Midland Partners with SWFL Collaboratory to Create $10,000 Hurricane Relief Fund

September 28th changed the lives of many residents in Southwest Florida forever. Hurricane Ian, a catastrophic Category 4 storm, made impact on Fort Myers Beach, causing homes and businesses to be washed away, leaving residents without water or shelter, and at least 100 lives lost. Hurricane Ian is now the second deadliest storm to hit the continental United States, right behind Hurricane Katrina in 2005.

Donation Match

As a company that first began on Sanibel Island in 1994, and is now headquartered in Fort Myers, the storm has greatly affected the community where we live and work. We are motivated to help Lee County rebuild and come back stronger.

Midland has partnered with SWFL Collaboratory to create our own donation fund open to the public. All donations made through our fund will be matched by Midland dollar for dollar up to $10,000. Donations can be made at collaboratory.org/MidlandTrustRelief through November 7th to qualify for the $10,000 match.

100% of all donations will go toward nonprofits in SWFL. Midland’s fund will distribute contributions to The Heights Foundation, Gladiolus Food Pantry, Blessings in a Backpack, and The Fort Myers Beach Chamber of Commerce.

Volunteering in SWFL

In an additional effort to help the SWFL community, Midland team members have volunteered with Harry Chapin Food Bank.

Harry Chapin is the largest hunger-relief nonprofit in Southwest Florida. Since September 29th, they have distributed 3.4 million pounds of food to people in need.

Midland Serves

Midland believes in the importance of volunteering and making charitable contributions in each of the major markets we serve: Sioux Falls, South Dakota; Fort Myers, Florida; and Chicago, Illinois. Learn more about Midland Serves by visiting our website.

Hurricane Ian Tax Relief: Everything You Need to Know

Individuals and businesses impacted by Hurricane Ian now qualify for tax relief. Following the recent disaster declaration issued by the Federal Emergency Management Agency (FEMA), the IRS announced that anyone in the state of Florida now has until February 15, 2023, to file various individual and business tax returns and make certain payments.

The relief applies to any designated area by FEMA. A comprehensive list of eligible locations can be found on the IRS website’s disaster relief page.

Who the Disaster Relief Affects

Taxpayers who live in the covered disaster area or businesses located in the affected area are eligible to postpone the time to file returns, pay taxes and perform other sensitive acts.

The IRS is now giving affected individuals and businesses until February 15, 2023, to file tax returns including individual, corporate, estate, and trust income tax returns, partnership returns, S corporation returns, trust returns, annual information returns of tax-exempt organizations, and the filing of form 5500.

Taxpayers who have an estimated income tax payment due on or after September 23, 2022, now have until February 15, 2023, to make payments without facing any penalties.

1031 Extensions

Affected persons are those who live in the covered disaster areas or have a primary place of business there. Taxpayers are eligible to receive relief regardless of where the relinquished or replacement property is located.

Individuals can choose between two relief options: General Postponement Relief or Alternative Relief.

General Postponement Relief states that any 45-day or 180-day deadline that falls on or after Sep 23, 2022 is postponed until February 15, 2023, for forward and reverse 1031 exchanges.

Alternative Relief is only available if the relinquished property was transferred on or before September 23, 2022. Any 45-day or 180-day deadline that falls on or after September 23 is extended to the longer of either 120 days from such deadline or February 15, 2023.

How to Receive Relief

Residents of Florida do not have to apply for filing, payment, or penalty relief. The IRS will automatically extend relief to anyone with an address on record within the disaster area.

If you receive a late filing or payment notice from the IRS but qualify for relief, you should contact the IRS.

Other Relief Available

If located in the disaster area, businesses and individuals can claim disaster-related casualty losses on their federal income tax return either the year it occurred or the year after. Losses can include property losses that are not covered by insurance.

The IRS is also waiving the usual fees for copies of previously filed tax returns. In the Disaster Designation section, put “FL Hurricane Ian” in bold letters at the top of your request form and submit it to the IRS.

For more detailed information on the tax relief available for Hurricane Ian in Florida, visit the IRS Website.

