Cash Flow Champs Real Estate Podcast

Prashant Kumar, CCIM– Can a W2 employee open eQRP and transfer 401k from their current employer? How does that work?

Damion Lupo– Yeah, so it depends on how old you are. It depends on a lot of factors. Sometimes we can transfer it, sometimes you have to leave your job or sometimes we’ll transfer the whole 401K at your company, the company’s 401K to an eQRP so that everybody has options. What happens there is that employers end up saving a lot of money and they have a lot happier employees. It works well for everybody, so it depends. But there’s always an option, and it’s a question of which thing people want to do. But we generally say, yes, you can do it. Here’s how you can do it. There are an unlimited amount of options we can provide to everybody. 

Prashant Kumar, CCIM– There’s a need for consulting or if anybody wants to do something like that, they should set up a call with you or with your team to understand their options.

Damion Lupo– That’s it. It’s like if my friends that are CPAs will be asked a question by someone and they’ll say, well, can I write this off or can I do this thing? And the CPA, if it’s a smart CPA, a sophisticated one, they’ll say, well, it depends. And it’s the same thing here. It depends. There are a lot of things we can do because the tax code is tens of thousands of pages, so we understand how to use it. It depends on the situation, age, the different types of retirement accounts, and your goals. What are you trying to do? If you want to buy real estate with retirement money, you do not want to be using an IRA ever. You want to use an eQRP, because, as you said, if you have, say, 20% down, which is the cash you’re going to invest, and then you have debt, you don’t want to get hit with you but tax, which is like 37% tax inside of a retirement account. So we can avoid all that stuff if we structure it right and that’s why you do want to have the call with our team so that we can figure out where you’re at and where you’re going, and then we will suggest what tools would make the most sense for you.

Prashant Kumar, CCIM– You already answered my next question. The real fundamental advantage, which I tell my guys if you have eQRP or maybe solo 401k, is that whatever you buy and you take the leverage, you are not paying taxes on the money that you are earning, even on the leverage amount. 

Damion Lupo– Yeah, it’s an unrelated business income tax. Basically what happens, let’s say you invested $50,000 in a deal, an apartment, or something, and that particular deal had 70% leverage, meaning it was a $ 10 million deal, and there was $7 million of debt, and then $3 million of investors money. So what happens is if you’ve $50,000, let’s say it doubles over five years, which happens all the time in that deal when it was sold. The most likely scenario is you’re going to spend between $15-20,000 on taxes, even though you used an IRA. Now, if you used a 401k or eQRP, it’s a different part of the tax code. There’s no tax. So it’s the same investment. But if you use the wrong tool, you’re going to lose up to, say, a third of your return. That’s just simply because you didn’t know better and it can be fixed. It can be fixed up right before the property is sold. So even if you’re already invested in a deal and you’d say, well, I’m stuck, you’re not stuck, we can fix it. It’s just we can’t fix it after it’s sold. So it’s really important to structure things correctly and have people on your team that can help you navigate that. That’s what it’s all about. It’s about the team. Just like you help people and work with people, and you’re part of their team and that’s what everybody needs to be thinking about. Who’s missing from my team? Who do I need to have on my team? 

Prashant Kumar, CCIM– Awesome. This is the most important thing that investors or tech professionals should know because they are blindfolded, they don’t know anything about eQRP or any such vehicles. For years, my money would just go to one of these custodians, like Vanguard or Fidelity and all the options I had was I had restricted options to invest in only those five funds and here you have so much power. You can take that money, invest in real estate, and leverage it. You can leverage it as long as you don’t manage it yourself. As long as you don’t manage it yourself, leverage any returns that you make on that average asset goes back to your eQRP account. 

Damion Lupo– Yeah, the way to think about that, is because it’s a really important point, you can look over your money and you can manage it. I’ll give you an example. You can’t go and buy an apartment and manage it by going in there and managing your tenants and doing all the repairs yourself. You have to have managers, but you could be in charge of your assets and your money. You need to have other people. It’s meant to be passive, but that doesn’t mean you don’t know what’s going on and you don’t choose what’s going on. It just means that you’re forced to develop a team and that’s one of the most valuable things. Sometimes people say, I want to be in charge, a charge of everything, and I want to do the work. I will say, you’re going to stay small and probably broke and very tired, working 70 and 80 hours a week. Instead, why don’t you think about having a team where you can scale and you can grow and that is the only way you can do it? There’s no way to grow and be free if you’re doing all the work yourself.