Do you know that you can use your self-directed IRAs or 401(k)s to invest in real estate? Not only that, but when you learn how to control your investments, you can also manage your taxes strategically. Today, our guest will teach you how to do all these. Tune in as Sam Wilson chats with Carl Fischer, the Principal Owner of CamaPlan. Carl is here to help you use your self-directed IRA and 401(k) plan effectively. Also, he shares his thoughts on checkbook control and why it may not be as safe as you think. Listen in and start investing!
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Self-Directed IRAs And The Power Of Investing In Real Estate With Carl Fischer
Carl Fischer, welcome to the show.
How’s it going, Sam?
I’m great. I cannot complain. I do apologize in advance. We talked in the sense that this is a show on the road. I don’t do many of these, but I appreciate you taking the time to come on nonetheless.
I feel honored we’re on the road.
We do what we’ve got to do to get it done. I ask the same three questions to every guest that comes on my show. Can you quickly tell us where you started, where you are now, and how you got there?
It’s pretty simple. My mom and dad were in real estate and their moms and dads were in real estate. I grew up around real estate. I read Kiyosaki’s book and I felt like I had already known why. It answered a couple of questions on why other people rent, but my dad and mom had always owned. I used to go to the mailbox, open up the mail as a kid, and pull out the checks. As I got older, I’d even put them into the ledger. I grew up around it and then I went to college and I ran at a couple of ski areas in Vermont and then charged the other friends and people that went so that I could have my trip for free.
I’ve been doing real estate my whole life. After college, I went to the Space Center. I was launching rockets at Kennedy Space Center in Cape Canaveral Air Force Station. I started on the shuttle program. At the same time, I bought a property and I started building a single-family house on it. I bought the lot next to me, and then I bought a couple of other lots around the neighborhood. I did some developing and a lot of owner financing.
Put the duct tape over your own hands so that you can focus on the important things like negotiating a new deal.
My father died in 1993. I helped my mom out with his apartments. I thought she knew more, but she had twelve kids. I was the oldest. She had gotten out of the real estate business to some extent but was still there, but she was getting up in age. I took that over and sold the different assets and developed some of them in the meantime, multifamily tilt-wall warehouses.
I’ve been around real estate my whole life. How did I get to where I am now? I do more commercial real estate because I find it easier to do than single-family homes. Businesses don’t call you as much. They’re only there during, most of the time, work hours, [8:00] to [5:00]. We try to do triple net leases to have less time in the overall investment and make as much money. That was what drew me into commercial real estate. I was looking for an office for my mortgage brokerage company. I could buy the building cheaper and I could rent it. That started me into the commercial side of it. I already had a couple of tenants and I put a few more into it.
If you’re talking about exactly where I am now, I’ve kept most of the properties. I’m a buy and hold person and I’ve had a property management company. I sold that for mostly my own properties. We are now more into syndications and buying into 800 or 1,200-unit apartment buildings. I don’t have to manage it. I was a control freak when I started out, but being a control freak ties up a lot of your time. As you get older and your kids start having kids, you want to spend more time with them. That’s how I got to where I am now and it seems to lead to a pretty nice retirement even though I’m not retired.
We’re going to circle back on a few things you talked about there. One is you said you were a control freak. What does that mean in a practical sense? What did it cost you for being a control freak?
One of the things is I want stuff done the right way. I graduated as an engineer. I want things built to the specs. We spend the time and the money doing that. I spend a lot of time on those jobs to do it. I’ll give you one example. I had a building that needed to be painted. I started getting a painter there. He was drunk on the job. I kicked him off and I started painting the property myself. My dad had painted a lot of places and had taught me how to do it and I said, “I’ll get it done and save the money.”
