JF1712: Learning About All The Different Types Of IRA’s & Which Is Best For You #SituationSaturday with Eric Satz

Eric saw a problem in the marketplace, created a solution for himself, and is now helping others do the same thing he did. Taking IRA savings and investing in private companies was a complicated process before, now Eric and his team make it easy for their clients. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“That’s what we call a big market opportunity” – Eric Satz

 

Eric Satz Real Estate Background:

  • Founder and CEO of AltoIRA
  • His mission is to make 21st-century investment opportunities available to everyone, not just accredited investors
  • Based in Nashville, TN
  • Say hi to him at https://www.altoira.com/

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment for you called Situation Saturday. Here’s the situation – you are learning about self-directed IRAs, and alternative IRAs versus normal IRAs, and you don’t know what to do, because you need to have more information. Fortunately, we have the founder and CEO of AltoIRA, Eric Satz, on the show; he’s gonna talk to us about how an alternative IRA is different from a normal IRA. First off, how are you doing, Eric?

Eric Satz: I’m fantastic, Joe. Thank you so much for having me on.

Joe Fairless: My pleasure. A little bit more about Eric – his mission is to make 21st century investment opportunities available to everyone, not just accredited investors. Based in Nashville, Tennessee. Before we get into alternative IRA vs. normal IRAs, Eric, would you mind just telling us a little bit more about yourself and what you’re currently focused on?

Eric Satz: Yeah, absolutely. As you’ve already said, I’m the founder and CEO of AltoIRA, and I got here in what I consider to be a typical entrepreneurial fashion. I had a problem myself, I solved it, I didn’t like the solution that was available in the marketplace, so I went about creating what I hope is a better one for everybody else out there, so that everyone can benefit from it.

Joe Fairless: And what was the problem you had?

Eric Satz: The problem was trying to use my IRA savings to invest in what we call an alternative asset. An alternative asset is a non-publically-traded security. You can’t go to the New York Stock Exchange, you can’t go to NASDAQ to buy it. It’s not a public equity or a public bond. It’s something like real estate, or a private company.

About four years ago I took some IRA savings and I invested in a private company, and the process of doing so was overly burdensome, overly expensive, and a huge time sink… But I really wanted to make that investment, so I did. I then made two more using two other custodians, had the exact same experience, at which point I went about trying to figure out whether or not this was a problem that only I was experiencing, or whether there were more people who had the same issue.

So it turns out you’ve got 30 trillion dollars sitting in retirement savings, less than 1% invested in alternative assets like real estate, and that seemed like a really, really low number to me.

Joe Fairless: Did you say 30 billion, or 30…

Eric Satz: 30 trillion, with a T, in retirement savings.

Joe Fairless: That’s what I thought you said. Huh.

Eric Satz: Yeah, that’s what we call a big market opportunity.

Joe Fairless: [laughs]

Eric Satz: 30 trillion dollars seemed like an opportunity worth addressing with a more elegant solution, and by more elegant I mean technology-centric, customer-centric, user-friendly, scalable and cost-effective.

Joe Fairless: Okay. So what did you create? Let’s talk about that first.

Eric Satz: Sure. AltoIRA is a technology platform that does for alternative IRA investing what you may think of as TurboTax having done for self-filers. Alternative investing using your IRA up until now had been really a people and paper-burdensome process. Too confusing for most people, too expensive for most people… So by employing technology, ripping really the people and paper out of the process, asking one question at a time, and then based on the answer that’s provided, providing another question, we were able to simplify the workflow, move through one step at a time, and help you get to the end of the process in a way that is not time-burdensome, is not too complicated, and is cost-effective for you, the average person, like me, to go ahead and make this type of investment.

Joe Fairless: Okay, so your company is an IRA custodian, and you’re differentiating feature within that realm – and feel free to correct me once I’m done, because I might need to be corrected… your differentiating feature within that realm is that you make it simpler than your competition to go through the process to actually make your retirement account self-directed. Is that accurate?

