even if he’s got roommates that are paying the rent. He’s a disqualified person in my IRA. He’s receiving direct benefit from that. So, I can’t buy a home with my IRA and living it nor can any other disqualified person. I can’t rent that IRA on property to another disqualified person. So, you just got to know that it’s an investment vehicle. It’s designed to benefit you in retirement. So, you can’t benefit today. Yours comes in retirement. So we get a lot of people that purchase property down in Rockport or Corpus Christi or Galveston.
Kurt Power:
I’m going to go buy a beach house, making an Airbnb. Well, automatically your alarm should go off that they’re probably going to stay in it now so he got to have the conversation of, “Hey, you can’t fix the property. You can’t extend that service to it because you’re just qualified to go non-disqualified.” People go do the repairs. You can’t go stay in it. You can’t go take a week off summer vacation., go down to Corpus for the weekend or the week as a prohibited transaction. You can’t receive that personal benefit. Your benefit comes when you’re 59 and a half years of age or older and started taking the money out. So, just know who you can and can’t work with. It’s immediate family, and lineal ascendant or descendant, their spouses.
Kurt Power:
They can’t invest my IRA and a company I owned or any other disqualified person owns. If you know that, that eliminates a lot of the noise and a lot of the potential issues you could have and just … I don’t know you. I know you enough. I’ve vetted your deals. We have a relationship. I like the deal. I did my due diligence. I could invest in your deal because you’re not disqualified to.
Devin Elder:
Right. Which makes it a perfect vehicle for syndications. You can’t use your IRA to go flip a house that’s yours, or do some of the other things where there’s direct benefit, but you can meet other sponsors putting together other deals and participate that way. I want to shift gears a little bit here, Kurt, to some of the education that you guys do, which is fantastic. And you guys put out a lot of stuff. What are you typically focus on in a given quarter? What kind of events could people expect from you guys online, in person, et cetera, if they want to kind of dig in and learn more about that?
Kurt Power:
Yes. So, anytime anybody wants to know what we’re doing, you just go to questtrustcompany.com, click on our events tab. We host a ton of events of our own. We do them virtually. We’re slowly integrating in-person events again. We tried to kick off a bunch of in-person events back in August, but COVID will never go away so we had to make an adjustments. We’re slowly reintroducing our in-person events again, but they’re free, whether you’re a client or a non-client coming network, I mean, because we don’t sell investments, because we don’t have offerings, but to provide some way in which you can put your IRA to work. So for us, it’s education. So, view those webinars three or four times a week, those are taught by Quest employees, but we also bring in speakers from around the United States to educate on their particular area of expertise.
Kurt Power:
So, now the client knows when the Quest representative is speaking. I know what I can and can’t do with my IRA. I understand how the process works. Well, maybe I went and saw at Quest, Devin give a presentation. And I liked what he had to say. I’ve had some consultations with him. I want to know more about his deals. I like the specs of the [inaudible 00:25:33]. I like what he’s saying, he’s going to do. Now, I can take my IRA and go invest it. So, if you go to questtrustcompany.com, click on the events tab, you’ll see everything that we have. We cover everything from the very basic IRA concepts. What is an IRA? What you can and can’t do, all the way up to a lot more sophisticated topics like prohibited transactions, like unrelated business income tax, like inherited IRAs, things like that, that kind of service, the needs of everybody. Whatever level of investor you are, we have something for you.
Devin Elder:
Yeah. I love it. You guys have done an excellent job producing a lot of content, a lot of events. Kind of one last question before we wrap up here, Kurt. You talked to a lot of people, you probably see some similar themes and things in these conversations. Is there something you wish people knew sooner that you would maybe like to share here with a broader audience?
Kurt Power:
I think, the thing for me that I wish I knew sooner was just the value of taking action, and I didn’t have to know what the outcome was going to be. That kind of analysis paralysis can get in for us. But I think, you have to understand that there is risk involved with any investment, big or small. Those risks doing a wholesale deal, just like there’s risk in doing a multi-million dollar commercial investment. So, know your numbers, know the deal. I operate on light trust and respect. I want to work with people and companies that I like trust and respect. And I have my own personal vetting process for that. I have my own personal risk tolerance and what I think is a good deal and a bad deal for me. So, you have to establish that first.
Kurt Power:
What is your end goal? And how can you get there? Investing with a self-directed IRA, a Roth IRA, whatever that looks like should be a component of your overall wealth building strategy. I think that, if you can do it with your own personal finances and benefit today, fabulous, do that. Do a couple of deals a year inside the IRA that we’ve got a bigger bucket of money waiting for you in retirement. So I think, the biggest thing is take action, vet your deals, get yourself educated as possible. But, there comes a point in time when you got to take the leap and you’re only going to know what the other side looks like when you take that leap. So, that would be my biggest piece of encouragement to people, is take action and take the leap.
Devin Elder:
Great points. Well, we’ll link to Quest in the show notes. People can click through to that, get a lot more information about the company, about what self-directed IRA does. Thank you, Kurt, for jumping on this. This is really insightful, and I would encourage those listening, if you don’t have an account, already get on the phone with Quest to have that consultation and learn more about that because it’s really, really powerful tool that we can use in this business. Kurt, thanks so much. I enjoyed it, sir.
Kurt Power:
Devin, thank you, sir. Thanks for having me. And we’ll talk to you soon.
Devin Elder:
Sounds good. Take care.