MIDLAND TRUST COMPANY, NOR ITS AFFILIATES OR SUBSIDIARIES (COLLECTIVELY REFERRED TO AS “MIDLAND”), IS NOT A FIDUCIARY: Midland’s role as the Custodian and/or Administrator of self-directed retirement accounts is non-discretionary and/or administrative in nature. The account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account and is responsible for conducting his/her own due diligence. Midland has no responsibility or involvement in selecting or evaluating any investment and does not conduct any due diligence on any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

October 20th: Special Event – Real Estate Roadmap to 2023

Real Estate Roadmap to 2023
Join us for a one-night-only special event on October 20th, Real Estate Roadmap to 2023. We have a variety of speakers in the real estate industry coming to discuss the real estate market for the rest of 2022, and a look into 2023. The first 30 people to arrive will get the chance to participate in our speed networking session. There will also be drinks, appetizers, and a 50/50 raffle. All proceeds will be donated to Bedz for Kidz, a local non-profit that provides bedding to children in need.
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Investing in an Airbnb Using Retirement Funds

The way we travel has changed in the past few years due to the growing vacation rental industry. Vacation rentals give accessibility to superb stays with full kitchens, bedrooms, quality service, and amenities that just can’t be met by a single bed and tv in a gloomy hotel room.

Several platforms offer simple booking and rental postings, including Vrbo, HomeToGo, and FlipKey, but none have reached the mainstream acclaim of Airbnb.

The Account Holder

The account holder is the individual that has their name on the account. The IRA goes to its primary beneficiaries if the account holder passes away.

What is Airbnb?

Airbnb is an American company that serves as an online marketplace for vacation rentals and lodging. Their website allows you to create a listing for your property and for guests to book a stay. Through Airbnb, you can set up calendar rates that will enable you to adjust the cost of a visit depending on the time of year or day of the week. You can also add any other fees you want the renter to pay, such as pet or cleaning fees.

Another feature Airbnb offers is investors can choose whether they want renters to do “Instant Booking” or “contact to book.” Instant booking is an automatic system that allows renters to book as they look at the property and notify you once it has been rented. Contact to book requires the renter to send you a message to reserve the property for their stay.

How I Invest in an Airbnb in my IRA

Purchasing your Airbnb property with your IRA works the same as setting up a real estate IRA. Real estate can be bought with Traditional IRAs, Roth IRAs, ESAs, HSAs, 401 (k)s, SEP, and SIMPLE IRAs. The account just needs to be self-directed.

Steps to Setting Up Your Property

  1. Open a self-directed IRA account.
  2. Fund your account via a rollover, transfer, or contribution.
  3. Purchase the property inside the IRA.
  4. Pay all expenses associated with the property with the IRA funds.
  5. Ensure all income collected returns to the IRA.

Using an LLC

You can hold investment property in your retirement account in two different ways. The best way is through an LLC, so the investment inside your IRA is the LLC rather than the real estate property.

Using an LLC allows the property and all utilities to be titled in the name of the LLC. The LLC pays for all expenses, including repairs and maintenance, and you, as the IRA account owner, have checkbook control over the funds. All income that your investment property makes returns to the LLC.

You can also purchase investment property directly within your IRA without creating an LLC. In this instance, the property is titled in the name of the IRA, including any utilities. All income from the property would return to the IRA, and a deposit coupon would need to be provided to Midland.

When not using an LLC for your property, an extra step is added when it comes to making payments. Midland would have to cut the checks needed to pay for expenses rather than you being able to draft checks quickly from your LLC. Many Airbnb investors suggest using an LLC for quick and convenient access to their accounts.

Airbnb Investment Rules in an IRA or LLC-Owned IRA

Rule 1

You cannot have any personal use of the property.

Rule 2

The property must be held for investment purposes only. The property cannot be used as a primary or secondary residence.

Rule 3

Prohibited parties cannot stay in, use, or maintain the investment property. Prohibited parties include the IRA holder and their spouse, lineal ascendants, lineal descendants, and spouses of lineal ascendants and descendants.

Tips for Running an Airbnb

When setting up your listing, include plenty of quality photos and a thorough rental description. The best listings include details about the area and nearby tourist attractions or fun things to do.

Once your listing is set up, it is essential to prepare for the arrival and departure of your guests. The easiest way to manage your Airbnb property is to hire a property manager, especially if you do not live near your rental property.

When setting up for guests, some things to consider are your property’s temperature, opening the blinds, and leaving the outdoor light on for late arrivals. It is essential to leave a positive impression so that when your guests leave, you will receive a positive rating to ensure more people will want to stay at your rental.

