How One Investor Is Building Wealth and a Legacy with Real Estate By Steven Miszkowicz, CISP

In a time marked by economic and political uncertainty, one of the few things that remain certain is the risk associated with relying too heavily on factors beyond our control.?

For instance, relying on the government to fund your retirement, depending on a single job where redundancy is possible as your only income source, or counting exclusively on a handful of stocks to build long-term wealth – these all pose inherent risks.?

While we can't predict the future with certainty, we can shape and influence it through our actions and decisions. When we focus on the things within our control, we can drastically improve our chances for the best possible outcome.?

It's the very reason why many savvy investors are taking matters into their own hands by exploring fresh opportunities to diversify their portfolios with income-producing assets.?

One such opportunity that has become a popular avenue for investors aiming to build wealth is real estate, and there are several reasons for its appeal, including:?

• Appreciation Potential: Real estate, particularly in fast-growing areas, has the potential for appreciation over time. This can yield a substantial return on investment when the property is eventually sold.

• Long-Term Income: Real estate can generate a consistent income stream, especially when properties are leased to long-term tenants, making it beneficial for investors looking to supplement their income.?

• Inflation Protection: Property values and rental income tend to increase with inflation, meaning that real estate is an effective hedge against inflation. This helps to preserve the value of your investment over time.

• Investor Control: Real estate offers investors a level of control not always found in other asset classes, such as stocks and bonds. Decisions about property management, renovations, leasing, or selling are in the hands of investors.?

• Tangible Asset: Real estate is a tangible asset that investors can physically see and touch. While this isn't necessary to build wealth, it can give investors a sense of security.?

Given these potential benefits, it's unsurprising that real estate investing has captured the attention of investors of just about all classes.?

In its growing popularity, you've likely encountered many tips and strategies from various sources to guide your entry into the industry. While some of that advice may prove valuable, there's nothing quite like hearing the experience of someone relatable for a fresh perspective.

Allow us to introduce Dirk Zeller. You'll want to stay tuned to learn more about his journey from frustration and loss to becoming a wildly successful investor with over 80 real estate units!

Dirk's Investing Background

Much like many others, Dirk appeared to be taking all the necessary steps to secure his future. He started diligently saving for retirement in his late 20s and ensured his and his wife's accounts were maxed out each year.?

When he experienced a substantial loss in the market in 1999, he even went as far as engaging a financial advisor to prevent that from happening again.?

While a financial advisor wouldn't be able to predict future market performance with certainty, perhaps they could assist him in diversifying his portfolio to mitigate the impact of market downturns.

But when the 2008 market crash put him back in the same position he found himself in 1999, he decided to take matters into his own hands.?

While the market is expected to ebb and flow, Dirk was emotionally drained witnessing everything he had worked so hard to accumulate collapse to nearly nothing. Twice.

Dirk made a decision that would change his trajectory as an investor. If he were ever to lose all his retirement savings again, it would be because of his own choices and errors, not because he was left at the mercy of the stock market and economic failures.

Drawing on his existing real estate expertise and a desire for a better future, Dirk channeled his remaining retirement funds into a Self-Directed IRA (SDIRA) and ventured into real estate investing.?

This strategic decision made years ago has proven fruitful, contributing to his substantial net worth and steady cash flow today.?

Today, his impressive portfolio comprises over 80 real estate units, 40 of which are owned by his Roth SDIRA (you'll want to keep reading to understand the significance of this strategy!).?

Dirk's Long-Term Rental Investing Journey

Dirk's inclination towards a more hands-off approach has shaped his preference for investing in long-term rental properties through a buy-and-hold strategy, steering mostly clear of property development, flipping projects, or managing short-term rentals.?

Managing property development and flipping projects demands a substantial investment of time and patience, resources that Dirk self-admittedly lacks.?

Similarly, while some short-term rental opportunities may be more lucrative than long-term rentals, they come with added responsibilities, such as ongoing customer service.??

To avoid turning real estate into a full-time endeavor, Dirk strategically diversified his portfolio with various long-term rentals, including single-family homes, apartments, duplexes, triplexes, and quadplexes.?

But even within his strategic focus on long-term rentals, he found a particular affinity for multiplexes, making them his preferred niche.

Why Multiplexes?

If you're unfamiliar with multiplexes, they're properties featuring multiple distinct living spaces within a single structure that have become highly favored among real estate investors. Wondering why? Dirk shares his reasons:??

• Less Capital Needed: These properties require less upfront capital compared to 20- to 30-unit apartment buildings, eliminating the need to accumulate cash for an extended period before making a purchase.

• Easier to Buy and Sell: The lower demand for capital allows Dirk to acquire a couple of multiplexes each year and makes selling easier since there are more potential buyers than for larger apartment buildings.?

• Higher Profitability: While the average rent per unit is typically slightly lower than a single-family home, owning multiple units contributes to a higher overall profitability.?

• Quick Income Generator: From Dirk's experience, multiplexes often generate income from the outset at a favorable rate.?

• Lower Vacancy Risk: Even with a single vacancy, the potential for financial loss is reduced – a scenario that contrasts sharply with the impact of a vacant single-family home.

With a lower financial barrier to entry, reduced risk, and the potential for higher profitability, it’s no surprise that Dirk and many other real estate investors favor this niche.?

How Dirk Found His Real Estate Investing Opportunities

While some investors might base their investment decisions on the latest trends, Dirk's strategy has always involved thorough research.

