How to Access Unlimited Capital

Mike Hambright (00:15.406)
Hey everybody, welcome to the show. Today I’m here with my good friend Edwin Kelly. We’ve known each other for a long time.

We both had more hair. It was no great. There was no gray like yeah, we were children back then but we’re gonna be talking today about how to access unlimited capital for your business and build wealth in the process maybe even tax-free wealth That’s an opportunity today. So Edwin is a pro at this stuff and I’m excited to talk to you guys about this today. So welcome to show everyone Yeah, yeah, thanks for coming in from Vegas. Yeah Vegas, baby. Yeah, that’s awesome. So

You were an expert in the self-directed space. You and I have been friends for so long that I don’t even know any of your competitors, because I’m like, he’s my friend. I don’t need to know. I don’t need any more friends in this space. But I’ve sought advice from you on how to kind of navigate certain things. As a real estate investor, I think I heard this many years back that most of us are spending so much time.

making money that we’re not spending anywhere close enough time to try to keep it. Right. mean, like it could be through tax strategies or other strategies like we’re not spending nearly enough time to keep what we’ve kind of earned. And of course, there’s also fighting forces out there that are telling us we’re not paying our fair share in all those things. But a lot of us have worked hard to basically build up our business. And I know you’ve helped a lot of entrepreneurs, especially a lot of real estate investors create private banks, which we’re going to talk about today and are very into that. And then how to basically just kind of keep more your money through tax

strategies but before we jump into all that why don’t you tell us how you got into this business ultimately yeah well you know what it’s it’s it’s an interesting thing so my one of my most formative years was actually when I was in sixth grade believe it or not and I was raised by a single mother

Mike Hambright (01:58.964)
And she was a social worker for the state of Ohio. So if you know anything about social workers, right, big heart, small pocketbooks. And I she could afford to buy me a couple outfits for school every year. And that’s about what I had. And I remember that year because I had a couple outfits, I’d alternate them every other day. And so two months into the school year, you get made fun of, right, if you always are wearing the same clothes. So I started doing odd jobs growing up in Ohio. The good news is when there was plenty of of work to do because the leather the weather there is so lousy, right. So you can always

lawns, rake leaves, or shovel driveways. So started doing that and earning money in sixth grade by middle school. I opened, I saved enough money to open up what’s called an UGMA account. Now I’m not even sure how I figured this out, but open up an UGMA account, put some money in it, and you have to have a custodian on the account. my custodian was my grandfather.

Open up that account, bought my first stock. Within 12 months, the stock had doubled in price.

And I was hooked on investing because I was like, man, I made more money in one year than I did the previous year working crap jobs, basically. So it was a formative lesson for me. so when the stock went up, the funny thing about it was I said, I didn’t know anything about sell discipline back then or any of that, exit strategies, none of that. That was a foreign concept to me. So I told my grandfather, I just had this feeling like, hey, we should sell this. And I said, I want to sell it. And he says, no, stocks are for the long run.

So fast forward that company filed bankruptcy and my investment that I had doubled at one time went to zero.

Mike Hambright (03:43.63)
The lesson was still there, right? It’s really, you’re Don’t listen to grandpa. That was one Don’t listen to grandpa. That was lesson. Yeah, but make your own decisions. Go with your gut. At least it’s your money at the end of the day, right? If you lose it, you don’t have nobody to blame but yourself. But invested through college or through high school, went to college. And I’ve been reading books on investing and money and all this other stuff. And I didn’t realize at the time, but I started out at the Ohio State University. And I go to college, and I took this class called

business principles. There’s a chapter there about like marketing management, right? And there’s a book chapter in there about finance. And I’m like, finance, and I read that chapter, I was like, oh my gosh,

You can actually study this stuff like yeah real right and so I took every class on investing and finance that could take I end up getting three majors not by design just because of pure self-interest Didn’t want to leave college Yeah, well, I was actually happy to get out But I didn’t realize right because I was just taking classes and and and I was working the whole time right so I was already working at financial services full-time and And going to college and I went year-round but anyway

worked for a couple of Wall Street firms. And it was there that I got introduced to something called Distressed Asset Investing. And I worked in the private client wealth group at UBS for a period of time. And we’d have different money managers come through and kind of tell us what they’re doing.

long story short this guy had this portfolio that he built and when he broke it down and I looked at what he was doing I mean the risk was low and the returns were high and I said this is amazing like I I need to put my friends and family into this stuff and they said you can’t you have to be accredited and I’m like

Mike Hambright (05:39.534)
Well, that’s a problem, right? Because so many of the great investments that I saw, you had to be an accredited investor. So for regular everyday people like my mother and people that I know and that I’m friends with, they couldn’t do any of these things. So I started looking, you know, it will, there’s got to be a way that people can do this. Hence, you know, there’s, there’s a lot of things you can invest in, you don’t have to be accredited.