It is also important to meet your guests’ needs by providing laundry detergent, dishwasher pods, paper towels, and toiletries. You may also want to provide amenities to enhance their stays, such as bicycles, a grill, pool or beach toys, or kayaks.

Another item to make your property stand out is to create a “welcome guide.” This might include ideas of places to eat, things to do, how appliances or amenities work, and contact information. Some even leave handwritten notes to guests or gift cards to a local coffee shop.

After your guests’ stay, you will want a quick turnover to prepare the property for its next stay. You can schedule housekeeping directly after departure, and this will also aid in discovering and reporting any property damages within the 3-day departure window.

Airbnb Host and Renter Fees

Airbnb charges hosts a 3% fee, and renters must pay sales tax. Airbnb hosts are paid via ACH on the first or second day of a renter’s arrival, minus the taxes and fees.

A tourist tax may also be charged to the host, which the IRA or LLC will need to pay. County taxes may be owed as well. Again, the IRA or LLC will need to pay those taxes.

UBIT (Unrelated Business Income Tax) may apply for any short-term rental. Any rentals seven days or fewer could be subject to UBIT. To combat this, you can set your property to a minimum of seven-day rentals. Consult with your CPA or tax advisor for more information to ensure you avoid paying this tax.

For more information on real estate investments using your IRA and the opportunities available at Midland Trust, visit our website or call us at (239) 333-1032.

MIDLAND TRUST COMPANY, NOR ITS AFFILIATES OR SUBSIDIARIES (COLLECTIVELY REFERRED TO AS “MIDLAND”), IS NOT A FIDUCIARY: Midland’s role as the Custodian and/or Administrator of self-directed retirement accounts is non-discretionary and/or administrative in nature. The account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account and is responsible for conducting his/her own due diligence. Midland has no responsibility or involvement in selecting or evaluating any investment and does not conduct any due diligence on any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

INVESTING IN REAL ESTATE WITH YOUR CHILDREN

Investing in Real Estate With Your Children

I learned about investing when my father introduced me to his brokerage account at a young age. It was through him that I learned what stocks were and grasped a general idea of how the stock market works. He set up a custodial account for me, as I was under the age of 18. He then put my life savings in stocks, a whopping $1,000 that I had saved from birthdays and mowing lawns. Investing for your children is somewhat easy as all you need to do is set up a brokerage or custodial account if they are under the age of 18. Not all parents may be knowledgeable about the stock market. Alternatives such as real estate, offer a wider variety of investments that appeal to a broader market.

REAL ESTATE INVESTING WITH CHILDREN

Like stocks, properties tend to go up in value over time. You can also rent a property and generate a passive stream of income.

Real estate investing is not for everyone. But for those in the real estate industry, this may be a preferred alternative (or addition) to investing in the stock market. Purchasing real estate with your children is simple and self-explanatory. Find a property and buy the property. You could even own the property 50/50 with your child. If you are using IRA funds, financing can be challenging. There will be more rules and potential taxes in which you will need to familiarize yourself. For this reason, most IRA transactions are cash.

INVESTING WITH RETIREMENT ACCOUNTS

We should teach saving at a young age, especially the importance of investing with IRA accounts where gains grow tax-deferred. Unfortunately, my father was not very knowledgeable about IRA accounts. It was not until I started working at Midland that I began to understand the importance of saving for retirement. Using tax-deferred strategies such as IRAs, HSAs, ESAs, 401ks, and 1031 exchanges became important. IRAs and other investment options are not taught in school, so it’s important to teach your children at home.

IRA CONTRIBUTIONS AND GIFTING

To be eligible to contribute to an IRA, you must have earned income from a salary, commissions, tips, or bonuses. It is unlikely that your child is working a summer job solely to save for retirement! Yet, if you have expendable cash, you can always gift your children money. The annual gifting limit is $15,000 per year (as of 2020). As long as your children have enough earned income from a job, they can potentially use the proceeds of your cash gift. The gift could help them max out their IRA contributions and even HSA and 401k (if eligible).

