PLP 101: Three Silver Linings For The Long-Term During This Difficult Time
The current Coronavirus situation has left many of us feeling helpless and anxious. Nevertheless, hope is not at all lost, especially if you are planning to start your journey to becoming a private lender. In today's show, Keith Baker tells you now is the perfect time to do that. In the service of providing the positivity that we all need right now, he shares with us three silver linings that we can get from the current situation. Here, he taps into what we can do with self-directed IRAs and then reminds us that our future is solely up to us.
Three Silver Linings For The Long-Term During This Difficult Time
Now Is The Perfect Time To Start Your Journey To Becoming A Private Lender In A Self-Directed IRA
This show is the only one of its kind that is dedicated to teaching everyday people like you and me how to prosper with the most passive form of real estate investing known to humankind while also giving tips and ideas that can help keep your money safe with private mortgage investing. It's this simple. If you're looking for practical tips and advice on being a successful private lender and how to create wealth without the banks or Wall Street, then you're definitely in the right place. If you want to learn from my mistakes so that you can avoid them and prosper much quicker, then pull up a chair and pull yourself a cup of latte Larry's coffee because the Private Lender Podcast is made for you. This episode 101 is sponsored by the letters WTF. I hope you are safe and well amid the COVID-19 pandemic wherever you are. As of mid-April 2020 on the global scale, there have been 2.4 million confirmed cases of infection, 623,000 have recovered and 165,000 have perished.
Here in the United States, 22 million have been able to file their applications for unemployment insurance. I've completely brought the mood down and bummed everybody out. I do want to have something positive for everyone. In the spirit of finding positivity in crap, we're all going through this together, yet we're supposed to be apart or at least at a safe distance. No one can remember anything like this affecting us in the US as much as it has since SARS. In the spirit of trying to find a silver lining, I'm not going to promise to make lemonade from all these lemons. I believe this can be a step in the right direction, especially if your life's been dumped upside down and you're one of those 22 million people looking for their next paycheck. Keep your enterprise. The present is uncertain, but the future is up to you and me. It's up to us. I don't want to give any false hope. Times are crappy. We're going to have to buckle up.
[bctt tweet="You are the CEO of your money. Act like it!" username=""]
What I'm talking about here will not satisfy any short-term needs like putting food on the table or paying any bills, but then you don't read this show for that. The moves I'm talking about making are definitely to help you in your long game, but also knowing that the short-term is very bleak. For example, the former Mrs. Baker was laid off because of the effects of Coronavirus on the company she was working for. That sucks. It's not a great time for her. There are a lot of unemployed people and unfortunately in Houston, the job market for oil and gas, especially the upstream is not in a good swing. It's going down. I don't wish harm to anybody but history does tell us that during uncertain times like these is when giant shifts in society and wealth can be made. I believe this COVID-19 has the ability to make more private lenders than any other time before. It’s going to help open the doors of opportunities from the millions who have been affected. It's going to happen in an ugly and crappy way.
Silver Lining Number One
If you can hold your breath like Andy Dufresne in the Shawshank Redemption, you can crawl through a mile of crap and come out clean on the other side. A lot of bad things are going to happen to people and to good people, people that we know and love. The sun will rise tomorrow. Why not try to find some good actions to take towards making your situation better for those around you now and in the future. What positive could come from this? How’s this going to make private lenders? Silver lining number one, let's take that 22 million to 25 million they're anticipating, all of those retirement plans that will no longer receive contributions from the employee or the employer. That sucks in the short-term because that comes with also no paycheck, no health insurance and no certainty for the future. That is definitely a scary place to find oneself and I feel for everyone going through that. These old retirement accounts can be rolled over into IRAs, which costs nothing and it's not even a taxable event and there's no penalty.
[caption id="attachment_2888" align="aligncenter" width="600"] Silver Linings Private Lending Silver Lining: There's going to be a lot of gloom and doom all around us, but there are going to be opportunities on the horizon held down the road.[/caption]
Your 401(k) custodian most likely would love to do it for you and keep your business and account at their company. The question is, why I do this? In the past, IRAs have had more flexibility in investment options than the company-sponsored 401(k)s. There are some exceptions with Fidelity, other custodians and other brokerage houses where you're given almost a brokerage account. You can trade individual stocks in your 401(k), which is nice like mutual funds, ETFs. There are some limitations. I have worked at companies where we had three options in the 401(k), it was all stocks, all bonds, or blend. If 401(k) is limited, when you take that old 401(k), convert it to an IRA and now you can invest in so many more things than a limited 401(k) program at companies that only have about 30 or 40 mutual funds for you to choose from. You get that money rolled over into a vehicle that's a little more open-ended when it comes to options and also limited. That's a good thing. That's a silver lining number one.
Silver Lining Number Two
Silver lining number two is even if you make too much money and cannot contribute to a Roth IRA, once you roll over your 401(k) into an IRA, then you convert that normal IRA parts or all of it into a Roth IRA. You will have to pay taxes on that. This will be a taxable event. However, there will be no penalty. As it stands in April 2020, you will not pay any taxes when you withdraw the funds during your retirement from the Roth IRA. I say find a way to tax the seeds and not to crop. The US government gave away $2 trillion it doesn’t have. Who do you think is going to pay for that down the road? I'm not saying I'm right, but I'm letting you know that that's my thinking and that's how I'm trying to position myself for this.
