Retirement Investing – Eat at Joe’s IRA Bar & Grill
The joy of entrepreneurship…
Many investors in the US are finding that their carefree retirement plans are in jeopardy due to a lack of funds. Creative investors are looking for more profitable solutions for their retirement plan investments. As more and more investors are learning, traditional financial advisors usually only direct investors to traditional investments. For investors used to having access to a wide variety of investments, the world of retirement investments seems very limited. Limited, that is, until they discovered the Self-Directing IRA. Self-directed IRAs reopen the door to the investment world that creative non-traditional investors know so well.
Let’s follow in the footsteps of one such investor. Joe, 54, married, two children, one dog, is a successful business owner and experienced investor. A few years ago, Joe had it all planned out. He would retire at 60 and move to New Sirna, Florida.
Joe’s retirement plan was going well. He is invested in various successful funds and stocks. Joe expected to sit back and wait for the monthly automatic deposit to appear in his account. That vision changed over the course of a few months as his safe and secure paper investments lost over 35% of their value. One morning Joe realized he needed to pay more attention. After studying, researching and spending hours communicating with the Wall Street Journal, Joe realized he just wasn’t comfortable with stocks. Sensing his dream of retirement slipping away, Joe turned to the bottle.
Luckily Joe only had a few bottles. He mostly talked to his friends at the neighborhood bar. One of them, after hearing Joe’s story, introduced him to the self-directed IRA. Joe listened intently as his friend described the permitted investments in accounts that were indeed managed by himself. Joe realized that he had been looking for investments in the wrong area, an area where he felt lost and uncomfortable. Reinvigorated, Joe headed home with renewed hope.
Joe took inventory of his investment and other skills. His professional career as a restaurant equipment salesman introduced him to a large number of restaurant professionals. He was also known to have a good eye for people and was usually good at identifying those with talent.
Knowing that his retirement plan could invest in almost any asset, including a business, Joe began to think about how he could use the skills and connections he had to help his IRA grow by investing in businesses. At the same time, Joe took advantage of classes offered by his local Entrust Group office on how self-directed IRAs work. At the end of the class, Joe began the process of opening a self-directed IRA and rolling over his retirement funds into it. During the class, Joe learned that while his knowledge and connections could benefit his plan, his labor and assets could not. Joe also kept his eyes open for business and opportunities while meeting with clients for his work. After a few months, one of Joe’s customers mentioned a local bar that was for sale. Joe did a little investigating. Surely he heard opportunity knocking. Not for yourself, but for your IRA. Joe discovered that buying and owning a bar involved quite a bit of paperwork, especially with regards to the liquor license. Joe decided that it would be better for his IRA if he had a partner, ideally someone familiar with the whole process. Joe found out that the bar’s current owner didn’t really want to sell, but had to because of an unrelated financial difficulty. Joe realized he might have found the perfect match. Joe negotiates with the seller for Joe’s IRA to purchase 85% of the bar, which is actually a corporation known as “The Corner Bar”. The remaining 15% with the old owner was enough to keep the local licensing people happy, but gave Joe’s IRA control of the operations. The purchase includes some terms that make the old owner happy with his minority position.
Joe’s IRA invests $225,000 and as a shareholder controls significant decision-making power. All the decisions made by Joe’s IRA were actually made by Joe and implemented through the IRA, so even though Joe couldn’t wipe the bar himself, he could use his eye for talent to hire experienced bartenders to do the wiping. Joe’s IRA also provided funds to the corporation to make some upgrades to the bar and make some other improvements that Joe believed would make the bar more profitable. When Joe calculated the return on investment of his IRA, he realized that after taxes the investment would likely return about 15%, or about $35,000 per year. Joe decided to delay his retirement for two more years, giving him 8 years to accumulate earnings. He estimated that the money from the bar investment would provide the IRA with about $280,000 over the next 8 years, plus earnings on those funds. Joe expected the investment to cost about $400,000 over 8 years.
Joe dreams of the beach again. But wait. The bar brings in profits that Joe’s IRA will have more money to invest. Hey friend, have you heard of any good investment opportunities?
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