And so it was kind of looking at the investment strategies and the types of investments that were making the wealthiest clients that we had wealthier along with turns out, right? Taxes were a really, really big deal, particularly when you start, whether you’re making a little bit of money or a lot of money, we all pay too much as a percentage of our income for sure. Right. And taxes. And so what I learned along the way was that you can combine retirement accounts with alternative assets.

and I almost hate that term alternative assets because the last time I checked, land existed long before the stock market, right? But we call it an alternative asset here in the country.

That’s because that’s what Wall Street calls it. Right, exactly. Alternative to us. Yeah, exactly. It’s alternative to us. You don’t want to do that. anyway, figured out how to put that all together and went in. And that’s what kind of led me into the self-directed space. And so I said, you know, this is the way of the future. This is huge.

And it’s going to be huge. And so I want to get into this field. I was always looking for a niche, right? And wasn’t sure what it was. But when I discovered self-directing, I’m like, this is it, right? There’s so many ways to make money in this. It’s available to regular, everyday people. And so.

Mike Hambright (07:27.406)
That’s what got me into the self-directed industry. And after growing a couple of companies pretty significantly in my stints there, I decided it was time to open up my own. I had a different vision and a different view on what self-directing could be. so hence, launched Specialized Trust Company 10 years ago. Yeah, 10 years ago now. I remember that. Yeah. So it’s just.

Yeah, it’s been a long time. it’s a lifetime. You know, you probably don’t know this story. I don’t think I’ve ever told this story before to many people. Not that I’m hiding it. It just doesn’t really make sense. So I have a degree in finance. And my wife used to be an investment banker on Wall Street. think you might have known that. But out of college, and I was always interested in investing, but nobody in my family had any idea about investing. I don’t know where I got it from. I was like Alex P. Keaton over there. Nobody knows why Mike’s interested in this.

I remember, went to college, got a degree in finance, specifically in investments, like I wanted to work in investments. Got out, moved to Chicago.

worked for a huge bank there that manages. At the time, I left there in 1999. At the time, they had like $2 trillion under management. But I was in, and it was like large corporate pension funds and a lot of that stuff, private wealth clients and stuff. But I was essentially like an auditor. Like I was.

providing performance reports on investments from funds or money managers that the bank was a money manager in some instances, sometimes it was outside money managers, but these were huge corporate pension funds that were worth billions of dollars, tens of billions of dollars. And I remember very vividly at one point, because the path was start where I am and then eventually work your way up.

Mike Hambright (09:15.278)
become a CFA or a CFP, whatever. I don’t even know. Well, there’s both, right? So at one point, the CFA, right? That’s the hard one. That’s the hard one. Yeah, that’s a really hard one. So a lot of these guys or women would get their CFA and then move into investment management. And I remember talking to a couple of my friends that were a few years ahead of me and were on that path and just talking about how it was just this realization of learning that almost no fund managers ever beat the S &P 500. And almost nobody beats it over.

a long period of time. And I just this realization in my heart of like, why wouldn’t everybody just invest in the S &P 500, you know, and eliminate all this crap and all the fees and all that stuff. And it was just this wake up call for me. It was like, that sounds crazy to me. It just was so alien to me. And so anyway, continued on into.

more corporate finance roles after that and kind of moved away from investments. And then after getting into real estate, I was always like, you know, I don’t want to invest. We have money in the stock market, but I don’t love it because I don’t feel like I have any control. I would much rather own real estate or things I can control, which is a perfect fit for self-directing, you know? Yeah. Yeah. So what is self-directing? We’re talking about self-directing here. Probably a lot of folks listening know what this is. And just maybe, how do you explain it when somebody says, what is a self-directed account?