[bctt tweet="The present is uncertain, but the future is up to you and me." username=""]
Silver Lining Number Three
I'm trying to get as much into Roth as possible because someone's going to have to pay the piper. I don't want to be doing it with my retirement account and with God knows what healthcare is going to be like when I get to the end of that road. That's silver lining number two. Even if you can't contribute to a Roth, you can take an old IRA and convert it. Let's go back to silver lining number one, where you now have that IRA, you can still put $5,000 per year to that IRA. If you have a Roth, even if you can't contribute to a Roth, you can always convert rollover standard, traditional IRA money into a Roth if you pay the taxes upfront. Silver lining number three, and this is where it comes into the private lending, is once you have that IRA and a Roth IRA, you can open an account with self-directed IRA custodian to get on the road to becoming a private lender. In turn, expand your network and the number and types of projects in which you invest.
I mentioned the former Mrs. Baker was laid off due to the pandemic, right in the middle of a divorce. My heart goes out to everyone who's dealing with it, especially her. We are in this together one way or the other, but life happens whether you want it to or not. She came to me and told me she was upset. I said, “Nothing changes.” I'm not going to leave her out in the street. It means things are going to be tight because we're still a two household until the courts can open back up. As unemotionally as possible, I sat down and we spitballed things. Unemployment insurance, she was explaining how difficult it is to get through five million people a week. I imagine that call center is overwhelmed, but nonetheless, keep trying to get through the automatic stimulus check. That helps. It isn't going to make anybody's year, but it can put some food on the table or pay a bill.
[caption id="attachment_2889" align="aligncenter" width="600"] Silver Linings Private Lending Silver Lining: The only thing worse than having a job you don't like is looking for the job you don't like.[/caption]
There's the CARES Act, EIDL, Paycheck Protection. If you're an entrepreneur or self-employed, that doesn't apply to her but I'm spitballing, I've tried to get some relief for asset REI with my partner because we're having a hard time putting some tenants into some properties. I figured the worst they can say is, “No, you don't need it. You don't qualify, so move on.” It didn't take very long. Back to the former Mrs. Baker, she's negotiating with her landlord about terminating the lease. She has a letter from her former employer stating that her termination was due to the pandemic, which is mind-boggling, but they've already furloughed some of the rent payments and given her a Rent Payment Program without her requesting it.
Nonetheless, we suggested that she look at all the options, look at all the cards that are out on the table. Fortunately, for us, we don't need to establish any payment plans for any bills or any loans or anything like that. It is a possibility and one that I wanted to put down. It's an option that we have if she's not able to find work quickly. God forbid, the kids were playing sports until all this happened. Unfortunately, we've paid all the medical bills and emergency room visits and all that stuff. None of that is going on. The next thing after we spitballed with that was we need to create a pandemic budget. What does this all look like? A lot of things are in the air, especially as to where she's going to be living. She's looking to downsize but also looking at other facilities. One way or another, it looks like a move is coming. I will be hiring strapping young men to help with that because I'm not lifting anything.
I also said, "Immediately, initiate a rollover for your 401(k) into an IRA." Since she had only been there for a few months, it didn't contribute much. There's not a whole lot in there, but roll it into the traditional IRA, then we'll convert it into the Roth. I'm basing this on the assumption that her income is going to be down significantly. If you're going to pay taxes on some money to put into a Roth, now is the time to do it. It's one of those silver linings. She's very much agreed with that. We're moving onward for her. With me, I still try to convert as much as I can when I can to my Roth IRA. However, that's been put on hold for obvious reasons. One of the things that I've noticed in talking with friends and neighbors, with a little social interaction I'm having with people outside of my own family is a lot of people trying to learn how to network electronically online and use things like social media which they absolutely despise.
[bctt tweet="Life happens whether you want it to or not." username=""]
Whether we like it or not, it is the situation and reality that we find ourselves in. Now is the time to update those profiles, your contact info, get on LinkedIn and all that fun. The only thing worse than having a job you don't like is looking for the job you don't like. There's going to be a lot of gloom and doom all around us, but there are going to be opportunities on the horizon held down the road. We want to be on the forefront with our ear to the street and try to put our finger on the pulse of our local markets and this job markets, but definitely real estate markets from a private lending perspective. One of the things that I’ve suggested to some of my friends that have lost their jobs is there's a lot of uncertainty.
I go back to a book I read. It was a very depressing book, but a guy suffered a very bad tragedy in his life. He kept talking about he was on his motorcycle road, kept riding his motorcycle to keep moving because it soothes him much like when you put a baby in a car and taking for a drive when they won't sleep at night. I've always tried to adopt that mindset of I need to keep my body moving. You should go to the gym and all that but I don't. I'm not going to be a hypocrite, but I do try to walk, stay active and do projects where my body is moving. Also, do the same thing with mind and emotions. I do meditation like I do antibiotics, only when I need it. When I started feeling better, great. These are some of the suggestions that I threw out to the ex because she was listening to some friends at first that got furloughed and then let go altogether. The other businesses will probably not return at least not as they knew them.
Keep moving. Another quote I like to throw, some Bob Dylan who said, "You don't need a weatherman to know which way the wind blows." That's going to do it for this episode 101 with the Private Lender Podcast. I do want to thank you for sharing your time with me. I do appreciate it. Here's the part where I beg for ratings and reviews over at iTunes, Google Podcast or whatever platform you're using. Thanks for reading the blog. I do hope that you and your loved ones stay safe and healthy and that we all get through this crap as quick as possible. We'd all be good if we had high self-awareness. Besides that, I wish you safe and prosperous private lending. I'll catch you on the next episode. Take care.