[Originally Published at JeffNabers.com]

You may be wondering why I haven’t blogged about real estate investing in a while. There’s a very good explanation video at Nabers.TV for you to check out.

For the self employed, a fantastic development has occurred over the past few years – the Solo 401(k). One distinct advantage of the Solo 401(k) over an IRA is that it is not subject to paying UBIT on profits from financed real estate. Eliminating UBIT by using a Solo 401(k) eliminates the need to file a return (Form 990-T) as well as the accompanying tax. Sound pretty good so far?

The difficulty in recent times has been obtaining nonrecourse financing. The leader of NR financing in the Self Directed IRA industry for the past few years has been North American Savings Bank. Last year, they took the familiarity of IRA lending and applied it to Solo 401(k). Unfortunately for many Solo(k) investors, this has only been available to plans who choose to name a custodian as trustee of the plan. Qualified plans (which is what all 401k plans are) are different than IRAs in that they are not required by law to name a custodian (bank or trust company) as trustee of the plan assets. Investors who establish Self Directed Solo 401(k) plans that name themselves as trustee for simplicity have not been able to readily obtain mortgage loans for their Solo (k) plan from NASB.

Well, as of this month, NASB has expanded their loan products to include a nonrecourse loan program for self trusteed Solo 401(k) plans. I caught up with Matt Allen to discuss the great news on UNLIMITED RETIREMENT ACCOUNT® Radio. The skinny is that the program is almost identical to the IRA lending program. If you aren’t familiar with their guidelines, check out the URA Radio show podcast as it become available soon.

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This is quite a simple concept so this post will be very brief.

• Our weak economy has brought very high inflation: as high as 13% over the past year.
• Future dollars are worth much less than dollars today.
• With a Solo 401k you can make tax-deductible contributions to your retirement plan in today’s dollars and pay taxes later in less valuable dollars.
• Successful entrepreneurs and self employed individuals can contribute $49,000 per year or more to their Solo 401k in 2009.

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The stock market implosion of 2008 has millions of Americans feeling financially helpless.  Yet individuals who are investing their 401k & IRA money in ventures outside the stock market are singing a different tune. Janice and Jack Stoddard, real estate professionals in Arkansas, heard about self directed investing from a seminar that taught how to invest IRA money into real estate.

Energized by the idea, the Stoddards established two IRAs, rolling over money from their traditional IRAs to fund them.  They used the IRAs to make small real estate transactions, purchasing and reselling property at a profit with all proceeds staying in the IRA.

In 2006, an opportunity to buy and then immediately re-sell 60 acres of undeveloped land at a profit came up.  Concerns over structuring the deal and keeping everything above board led the Stoddards to consult with us at Nabers Group.

“Jeff helped us establish a Solo 401k that could be used to handle the 60 acre transaction. The Solo 401k was a key component to our funding because we were able to contribute 10 times more to it than we could to an IRA.  Meanwhile, our son, who works in oil and gas, alerted us to keeping our eyes open for property with mineral rights for future transactions,” Janice says.

With the proceeds from the 60 acre sale, the Stoddards began looking for their next investment.  They found a 57 acre property with 54 acres of undeveloped land and a house that was sitting on three acres.  The property, valued at $435,000, was more than the couple had in cash in their Solo 401k, so they began looking at options. They contacted friends in Dallas and asked if they’d be interested in joining them in the investment. Their goal was to buy it and sub-divide it for resale in five and ten acre parcels.  Their friends, both physicians, agreed. We helped the couples form a Limited Liability Company for purposes of purchasing the land.  The LLC is owned jointly by the Stoddard’s Solo 401k and their friend’s IRA.

The owner had originally listed the property for $5,250 an acre with only 50% of the mineral rights.  At the time no drilling was taking place on the property and no natural gas had been pulled from the ground.  The Stoddards negotiated for full mineral rights and bought them with the property for $5,875 per acre. Over the next few months, natural gas producer Chesapeake Energy put a well on the property, and soon the LLC was receiving large monthly royalty checks for the natural gas on the property.  Over 18 months, those checks totaled more than $100,000.  When the Stoddards were approached by a buyer who wanted to purchase the mineral rights and not the land for $8700 an acre, they sold the rights, netting another $465,000 while retaining the land, now valued at an estimated $435,000.

A key to their success is that Janice knows real estate and knew how to identify an under-valued property that was a good investment.  With her son’s knowledge of oil and gas, her strategy became as much about the mineral rights as the real estate.  Mineral rights prices had been skyrocketing, lease values had been increasing in her area, and Janice knew she could resell the land and improvements alone and at least break even while keeping what she was really after – the mineral rights.

Within six real estate transactions, the LLC’s asset value had gone from $350,000 to more than $950,000 in under two years. The Stoddards have more than quadrupled their initial investment, and they aren’t stopping there.  Other property and mineral rights deals are already on the table for purchase with their Solo 401k funds. Our firm regularly structures Self Directed IRA & Solo 401k investment plans, and although the growth in the Stoddards’ investments is exceptional, it is not unique for someone who is as diligent in their investing as they are.

“I will admit to being a researcher,” Janice Stoddard says.  “When I found out that as a self-employed individual I could set up a retirement plan that would allow me to invest in real estate, which is something I know very well, I was excited about that.  The hard part was finding a financial expert who would embrace the concept of self directed investing.  Everyone I talked to told me I should buy stocks instead.  The Nabers Group has a wealth of experience in this area and Jeff has been very instrumental in giving us a thorough understanding of our options and the opportunities,” she says.

Today Stoddard advises other real estate professionals to do the same thing, and she’s joined the IRA Association of America to ensure that she is aware of regulations and new opportunities available to individual investors. “I talk to my friends, and they are absolutely despondent over what is happening to money they thought they had for retirement or college.  A lot of people have lost a lot of money in recent months.  When I tell them I didn’t lose a dime and that I’ve quadrupled the value of my Solo 401k over the last eighteen months, they want to know how,” Stoddard says.

Here at Nabers Group we are seeing our business grow because there are plenty of people who are not willing to ‘wait and see what happens’ with the stock market.  They want control over their finances, and they want to replace their restrictive IRA or 401k with one that offers unlimited possibilities.

Stoddard says she never hesitates to tell people to take charge of their own retirement money. “If we had not established our self directed investment accounts we would not have the cash available for investing that we now have. That’s what allows us the ability to act fast with real estate and mineral rights opportunities.   It’s a lot different than helplessly watching the market, and it has absolutely changed our future,” she says.

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