Eric Satz: It’s close. Let’s talk about the differences actually between an IRA account that you may have at a company like Fidelity, or Schwab, or TD Ameritrade or something like that, and an IRA account that you have at AltoIRA.

Joe Fairless: At the big broker-dealers they give you a basket of goods, let’s call it; public company stocks, bonds, mutual funds, ETFs, index funds. They say “Hey, you can invest in whatever you wanna invest in, as long as it’s on this list.” What we do at AltoIRA is say “You can invest in whatever it is you want, so long as it’s not what’s called a prohibited transaction.” A prohibited transaction actually says what you cannot invest in using your IRA… And it’s actually a fairly limited list. Those prohibited transactions tend to focus on the fact that you can’t invest in a second home, unfortunately… Although you can invest in a commercial property, or residential real estate that you keep for rental income, but not for personal use.

You cannot invest in hobbies, like race cars or antique cars, or show horses, or Persian rugs, things like that… And you cannot invest in companies that are owned or controlled by your direct ancestors and descendants. So nothing that your kids own or control, nothing that your parents, grandparents, great-grandparents own or control. But everything else is pretty much fair game. That’s the difference between an IRA account at Alto and an IRA account at a traditional broker-dealer. The tax implications and consequences are all the same.

Joe Fairless: Yup. But that’s not the differentiating feature for your company, that’s just different for a regular IRA versus a self-directed IRA.

Eric Satz: That’s correct. So getting back to why use Alto versus some other self-directed IRA custodian, the answer is exactly what we were talking about before, which is the technology that we’ve put in place to simplify the process, make it very quick and easy. It’s all online, it’s all digital, and we’re also the least expensive provider in the marketplace.

Joe Fairless: Wow.

Eric Satz: Better, faster, cheaper.

Joe Fairless: Better, faster, cheaper. Yes, please. So walk us through the process. I have a retirement account with fidelity, and I have identified an opportunity that I want to invest in, therefore I need a self-directed IRA or an alternative IRA, from the point of me realizing I wanna invest in something, but I don’t have something set up, all the way to  it’s fully funded, I’ve wiped my hands clean of it, and now I’m set up – what is that process?

Eric Satz: I’m gonna walk you through the example of actually investing in a private company, if that’s okay.

Joe Fairless: Sure. Perfect.

Eric Satz: It’s just cleaner than real estate.

Joe Fairless: Well, can we do real estate? Because this is a real estate podcast, and basically 95% of people who have a retirement account who make it self-directed, they’re gonna be investing in real estate… So that would be more applicable.

Eric Satz: So I’ll disagree with you on the 95%, but I’m happy to walk you through a real estate example.

Joe Fairless: Well, I would say 95% of people who are listening to a real estate podcast are going to be investing in real estate, versus an alternative… I’m talking about my audience.

Eric Satz: Got it, got it. Sure. Now, I have a question for you – is the majority of the audience buying properties outright, or are they just looking for exposure to real estate?

Joe Fairless: Investing passively in a deal.

Eric Satz: Investing passively in a deal, okay. Do you know if often times that deal is wrapped inside, say, an LLC?

Joe Fairless: Sure.

Eric Satz: Okay. So here’s the way it would work then… And we’re going from you don’t yet have an Alto account, to funding and done and collecting the checks.

Joe Fairless: Perfect.

Eric Satz: So you go to AltoIRA.com, you’re gonna sign up as an ambassador, you’re gonna give us some personal information so that we can run what’s called the Know Your Customer and Anti Money Laundering checks; all this happens in the background, and it does not affect your credit score or credit rating.

When you’re approved, we will ask you to go ahead and transfer assets, in this case cash, from an existing IRA account over to Alto. The way you do that is you fill out the transfer of asset form, which is all done online. At Alto, we walk you through it. The one piece of information that we’ll need from you by the time you’ve gone through and created your Alto account is the account number from the account you’re transferring from. In this case we were talking about moving from Fidelity, so we’ll ask you for your Fidelity account. Then the initial amount that you’re asking to have transferred to Alto, and then you’ll sign that document electronically.