On that same day, I got a call on a property that I was looking to buy for a couple of years and I was helping the person out. I didn’t get the phone call until I got back late. It was before cell phones that you carried in your pockets. I lost the deal that I worked on for two years. She took another person’s offer and said she had to move quickly. I said, “That’ll be the last time there.” I carry a roll of duct tape in my hand and my trunk. If I go into a building, I’ll put the duct tape over my hand so that I can’t pick up a broom, a hammer or a screw gun because then what I’m doing is I’m trading my $30 or $40 an hour time. I could be negotiating a new purchase or a new deal. I have to figure out what I’m going to do and what I’m going to farm out or outsource.
That’s a tough one for those of us who like to get it done, the hammer and the broom, put duct tape on your own hands. The pain of those experiences of losing that deal. How many of those does it take before you go, “I missed tens of thousands of dollars so that I can sub-out or try to do a $1,500 or $2,000 paint job?” That’s hard. What advice do you give to people like you and me that when we see something, we want to get it done? What would you say to somebody like you and me?
If I had known this earlier, I would say build your team and network and have the right people there. Build the relationships before you need them. I should have known that the painter was drinking on the job before that. You want to build the team and relationships before you use them and then trust them to do that.
Even though I was a control freak, I can hang drywall and paint and a lot of those skills, but I also find people who are better than me. If I try to do laying brick or finishing concrete, not that it’s terribly hard, but there are many people who can do it faster and better than me. Even if I lose on a couple of things, 80% is probably good enough based on my standards. It saves you time because time is the only thing you can’t get back. As you get older, time is more important to you.
You’ve done a couple of things. You left out perhaps part of the story, which is your day job, CamaPlan.
I love CamaPlan. That helped me out immensely and it helped me get to the next level because I used to read all the books on how to save taxes when you’re buying real estate in furnishing apartments, houses or commercial buildings. Once I learned that my IRA and 401(k) could own real estate and not pay taxes and with the Roth IRA, I could have tax-free income, it made my taxes and bookkeeping way easier. My net worth went up significantly faster because I got to use all of the money I made and not pay any taxes. That was the main reason. It took me two years to figure it out because I’m one of these guys that if it sounds too good to be true, it is, but it took me two years and I did it.
I experimented with a little bit of money, and then I said, “This is great.” The wealthy people have been doing it for decades. There was nothing written on it. There were no books on it. It was hard to get it out of the IRS. I went back to Cornell University and tried to find information on it and there wasn’t any easily attainable information like now where there’s all kinds of books, articles, Forbes and any other magazine and newspaper.
Peter Thiel was in the news having $500 billion in his Roth IRA with Elizabeth Warren and Bernie Sanders got all excited about and a few other billionaires that had done that. With our company, I see a lot of people that have increased their net worth and upped their living standards as a result of it. It was a godsend. It’s a good way to finance projects. I’ve done subject-to and owner financing. When you can borrow money from an IRA or use your IRA and then have your IRA borrow money from another IRA or 401(k), there are a lot of strategic ways to make money and buy investments.
We’re going to get into the weeds here a little bit with this question, but you mentioned something I’ve never thought of. Have your money borrow money from another IRA. Can you break that down for us?
Once people know that they can control their investments, they can use the knowledge that they have in real estate.
My IRA goes out and it’s going to go buy a $200,000 home or business condo. I only want to spend $100,000 of my money. I’ll put that $100,000 down and I’ll go borrow from my brother or some friend who’s making a 1.5% on a CD in the bank on an IRA and say, “I’ll pay you 3% or 4% or some hard money people if you need it. We’ll make 10% or 12%.”
I’ll go borrow that money until I can fix it up, go to a bank and get a lower rate, because several times during the past years, banks weren’t lending money, especially after 2008 and 2009. A lot of people had to start borrowing money from IRAs and 401(k)s. They liked the ease and the quickness of it. The people who were lending the money like that it was collateralized with $100,000 or 50% loan value. It was a good match.
I understand now. I haven’t quite picked up the nuance there, but you’re basically using the other half of the purchase price as debt from someone else’s IRA?
Correct.
That’s certainly an advanced strategy, but I like that. What was that process like building camp where the business at the same time while you’re building your real estate investing business?
