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Post-Great Recession, many investors are looking at real estate as the smart place to put their hard-earned retirement money. Real estate investing, however, is often relegated to the cash-rich or investment groups, boxing out the average Joe. But that doesn’t have to be the case.

According to Oakland, Calif.-based The Entrust Group, many consumers—along with the real estate professionals who serve them—are unaware that they can use their self-directed IRA to fund a real estate investment. A self-directed IRA is one in which the individual account owner has complete control over selecting and directing their individual retirement investments, allowing them to utilize their IRA funds among several permitted investments, from precious metals to real estate.

By becoming well-versed in how to purchase real estate with IRA funds, brokers and agents can enlighten clients about a financing source they may not have known about—one that involves no credit criteria—facilitating sales that might not have happened otherwise.

A provider of self-directed IRAs for more than 30 years, The Entrust Group works closely with real estate professionals and consumers to make the process of IRA-funded real estate purchases easy to understand and simple to carry out. The Entrust Group’s core principles focus on education and client service, making them a valued resource for both the agent and the consumer.

Hugh Bromma founded The Entrust Group in 1981 when he came across a business in Southern California that was helping people use self-directed 401(k)s to purchase real estate. “People were using 401(k)s to invest in subdivisions out in the middle of the desert, and I thought, ‘This is really interesting—people are making money tax-free. That’s pretty cool.’”

Bromma bought the company and then began the process of educating the various players involved in using self-directed funds for real estate investing: real estate brokers and agents, accountants and lawyers. Bromma became a huge champion of educating professionals and the public at large about the ability to use retirement funds, tax-deferred or tax-free, and about the necessity of due diligence in the process. As Bromma says, “We are constantly innovating and constantly educating.”

“The opportunity to invest in real estate has been the most popular throughout our company’s history,” says The Entrust Group President Jason Craig. “Real estate is a tangible asset and people gravitate toward it. Non-recourse loans allow a person’s IRA to borrow and buy the property. What that person’s individual credit score and credit history is does not come into play. The IRA (as a borrower) receives the funds from a bank or other party that does non-recourse loans.”

How the Process Works
According to Craig, investing in real estate with a self-directed IRA is not very different from purchasing real estate for personal use—there are rules and processes that must be followed in order to avoid potential problems.

One of the most important factors for a client to understand when utilizing self-directed IRA funds is that the investment property becomes an asset of the IRA, which means the IRA owns it—not the buyer.

“The offer needs to be made in the name of the investor’s IRA as the buyer, not your client, the individual investor,” explains Craig. “From there, the self-directed IRA company works with you, your client, and the necessary third parties to make sure the transaction is efficient and seamless. It’s important to note that all income from a rental property goes into the IRA. The income is tax-deferred until a distribution is taken from the IRA.”

Irene Vann is the real estate manager for The Entrust Group. She and her team work closely with real estate brokers, agents and their clients in handling transactions funded with self-directed IRAs.

According to Vann, a common challenge clients often have when purchasing real estate through their IRA is understanding that while the IRA is theirs, the purchase contract cannot be in their name. “We have to educate the agent and educate the client to make sure that everything is done by the IRA’s rules and regulations,” she says.

Education Is Priority One
“Education is a huge part of what we bring to the table,” says Craig. “We’re not a financial advisor, but we educate people on the opportunities that exist. People want to invest in what they know. If you know the real estate market, it opens up a whole avenue for them to use their pool of funds that they thought had to be locked up in bonds or the stock market. We educate people on how a self-directed IRA is a vehicle that can be used to invest in real estate.”

“We usually work directly with the client and then also educate the agent,” says Vann. “Most of our clients have already located an agent by the time they come to us. We go out to speak to agents to educate them as well so that it trickles down when they’re dealing with clients.

“We have to educate the agent and educate the client to make sure everything happens by the IRA’s rules and regulations,” continues Vann. “We have to show the real estate professional and the client that these types of contracts cannot be written the same way as a traditional real estate contract.”

According to Vann, education is paramount in helping to avoid a prohibited transaction, in which the client gains personal benefit.

“The main issue to be aware of is who’s disqualified, which would be the IRA owner, the beneficiary of the IRA, grandparents, spouse, etc.,” explains Vann. “It’s important for clients to realize that they and the IRA are two separate entities.”

Vann also stresses that agents and their clients need to be aware of prohibited actions down the road. “If the client rents the property, then all rental income would flow into the IRA, but many ask tenants to send the income to them personally. So while the transaction might not have been prohibited at purchase, it can become so if the client engages in prohibited transactions later.”

A Trusted Personal Guide
Personalized client service and strong relationships are the foundation of The Entrust Group’s brand. Service, in fact, is one of the firm’s strongest competitive advantages.

“Ninety-two percent of clients says they would do business with us again,” reports Bromma. “Client service and the face-to-face are so important.”

“We need to educate people on what they can and can’t do when they’re investing in alternative assets,” says Craig. “We have dedicated points of contact who work with a person throughout the lifecycle of their account. We have support people in different time zones and people know who you are. You don’t get passed off. People have to figure out which way to navigate and that takes a human touch.”

The Entrust Group provides this same level of service and guidance to real estate professionals through its Business to Business programs.

According to Craig, while more and more people are aware of the concept of using self-directed IRAs for real estate investing, they don’t understand the ins and outs of how it works. “We work with real estate agents to help them understand how they can use self-directed IRAs to help grow their business,” he explains. “Most don’t understand how it works or that it can even be done. Some have clients who bring it up to them. We want to be proactive and get in front of that curve.”

According to Craig, agents can grow their business by letting clients know how they can utilize their self-directed IRAs for real estate.

“Once an agent understands how they can leverage self-directed IRAs to grow their business, they can get new clients out of it, and they are also separating themselves from every other agent,” says Craig. “The real estate professionals who understand it are excited about the opportunity to generate more leads from their existing database.”

To help spread the word, The Entrust Group is making a major push at events around the country, including an upcoming presence at the CRS show and the annual National Association of REALTORS® Conference in San Diego. Craig and his team also host speaking presentations for agents in various regions around the country, in addition to providing reports, case studies, marketing materials and videos to help educate REALTORS®. “We want to make the process as seamless as possible and try to arm brokers and agents with all the resources they need,” he explains.

“We’d like to see more really solid B2B relationships develop that last a long time,” says Bromma. “We want to engage with real estate professionals to help their clients, whether they’re buying their first investment property or buying apartment buildings. We want to help them get the right kind of education and the right plan.”

The self-directed IRA strategy is one that withstands market fluctuations, says Bromma, and one that will only grow in popularity down the road.

For more information, visit