What does that mean? Yeah, so the way I explain it is I group retirement accounts into two categories, right? There’s what I call plain vanilla and truly self-directed. So a plain vanilla retirement account is the kind that most people are used to, right? It’s an IRA or retirement account that’s set up at your bank or brokerage house. For a lot of people, right, it’s a company-sponsored 401k or 403b plan.

But the reason why I call it plain vanilla is that those financial institutions restrict clients from investing their money in anything other than the stock market typically, or what we refer to as marketable securities. Right, some funds. So stocks and bonds and mutual funds are typically what people are limited to.

Mike Hambright (11:21.016)
However, when the government wrote the rule book and introduced all these started introducing retirement accounts back in the 70s, and it’s continued through the 80s and the 90s and the 2000s, right, they keep adding more types of accounts with with benefits. The rule book actually allows us to invest in almost anything.

And so that’s what a truly self directed IRA is. So as what I say a truly self directed IRA is, is this an account that will allow you to invest your money in anything you want allowed by the government. And so now all of a sudden, you can step out of what you mentioned, the investments that really we have no understanding of, right? Nobody knows what their mutual fund holds. And

And it doesn’t matter if they do, because they don’t know what’s going on in the company, right? So they don’t know if it’s time to sell or time to buy or what to do with that. So when you look at the things that the government can allow, that allows us to invest in all of a sudden, we can step in and invest in all kinds of things. you know, notes, mortgages, deeds of trust.

real estate from commercial to single family homes to vacant land. Yep. Right. In fact, I just had a client asked me the other day if he could invest outside the US in real estate. He’s doing a project in Asia. And I said, Yeah, that’s possible. Right. So so there’s so many things that people can invest in. Yeah. Where there’s more information and knowledge around

certain people. But you need a truly self directed IRA to do that. And that’s that’s what a self directed custodian does. So a self directed custodian will hold any asset allowed by the government. Now, again, different places can put restrictions on things. But I’ll just say that generally the way we operate is if the government allows it, we will hold it in a retirement account. And that’s a truly self directed retirement account. Yeah. So it opens the door for people to lend to real estate investors like a hard money lender, a private lender and invest

Mike Hambright (13:23.28)
in multi-family syndications or invest in single houses and some of these things for folks that are out there we need to say there’s an asterisk next to this like you need to you can’t do self-dealing and stuff like that which we won’t even get into on this show we’ve talked about that before there’s plenty of content out there on that but but it opens the door for you to invest in a lot of other things and I have a feeling that you know a lot of entrepreneurs like have a craft like they know we know

It could be private companies too. Like I could invest in, if you were to start up a company and be looking for capital, I could invest in that, right? Yeah, well absolutely. In fact, one of the largest self-directed retirement accounts that I know of is, many people listening to this program might know a gentleman by the name of Peter Thiel, right? yeah, yeah. So Peter Thiel has, it’s funny because,

Sometimes you think these would be great case studies, but they’re really not because it just gets the government, you know, up in arms. know the story. yeah, Peter Thiel, right made some of that he opened up a self directed Roth IRA and invested in some startup companies with, you know, just a few thousand dollars. His Roth IRA today is worth several billion dollars billion with a B. That’s 100 % tax free gain. Yeah. And it’s 100 % tax free spending when he can take

qualified distributions from that account, which he might be there already, actually. So thinking about making a billion dollars, but doing it 100 % tax free, that’s insane, right? So yeah, in fact, it’s interesting because I actually, two years ago, invested in a startup tech company as well. So yeah, you can invest in companies and businesses.

existing businesses, startup businesses, all kinds of things. Yeah. Just gives you control. So let’s talk about, I know you can self-direct because we have both. We have IRA accounts and 401k accounts. So maybe just talk about the differences there. And then really what I want to get into is how.

Mike Hambright (15:27.374)
folks can utilize these things. It doesn’t have to be their account. That’s what we’re going get to is how to create a private bank of people that have accounts that you can borrow from and they could be your lender. And they don’t even know they can lend that to you yet. But you have to know that. Before we come back to that, just talk about the difference between a 401k and an IRA from a self-directed standpoint. OK. So I group accounts into three categories. So there’s what we call individual retirement accounts.

small business retirement plans and tax advantaged specialty accounts. So IRAs, you have two options, right traditional and Roth. And so one is referred to as a tax deferred account in the code one is referred to as a tax free account. So there’s advantages to both you can take tax deductions this year. So if you’re fed up with paying your tax, you know, too many taxes this year, you can lower your tax bill by using a tax deferred or tax deductible account.