I have been real estate investing ever since 1976, when I first bought my first place right out of college. I didn’t get into the IRAs until after my father died. That’s when I learned about in ‘93 and then started in ‘95. It was a slow process getting into it. I started using them because I liked the tax-free side of it. I started helping my friends do it because I had a lot of them at the Space Center and things, and they liked the idea of that. Years later, they said, “We trust you. We like what you’re doing. Can you open up your own company?” I was getting out of the space business at that point because space flight was going downhill. We weren’t flying as many people and things like that.
It wasn’t as much fun for me anymore. I got my sister, who’s fifteen years younger than I am, and she was graduating at Villanova University, and she said, “I’ll take care of the accounting.” That was her major and the online aspect of it. We started the business. I thought it would be easier than it was because I thought everybody would be like me.
It’s a little bit harder to understand. We got into a lot of education because a lot of people didn’t know about investments. They surely didn’t know about self-directed IRAs or 401(k)s. It was something that wasn’t too terribly hard because we were doing it anyway and we already had started out with a few people that were there, but we’ve grown it into thousands of clients and over $1 billion of assets. We’re pretty happy with it and the fact that we helped a lot of people get there.
It’s amazing to me that even in the real estate world, it seems like people know more about this. It seems to be more common, but outside of it, even most of my own family members don’t have any idea how a self-directed IRA or 401(k) even works. That’s interesting. You say that it was harder than you would have anticipated. Was that solely because of the education that was missing?
There is no sex and sizzle with IRAs and 401(k)s. Think about your own family. When was the last time you sat over the dinner table or around Christmas or Thanksgiving and said, “If you guys know about your IRAs and 401(k)s.” It’s more, “Let’s go skiing this winter. Let’s go to the islands this summer.” People were planning their vacations. A lot of times, people don’t think that they should educate their kids or their parents on money matters. Some of them don’t want to know because they think it’s hard, difficult and complex.
Some people have said that to us and that’s why we’ve made our office there to help people get through it. How is this legal? Where is it legal? We do continuing education for attorneys, accountants, realtors, and real estate brokers to know this and find the IRS publications that talk about it. Once people know that they can control their investments, they can use their knowledge in real estate. They can also lend money on real estate.
I would rather lend money now at my age because I don’t have to deal with the tenants. I have to deal with the one person holding the mortgage. If I do have to take the property back, I’m not afraid to, but that’s the aspect of where I am. The one thing that I would say is, I don’t think any real estate, you can set it and forget it. There are too many law changes and technology changes that affect how it’s done. I started out and I had a ledger with my mom and dad even in my first properties, and then I moved to the Excel spreadsheets. Now you’re on QuickBooks and you have Peachtree and other accounting software that makes the job that much easier.
You can have an accounting person come in once a week for a few hours to get everything done, and then tenant laws. I’ve never seen where somebody told me the CDC would tell me I can’t evict somebody or not collect rent like in 2021. I would never have believed it, but now I lived through it and I said, “This is very interesting.” There are always some challenges even when you think you’ve seen it all. Some new stuff comes up. I expect blockchain in the future will be doing some of this, too.
There’s always disruptive technology and new things coming down the line that we’ve got to keep our eyes on. How do you feel about checkbook control IRAs?
It takes just as much time to buy a $40,000 condo as it does to buy a $500,000 property or a million-dollar property.
I’ve always been against them. If you do it in a 401(k), it’s much safer. In the Swanson case, the IRS focused on the wrong tenets of the law and it will be overturned. It looks like the IRS is going to be hiring twice as many auditors now. The two things that they look at are checkbook control and unsecured notes. That’s the two highest ones that they think there’s been fraud or usage that isn’t in alignment with what they want the IRAs to do. That new law in reconciliation picked out a couple of those points. Years ago, they had all of the custodians reporting on the checkbook IRAs, unsecured notes and other hard-to-value assets.
We’ve been identifying those for the IRS now for years. If they get artificial intelligence in there, I don’t know exactly what will happen, but I’m sure your accountants will know what the red flags are and keep people safe on them. A lot of people do them. In this case, the IRS gave you two years to fix them if this law had passed, but they’ve basically taken out of it. If they continue along that path, then I’m probably going to be okay.