In 2010, he analyzed 25-30 different markets, examining factors like cash flow and the prices at which banks were selling foreclosed properties after the 2008 financial crisis.?

He eliminated two-thirds of the market from his list because hedge funds were already active in them, and he lacked the resources to compete with their financial capabilities.?

Eventually, he found a suitable market to explore.?

If you're curious to know the outcome of his extensive research, how it shaped his strategy, and some of the successful deals he's secured as a real estate investor, let's take a look:?

Ideal Location

Dirk gravitated to Tucson, AZ, for several reasons, including:?

• The aftermath of the 2008 financial crisis resulted in many distressed properties available in Tucson. Armed with favorable numbers, Dirk confidently made offers over the asking price to banks selling foreclosed properties. While other investors aimed for lower offers, Dirk believed the potential in the properties justified his approach, making the deals worthwhile for him.

• During this time, he had the opportunity to buy reasonably new four-bed, two-bath homes for $65,000 that yielded $950 a month in rent, which translated to a cash-on-cash return of 17% to 19%.

• He could acquire three homes in Tucson for the cost of one in his hometown of Bend, OR.

What they say must hold some truth: location matters in real estate!

College Towns

College towns appeal to Dirk due to the perpetual demand for housing. Even if you're not specifically interested in student housing, you can typically do well due to strong employment figures and economic vitality within these towns.?

Best Deals

In terms of numbers, Dirk has snagged some incredible deals, like acquiring duplexes for $90,000-$100,000 and renting out each unit for $750 a month.?

Putting the pieces together, Dirk's objective was to acquire as many properties as possible using his retirement funds and leveraging available assets. He developed relationships with a few banks willing to loan to an IRA – a strategy more widely accepted today than when he started a dozen years ago.?

Although some of the research Dirk conducted years ago may not directly apply to today's market, it offers valuable insights into the kinds of opportunities to look for in your own research.?

Why Own Real Estate in a Self-Directed IRA (SDIRA)?

There are many reasons why someone might opt to hold real estate in an SDIRA, including:

• Diversification: SDIRAs allow you to broaden your investment portfolio beyond traditional stocks and bonds by incorporating assets such as real estate. This can effectively mitigate risk to your retirement nest egg.?

• Control and Flexibility: You have control over your real estate investments and the flexibility to make decisions (i.e., buying, selling, renovating, etc.) that align with your investment strategy. This is possible because your SDIRA can own an actual piece of property instead of just owning a share of real estate in a traditional retirement account.

• Tax Advantages: SDIRAs share tax characteristics with Traditional and Roth IRAs. Contributions to a Traditional SDIRA may be tax-deductible, and earnings grow tax-free until withdrawal at retirement. In contrast, a Roth SDIRA is funded with after-tax dollars, but contributions and earnings can be withdrawn tax-free at retirement.

Dirk's real estate investing approach is grounded in his long-term vision of passing on generational wealth in a tax-efficient manner and leveraging existing assets.

Investing in real estate using his retirement assets in a Roth SDIRA provided him with a tax-efficient strategy to build a legacy for his children.?

When the time comes, his children will have various options for withdrawing assets from his Roth SDIRA, including distributions over their life expectancy, spreading distributions over a 10-year period, or opting for a lump sum distribution. If they choose one of the first two options, the assets can continue growing tax-free as long as they remain undistributed.?

Dirk is clearly a firm believer in the advantages of a Roth SDIRA. So much so that if he were to start again, he would have his Roth SDIRA own a percentage of all his properties to maximize the benefit of tax-free growth.?

Dirk's Final Thoughts

As you pave your own path in self-directed investing, Dirk wants to leave you with a few final insights:

1. Embracing the Unfamiliar

While anyone can engage in self-directed investing, it's a departure from conventional investing. The beauty of SDIRAs is the flexibility to explore more creative investment avenues, such as real estate.?

It may not suit everyone, but Dirks sees self-directed investing as an excellent strategy for those with an entrepreneurial spirit and a business mind. It's an opportunity to venture beyond the familiar and unlock the potential of thinking outside one's comfort zone.?

1. It's Never Too Late

Never assume it's too late to acquire income-producing assets. Even in retirement, Dirk believes you can still invest in assets like real estate that offer a steady and dependable income.?

He likens it to an annuity on steroids, emphasizing that unlike traditional annuities, where payments end upon your death, real estate assets can provide a continuous income stream for your loved ones even after you're no longer around.?

1. Individual Paths in Self-Directed Investing

Everyone's self-directed investing journey is unique, and success doesn't require replicating someone else's story. While Dirk has found considerable success in real estate, your approach should align with your unique risk tolerance, goals, and expertise.

1. Collaboration is Key?

Dirk attributes much of his success as a self-directed investor to more than just his own efforts. In addition to his experience and skills, one of the great contributors to his success is the team he's built. He firmly advocates seeking expert guidance on your journey, which brings us to our final point.

How Chicago Trust Administration Services Can Help

We at Chicago Trust Administration Services are honored to have been a part of the team that's contributed to Dirk's success. He attributes our collaboration to landing creative and compliant deal structures, expanding his perspective in ways he hadn't considered before.?

Just as Dirk found his passion in real estate, we at CTAS found ours in helping investors build wealth through self-directed investing. If you're curious whether an SDIRA aligns with your financial goals and if we might be a good fit for you as you build your own team, we'd love to connect with you soon!

To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing [email protected].

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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.