If you have your eye on the long run, is what I generally advocate for, but it’s everybody’s own decision, is the Roth. Because a Roth,

is an account that allows us to make money in the account and spend it 100 % tax free, no capital gains tax, no income tax, no tax at all. For the rest of our lives, right, once we can take those qualified distributions. And so I’m a big advocate of those, those types of accounts. So that’s on the IRA side. The small business retirement plan side, there’s SEP, Simples, 401ks, Roth 401ks, goes by different name, QRPs.

But the nice thing about those accounts is that it’s like IRAs but with higher contribution limits and in some cases some other bells and whistles. And then the last category of accounts is…

Mike Hambright (17:10.936)
tax evasion specialty accounts, right? So that’s your health savings accounts, which I’m a huge advocate of, I’ve been using it for a long, long time. And education savings accounts, right, which is really like a Roth IRA for the kids or grandkids for purposes of funding their education, private college, right? Yeah, just has to be accredited. And all of those accounts can be self directed if you choose to.

Yep. then what can you, we talked about a little bit what you can use self-directed accounts for. And I said we wouldn’t talk too much about kind of self-dealing, but what can you not use them for? Like what are some of the things that would be a no go? Yeah. So I’ll give you, I’ll give you like three big ones.

So in the code and the rules and regs, we look at a variety of things, But for the most part, the code is internal revenue code 4975 and IRC 408.

And so one of the things that we look at are, you know, what is prohibited? And this is one of the things that I’ll hear people say things and and they’re not really true. So I call them this. But one of the misses, well, self-directing your retirement account is complicated. Well, the reason why people think it’s complicated is because they’re just not familiar with it and they’re not familiar with the rules. And the way the government writes the rules is that they don’t tell us what we can do. They tell us what we can’t do. So.

as an example there’s no rule that says we have to be nice to people right if if somebody was mean to me and I call the police and said this guy’s mean to me they’re going to tell me get away from the guy right just you know go some sit at a different table right but if he slapped me in the face I could say hey this guy just assaulted me now the police would arrest him right because there’s a rule that says you’re not allowed to do this

Mike Hambright (19:00.546)
that’s as far as the government is willing to go typically. So that’s how the rules are written for retirement accounts. So in that in that this world, we call them prohibited transactions, and three big ones to be aware of. And these are, you know, there’s only a few things really, if you start to break it down, that that’s a you’re not allowed to do. Number one is you’re not allowed to buy life insurance in your retirement account. Good to have you should have it, right? I have it, we just don’t buy it in our retirement account.

second thing is you cannot buy german beer or american beer or wine or any other alcoholic beverage and that’s it’s kind of funny when i say that but it falls under a larger heading called collectibles we were talking about before the show people collect american beer no and i think that’s why they don’t let you buy it because that’s going to get consumed but you can’t buy collectibles artwork gems stamps rugs

you know, those types of things, which is fine, because most people aren’t making money doing that, right. And then the third thing, and this is the big one, right, that we’re, we need to be aware of as as self directed investors or real estate investors is there’s no self dealing, right. So those are the three big no’s, no life insurance, no collectibles, no self dealing. Yeah. And other than that, then, like I said, generally, you can do it. so you’ll notice

there’s no prohibited transaction that says you’re not allowed to buy real estate or lend money to somebody. Just like there’s no rule that says you’re allowed to buy stock or not allowed to buy stock. There’s no rule that says you’re allowed to buy mutual funds or not allowed to buy mutual funds. So we’re allowed to draw the conclusion that because it’s not prohibited, we can invest in those things. So how much money is, I know you the answer to this, how much is in self-directed accounts? Yeah, so it’s interesting because

the trends are and this is something I tell people to pay attention to from two sides of this coin. One is that as of this year, the total retirement industry in terms of assets sitting in retirement accounts has crossed the $44 trillion mark. Now, when I started in this business back in the early 2000s,

Mike Hambright (21:20.558)
We were between five and seven trillion, you know, back in the early 2000s. It’s gone from that to 44 trillion in less than 20 years. Wow. Right? Why is that? Well, because retirement accounts offer such a tax advantage way of investing, growing and building wealth and preserving it.

what more more people are realizing is hey, retirement accounts are great thing. So the reason why I say people should pay attention to that is if you look at what the wealthy do, they are huge advocates and huge users of retirement accounts, right? They have retirement accounts for themselves, their business, their families, their kids, everybody. Because it’s one of the best tax protection vehicles you can get.