We’ll then ask you to upload a couple summary pages from your Fidelity account statement. This is so that Fidelity knows that this is actually you that is asking for the transfer of cash from your Fidelity account to your new Alto account.

Once you have uploaded that document and you’ve already signed the transfer of asset form, our system takes over and it will then execute the transfer of asset process. Along the way you’ll get notifications from the  Alto platform which says “Hey, we’ve initiated your wire. You wire has been confirmed. The money has come back and we’ve received it”, things like that. So you know every step along the way what’s happening.

Once you have the money – although I will tell you, you don’t have to wait for the money to be in the account – you can go forward and in the upper right-hand corner click on the button which says “Make an investment”. In this particular real estate example, where the real estate itself is being held in an LLC, you’re gonna click that you wanna make an investment in a company or a fund. And we say a company or a fund because in this case an LLC (limited liability company) is in fact a company, even though the asset it’s holding is real estate.

So you’ll say “I wanna make an investment in a company”, and we’re gonna assume for a second that somebody else is controlling this limited liability company that’s purchasing the real estate. So we will ask you for that name and e-mail address of the person who is managing the acquiring entity, in this case the LLC. Once we have that, the system will automatically invite that person to the Alto platform to put what we call the offering documents onto the system.

Those offering documents can be made available to everyone who is investing in that LLC. So you’ll then get a notification as the investor that your counterparty has uploaded the offering documents, they’re there for you to review. After you’ve reviewed them, you sign off on them, you provide us with your direction of investment which says that you’ve reviewed the docs, you wanna go ahead and make the investment, and here’s the amount of the investment you’re making. Once you’ve done that, you’re done.

We send the money to the LLC, and then you start collecting, hopefully, big fat checks with distributions related to income from that property.

Joe Fairless: Very detailed, thank you for that. That’s very helpful, to go through the step-by-step process. That’s great.

Eric Satz: My pleasure.

Joe Fairless: You mentioned that you all are the cheapest… Just from a positioning standpoint, as you were building the company – you’re the founder and CEO – why position your company as the cheapest option, versus putting more of a premium on your service?

Eric Satz: Because the real purpose to the company is to make sure that any American who wants to retire is in a position to retire when they reach retirement age. And we’re just not gonna get there if all we’re doing is investing in mutual funds, ETFs and index funds. We have to have exposure to these alternative assets where we can get outsized returns.

There’s enough of a wealth gap and income gap between the 1% and the rest of us at this point that it’s not my goal to build a system that caters to the high net worth individuals. There are plenty of people that cater to the high net worth individual. We can both serve that person as well as everybody else. That was the goal. That’s why we put technology in place; technology that scales, technology that makes it really simple and easy to use, and technology that streamlines the process such that we can charge less, and still build a sustainable, profitable business. That’s the goal.

Joe Fairless: What else that we haven’t talked about as it relates to this that you think we should talk about before we close out?

Eric Satz: Sure. In the example that we went through, the step-by-step example, I pointed out that the person who controls the LLC receives an invitation to the platform as well. That’s really unique and important to what we do, because nobody else in the industry has a relationship with what we call the issuer or the recipient of funds, the company that’s receiving the money. Nobody else has that. We’re the only ones who do that. And we do that based on our own deal experience, from the past 25 years. It’s not enough to just know the investor, you should also know the person on the other side of the table. And because we do have the relationship with both parties that are transacting, we’re able to serve as a communication hub for all of the deal-closing process. That means we’ve taken the heavy-lifting and the burden off of the shoulders of the investor, and we’ve also removed it from the shoulders of the company, and we’ve carried it with technology, in an automated fashion, that creates a really smooth process for everyone involved.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on in your company?

Eric Satz: AltoIRA.com.

Joe Fairless: Eric, thanks so much for being on the show, walking us through the process of how to go about it from A to Z, and talking about how you’ve positioned your company, and the reason why you’ve built it in the first place.

Thanks for being on the show. I hope you have a best ever weekend, and we’ll talk to you again soon.

Eric Satz: Thank you so much, Joe.

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