That’s interesting because it sounds like from your perspective, the risks outweigh the reward of checkbook control 401(k) or IRA.
Everybody says, “You guys charge too much of a fee.” I go, “You’re paying that with your LLC that has to file a tax return. There isn’t going to be much difference there.” The other one is several people were asking us and I said, “Unwind the LLC and put the money back in the IRA. You’ve got two years to do that. It’s not that hard and we’ll help you figure it out.”
Sometimes, there is a time issue, even though we’ll make exceptions and get people a wire if they’re buying at an auction or something like that. If you have a checkbook LLC, it’s fine if you buy a lot of your stuff at auctions and you need that quickness. If you bought Bitcoin in the past, they wouldn’t let us have more than one account for Bitcoin. I’d have to put everybody’s cryptocurrencies in one account. That’s starting to change with the brokerage houses nowadays. There were some good reasons for it but you also have to understand that it’s on the IRS is to look at and fix category. It was in ‘91 when Swanson was before the courts. Baker and Turner out of Chicago were the ones who negotiated that. We don’t recommend them, but we know people who have them.
It’s always intriguing to get different people’s perspectives on them and why they hold those perspectives because we’ve heard on this show and in general conversation heard a lot of different angles why they hold the perspective they had. One of the reasons I had used a checkbook control IRA at one point was because I was buying at auction. I never found a good way around it, but it sounds like you guys even have solved that and being able to wire out ASAP same day and things like that.
You have to understand that my sister and I from my mom and dad and their mom and dad’s were in real estate, so we set up CamaPlan to help real estate investors primarily. We’re doing it, so we know where they’re coming from.
Carl, I’ve enjoyed our conversation. Let’s jump here into the final few questions. If you were to help our readers avoid one mistake in real estate, what would it be and how would you avoid it?
The one mistake is having too much control. I would fix that by building my network ahead of time, working with people I trust, and knowing that is better than I am at certain skills. That’s probably the one thing that I would like to learn early on in the system. I’ll add another one on there. I bought $40,000 condos and it takes as much time pretty much to buy a $40,000 condo as it does to buy a $500,000 property or $1 million property. Now I’ve gone into $85 million syndications and I get other people to help with the due diligence. Buying small, I would’ve done earlier, but I’m a very conservative engineer. The Space Center always wants contingencies. I wish I had gone from smaller to bigger, faster.
The thrust of this show is how of scale. I appreciate you sharing that. Next question. When it comes to investing in the world, what’s one thing you’re doing right now to make the world a better place?
One of the things that I’ve always done is I’ve always tried to improve the building that I’m in or that I own, and then obviously the neighborhood. I have four boys and what I’m doing with them is I’m teaching them to do the same thing, and at the same time thing and at the same time, I’m learning from them as well. They’ve done a lot of flips. I don’t do flips, but they like to take that front cash early on for some reason. I’ll take $800 a month and they’ll take $80,000 in one year. That’s almost like crack. It’s hard to get off of that. They also will improve the neighborhood because it improves their houses. We also work with different charities out there to help homeless veterans get homes.
Carl, if the readers want to get in touch with you or with your company, what is the best way to do that?
First, going to our website is one of the best ways to learn about us and our services. That’s CamaPlan.com. If you’re the old-timers and don’t get on a computer, which I don’t think there’s many of, you can call us at (215) 283-2868.
Carl, thank you so much for your time. I do appreciate it.
Thank you, Sam. I appreciate you asking me here.
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About Carl Fischer
Carl Fischer is a Cornell University graduate and third-generation real estate developer. Carl began his investing career in the 1970s when he was employed as a rocket scientist at Kennedy Space Center in Cape Canaveral, Florida. He is presently one of the founders and principals in CAMA Self Directed IRA, LLC (dba CamaPlan) founded in 2004. CamaPlan is a national company headquartered in Ambler, PA.