So that’s on one side of the coin, the other side of the coin for entrepreneurs and professional investors who are working with private capital. That’s where the money is. Like if you want access to money, that’s where the money is. That’s where the money is at. Yeah. And a lot of folks, what’s interesting is a lot of folks don’t know that you can self-direct, right? Cause they, if you’ve had, if you’ve, if you’ve been with a, you know, a large company for a long time, you have a retirement account. You usually can’t roll that into a self-directed account unless you were to leave the company.

You have to what’s called a qualifying event. The most common qualifying event is separation from the company. So generally that’s true. But there’s other reasons that somebody could move money out. Now having said that, here’s the interesting thing about that is that for people who are out raising private money, one of the things that people used to say to me is, well, but there’s more money in 401Ks than there is IRAs and it can’t really move, right? And the answer is sometimes it can’t, sometimes it can’t, right?

But what happened in 2023 was for the first time ever, there’s more money in IRAs than there were 401ks. First time that ever happened. And there’s some very specific reasons why that’s taking place, right? But the trends and the drivers are…

Mike Hambright (23:28.782)
more that side of the house than the other side. Yeah. So ultimately, folks can roll this over. And I did this. I’ve had some corporate jobs left, or they made me leave, or whatever happened there. then I just usually, before I knew you, before I was in real estate, I would just roll that over. At the time, we would roll it over into E-Trade. Basically, roll it over into an IRA account at E-Trade, for example.

But once that is kind of separated from a company, you can roll it into a self-directed account, which is run by a custodian like you guys, right? And that opens it up. And so the interesting thing for a lot of investors is,

There’s a lot of benefits to real estate investors, for example, having self-directed accounts, lots of tax benefits, some of the things we’ve already talked about here. But one of the big benefits that’s out there is teaching other people that might be their private money bankers that could lend to them how to, if they have retirement accounts, that they can roll over into self-directed and then become a lender to them. So essentially creating like a private bank for themselves, where they could have, like a lot of people in real estate have raised private money, but they don’t have to be limited to like, what does that person have sitting in cash at their local

bank or credit union, it’s like, what about their retirement accounts? And a lot of those people don’t even know that that’s an opportunity for them, right? Yeah. So, you know, the biggest challenge we face as an industry and as a company is awareness. People just are not aware that you can do virtually anything that you can imagine with your own retirement account and your own money. Wall Street’s done a really great job of hijacking that, making people think your only options are mutual funds and stocks effectively. So.

You know, there’s kind of, and I always say, there’s kind of two sides to the same coin when it comes to self-directing retirement accounts. So one side is, a lot of us have a retirement account and we’re making investments in our retirement account to build our own personal wealth, right? That’s one side of it. The other side of it is that there’s a lot of entrepreneurs, business owners, investors who,

Mike Hambright (25:28.37)
are putting together investments and using private capital as a funding mechanism. So they allow other investors to participate in their investments, right, and they provide the capital necessary to do the transaction. And when I talk to folks, and I say, you know, when you’re looking for private money, what’s the biggest challenge you have with private money?

And inevitably, the answer is finding it. And the reason why they say that is because if you look at statistics that are produced by the government, only 1 % or 1 in 100 people have discretionary income and assets considered wealthy.

So, you know, most people who are raising private capital are trying to find that one in a hundred person that has the money to invest. However, when people realize that they can use someone’s retirement account to invest, you go from one in a hundred.

And if we’re talking about age 50 and above, eight out of 10 Americans, eight out of 10, age 50 or above, have a retirement account. If you drop down to age 40, it’s seven out of 10. So you go from one in 100 people to seven out of 10 people that you interact with every single day has your retirement account. And to put a couple numbers around it, they’re big numbers, so it’s even hard to our minds around it. But there’s 172 million Americans that have retirement accounts right now, 172.

The right now this year we just surpassed the 44 trillion mark dollar mark in retirement accounts overall. Yeah. And that number just grows every single year. Right. So

Mike Hambright (27:09.998)
In fact, don’t, there might have been one or two years where maybe the number dipped or stayed about the same, but generally speaking, there’s more money coming in every year. So for people who are raising capital, what I tell them is, if you are not having the conversation about using people’s retirement accounts, you’re missing a huge, huge opportunity because the money is literally all around you. You just don’t see it, right?

And the folks that have it don’t even know. I mean, one of the other things about that of raising private money money is it’s usually more patient money, I would assume. Right. Like people, if they have money sitting in a checking account, like you said, a lot of people don’t. So when they lend it out, they might they’re more likely to need it for something like, I need that money back or I need it back in four months or six months or whatever, because they might have a plan for it. It might be temporary. What’s in their retirement account if they’re not close to retirement age yet, even if they are, they can still lend you. But if if it was somebody it was like, say, 50 and they can’t start pulling on

for another 10 years even. might not even like they’re patient because they can’t tap into it for 10 years anyway. Yeah. Yeah. It’s an interesting phenomenon. I always tell people when when you know they’re raising capital say look you know for the most part getting without getting you know off in the weeds.

We don’t say no to money, right, when we’re raising capital. There are some reasons to say no to certain people, obviously, but generally speaking, we’re not going to say no if somebody wants to participate. Having said that, you know, there are distinct advantages to using retirement accounts over money outside of a retirement account. And to your point, and we’ve funded projects where we’ve had investors call us in the past, and when it’s outside the retirement account,

There’s been a few situations that arises. One is we had one person who got sick and said, hey, I’m gonna have some medical treatments. need, I’m gonna need some money back. We had somebody whose college was, or daughter was going to college in the fall. And it’s like, hey, she got into a way better school than we thought. We money back. Life happens, in other words. But when you’re dealing with someone’s retirement account,

Mike Hambright (29:22.38)
you know on average people are planning on taking any money out of the retirement account for at least five ten fifteen years generally speaking right they want to put it off if they don’t need it and so what happens is is that

people when they invest their retirement account, if you if you do an investment, and you happen to pay it off, some are long term investments, some are shorter term. But if you pay it off, the first question from the investor or the IRA owner is, well, when are you gonna put my money back to use, right? They don’t want the money in their account. Yeah, they want it invested. Now, here’s the other thing that happens, which is where, you know, investing in real estate notes, all these different types of things is is a huge value to people. Because when they get to the point that we call it a distribution phase, right, you’re starting to

money out of your accounts because you’re stepping out of your job, your business, whatever it is, and you want other income streams.

people don’t necessarily want their principal because that’s the challenge with traditional investments. People accumulate this money during their lifetime, right? And then when they go into retirement, they start spending it down. so sadly, with a lot of the ways that these traditional investments work, people are deciding, you know, are trying to figure out, I gonna run out of life or money first? That’s no way to live. However,

what we’ve seen a lot of people do is where they’ll work with those investors, you know, when they’re in a distribution phase, when they want to take money out, and they can keep the capital working, but pay out income streams based on rents, you know, based on interest, right, based on different things. And so even there, the IRA owner will invest and deploy the capital, if you can create an income stream for them, they’ll keep it working with you, right.

Mike Hambright (31:06.542)
Yeah, and do you know what portion, I mean, there’s a lot of money in the self-directed in accounts, and a lot of it sitting idle, right? So there’s basically a lot of pools that investors could tap into to raise private money. I do you have any idea what percentage of self-directed money is typically sitting idle looking for a new home?

You know, that’s a good question. And it really, it really depends. And it’s actually, believe it or not, difficult to measure, because let’s say you open up an account today, and you transfer over 100,000. Well, that 100,000 is going to hit the account, and it’s going to sit in cash for some period of time, and then you’re going invest it, right? So that could be 30 days, it could be 60 days, whatever it is.

If you’re investing in real estate, right, then you’ve got cash coming back in, right, and it could be through rents. So those are smaller checks, or it could be if you sold an asset, and you got a bigger check, right, that that’s coming in, but then it’s getting redeployed. So it’s always a moving target, right? Because for most people who are investors, and you probably know this, right, from even outside the retirement account, there’s days where we’re cash rich, and there’s days where we’re cash poor. And so you’re always managing cash flow, right, and the flow of funds.

So it really depends on the day, but what I can say is that more and more money is coming into self-directed retirement accounts and

You know, one of the estimates, and this is an estimate because people report their numbers, but there’s over $100 billion in self-directed retirement accounts right now, right? And that number keeps growing. The interesting thing is too, is that in 2023, if I didn’t mention this already, IRA surpassed 401Ks for the first time in terms of assets in there. One of the things that we’ve also observed is that there’s a lot of people that have plans at work.

Mike Hambright (33:00.888)
company sponsored plans or retirement accounts at traditional financial institutions, but there’s also when you look at flow of funds, mutual funds have gone down in sales, which is really interesting. That tells you people are getting out of those types of assets. And there’s a lot of money going to cash because people don’t know where to deploy it yet. So there’s a lot of money that’s sitting in cash. When I say a lot, like,

The last number I saw it was around two trillion sitting in cash and traditional type plans. Yeah. Because people do not want the exposure to the market right now. Yeah. You they’re just too nervous about it. Right. Right. And we talked we started this off by saying that people could create you know and get access to unlimited capital by creating a kind of a private bank and that private bank is finding people that could lend to you from their retirement accounts it could doesn’t have to be from their retirement accounts but there’s a lot of assets there we just talked about. So talk about that approach a little bit. How do people.

And you and I have talked about this before and I’ve seen people say that hey, I’m looking for a money partner on this deal who has cash or a retirement account and people are like, what do mean a retirement account? I didn’t know they could do that, right? But how do people maybe kind of share some practical case studies for how people can go raise that money and find private lenders to them that are maybe using their retirement accounts?

I’ll give you a quick example. have a client who, and I would say he’s not atypical, right? He was 56 years old when he opened up his account with us. at 56, and this is an interesting that happens too, when somebody hits 50, all of sudden…

retirement, however they might look at that, right, people look at that differently. But retirement all of a sudden is on the radar screen. It’s like, I don’t necessarily want to have to work in my business or work this profession, the rest of my life, I want to have the choice. They may work for a long time still, right? But they want to have the option to not have to do that. And so what happens is around age 50, people are looking at their retirement accounts, and they’re looking at where they’re at. And they’re saying, okay, I’ve done this for the last 30 years.

Mike Hambright (35:09.134)
And I’ve only gotten to this point. This is not going to get me the rest of the way. So that’s where they start to look at alternatives. So we have a client by the name of William. And William lives in California, 56 years old, and married two kids, Lives in San Jose, California, pretty expensive area. And came to the conclusion that he needed to do something different with his money.

So he started looking into different options and he came across real estate investing as a lot of people do, right? There’s a lot of wealth that’s being created in real estate. So came across real estate investing, but the challenge he ran into was he didn’t really have a lot of his own money, right? In fact, every dollar, the way he put it to me was every dollar was spent basically on the first of every month, right? With the bills, you know, bills that they’re gonna have for the month and the money coming in.

So for the average person, the average investor, if they were talking to William thinking about proposing something, they’re going to talk to him and know that he doesn’t have any real money to work with. But when people understand that you can use their retirement account, then it’s actually a very simple introduction. Because what I always say is, if you’re presenting an investment to someone or presenting what you do,

It’s you or your retirement account, you or your IRA, you or your 401k could participate in this with us, right? And I never separate you from the retirement account. I just use those general terms, IRA, retirement account, 401k, because I don’t know what they have and I don’t know what’s going to resonate with them. But what typically happens is, and in Williams case, the response is, well, what do you mean my retirement account?

Well, what did they just tell you? They just told you they have one. So the interesting thing is, that so William moves his money over, right? And and I’ll ask this question when I when I when I use this example when I’m when I’m working in workshops. So how much do you think William? OK, so make close to two hundred thousand dollars a year. Him and his wife lives in California, kids in high school.

Mike Hambright (37:26.382)
if you were to propose a real estate investment opportunity to how much money do you think he has sitting in the same as his account to invest, what would you guess? No idea, half a million? Zero. Oh. Zero, right? Because in fact, he doesn’t even have an emergency fund set up. He’s using his credit cards for his emergency fund. Sadly, that’s the reality for a lot of Americans. However, if you knew to ask about the retirement account and he says, well, I have a retirement account.

How much do you think he would have? He’s got zero in the bank saved. How much do think he has in a retirement Yeah, that’s what I thought I was going answer for. Right, right, sorry. OK. So yeah, so within your real costs, he transferred $540,000 in cash the day he opened up his account. If this was Price is Right, I’d be pretty. I might be You would have won. You would have won. But that’s the point. That’s why I say that’s what people are missing. And when you’re looking for the person with the cash in the bank account, you’re looking at 1 in 100.

But there’s, know, eight out of 10 people over 50 are the Williams of the world. I mean, the money is all around. So it’s just the easiest way to implement it, if you’re out raising profit capital is to, like I said, it’s just bringing up, hey, you or your retirement account, you or your IRA, your 401k can make this investment. I was at a real estate event not too long ago.

group that you and I both used to belong to. And there’s a gentleman sitting with me and he’s like, I need to learn more about this. And I said, he says, I work with some private money. And I said, okay, he says, but I need more of it. I said, well, I’ll give you a real easy thing. said, because he didn’t know you could use retirement accounts. This is first time he heard this. And I said, well, just go back. I said, how many guys invest with you right now? He says, five. I got five guys that invest with me. I said, okay.

don’t talk to one person new, just go back to the five people who’ve already invested with you in the past and just say, hey, if you have a retirement account, we could do these same kind of investments. I said, I will almost willing I’m willing to guarantee you that one will say I have one. So literally,

Mike Hambright (39:39.182)
The day after the event was over, calls me, he says, hey, guess what? I did it. He says, I went to the first person on my list. They said they have a retirement account. They want to do it. What do I do next? I mean, it was like that fast. So when I say the money is all around you, it really is all around you, if people are working with private money and they aren’t talking about retirement accounts, they could go back to their exact same investors that they’re already working with.

and introduce the concept that easy. the challenge is that you have to work with a self-directed custodian specialized. If we’ve had money in.

E-Trade or other things like that and and they don’t they don’t even know what this is like They have no idea that they haven’t been taught this They think it’s maybe they think it’s illegal or it’s not a thing because they haven’t figured out how to charge fees and stuff on it They don’t even offer it right and so for a lot of folks that are interested in this they need to come talk to you guys They need to not go. Let me go talk to my my guy That’s with my regular account or somebody at Chase or Wells Fargo God forbid they have no idea what we’re even talking about

Yeah, so that’s the thing is that, you going back to the plain vanilla IRA, right? Your your bank or your brokerage doesn’t allow you to invest in anything you want, right? They put those limitations on. So you have to have a self directed custodian. And that’s what we do, right? So Specialized Trust Company is a self directed IRA custodian, right? So we do 401k’s IRA, sub-simples, know, health settings accounts.

And it’s that self-directed custodian that enables this to be possible. Because going back to the rules, when the government wrote the rule book, they did put in there, they said, look, a company that offers that’s a for-profit business offering retirement services or retirement plan services doesn’t have to let clients do anything we allow. They’re allowed to restrict investment options. And so they have the right to do that. So their business model is very different. So to actually have someone get

Mike Hambright (41:38.774)
be able to get control over their money to invest in whatever they want to invest in, whether it’s a

Note with you or a piece of real estate or whatever it is. Yeah, you have to have a self-directed diary custodian to to set that up. and and keep it compliant Yeah, so Edwin if folks do want to connect with you or learn how they might work with you guys or Follow you on social media or anything else. Where can they go? Yeah, so the the company website is www.specialized trust company comm and On that site. We’ve got an 800 number right there at the top. We’ve got a form or giving away money

latest book for free as well as a strategy call with one of our self-directed specialists.

That’s always what I would suggest as the next step if somebody’s interested in learning more about how this works whether it’s raising private money or Setting up your own account to invest in things that that you want to invest in and not have those limitations on you Then that’s the best way to get started. Yeah, that’s great. That’s very nice Thanks for sharing some time with us today. Yeah, man giving some updates on what’s going on in the world Absolutely. Yeah. Yeah. Thanks for having me guys I honestly I’ve personally worked with specialized for many years now, so I definitely recommend them That’s who I always recommend There’s a lot of ways to make money in this world if your real estate business is doing well

Or even if it’s not, there’s a lot of ways to access capital. And most importantly, you need to find ways to invest or have advisors around you. You can help you minimize your tax bill, or in some instances, eliminate it. I think most of us that are watching this right now probably feel like you’ve paid your fair share. It’s in your best interest to maintain as much of those earnings, keep as many of those earnings as you possibly can, so you can plow them back into your business and do it over and over over again. So appreciate you guys a bunch. We’ll see you on the next show. Thanks.