Investing in stocks through an IRA is very straightforward. All you do is set up an IRA brokerage account and buy a stock. Investing in real estate through IRA funds is a little more complicated. A brokerage is not going to allow you to make this investment, as it is not in their business model. They will try and pitch you the option of purchasing Real Estate Investment Trust (REIT) stocks instead. However, you can use your retirement funds to invest in real estate, which includes buying land, rental properties, commercial properties, and even loaning money via promissory notes. You can do all this in a tax-deferred manner using self-directed retirement accounts such as 401ks, IRAs, ESAs, and HSAs. While your children likely do not have the same amount of funds as you do, they can still invest in real estate by structuring things differently.

QUICK RULES OF INVESTING IN REAL ESTATE USING IRAS

  1. The first step is to find a self-directed IRA custodian, such as Midland, that can do the recordkeeping and report to the IRS on the movement of funds and the real estate in the IRA.
  2. You do not need to own the property 100% with IRA funds. When purchasing the property, you can team up with other entities or your funds. But, all expenses and income going forward have to remain proportional to how you purchase the property. For example, if you buy a $100,000 property using $90,000 (90%) of your IRA funds and $10,000 (10%) of your child’s IRA funds, going forward, all expenses and income have to remain in this proportion. If your real estate tax bill is $1,000, then your IRA would need to pay $900 (90%) and your child’s IRA would need to pay $100 (10%).
  3. You cannot live in the property personally or have disqualified people living in the property if your IRA owns it. Disqualified parties include your parents, grandparents, spouse, children, grandchildren, daughter, and son’s/daughter’s in-laws.
  4. You cannot put “sweat equity” into the property, which means you and disqualified parties cannot add value to the property by cleaning, fixing, replacing, or landscaping.
  5. When investing in real estate using your IRA, it is highly recommended to maintain an IRA cash balance to cover unexpected costs associated with owning property.

If you have questions or want additional information on investing in real estate with your children, call us at 239.333.1032 or visit www.midlandtrust.com.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account. Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

AUTHOR: Andy Anger, Senior Associate in Client Services at Midland Trust

Ideas for Finding Real Estate Investments for Your IRA

Ideas for Finding Real Estate Investments for Your IRA

So you want to purchase real estate in your IRA account? Most people do not even know that you can do this. Yes, you can, and for the right person, it can be an excellent investment. Why buy real estate in your retirement account? I would say there are three reasons. First, diversification away from stocks and bonds gives your portfolio an asset that traditionally holds its value over time and has the opportunity to appreciate. Secondly, you understand and want to be involved in the management of the rental property. Real estate is not like a stock. It requires love and care to make it grow. Third, the opportunity for the annual income and the gain on sale to be tax-free. All gains inside an IRA account are tax-free.

The first thing you need if you want to purchase real estate in an IRA is to understand what a Self-Directed IRA is. Ordinary IRA custodians (like the big brokerage houses) are not interested or equipped to hold real estate in your IRA. They don’t offer real estate as an IRA option because

  1. They don’t know how to generate revenue from an asset that they do not sell
  2. They don’t want to deal with administrative burdens such as closings, tax bills, insurance, rental agreements, and annual valuations (which custodians are required to report to the IRS annually).

To own real estate inside your IRA, you must have a “self-directed” IRA so that your investment choices are not limited to certain asset classes. Midland Trust Company is a perfect choice with a long history of reasonable fees and excellent service.

What are the different types of real estate you can buy in your Self-Directed IRA?

  1. Rental Real Estate – The most common real estate investment in a Self-Directed IRA is rental real estate. The most common types of rental properties include single-family homes, commercial properties, and condominiums.
  2. Raw Land – Many investors believe in the appreciation of good real estate and the low maintenance of raw land. This can also include leased farmland that generates cash flow.

Where do you get started finding a real estate deal? Well, there are many ways to locate or evaluate real estate opportunities, but they all require hard work. I am going to tell you a rule I learned 20 years ago that has always held true, I need to give credit to Jeff Tumberello, a local SWFL Real Estate investor, who I heard it from. The gain on the real estate is made when you purchase the property, not when you sell it. The moral of the story being, don’t overpay for the property; if you don’t get the right deal upfront, it can take years to make it up. I am not saying that is the only way to make money on a real estate investment, but it sure helps to get started by not overpaying.

So how do you find the deals? There is no right way to find real estate deals. Remember, you are looking for a property that has great potential to appreciate and cash flow. This can be a rehab flip or a long-term rental property with great potential. I am not trying to be sarcastic, but you probably won’t find it on Realtor.com under “new developments.”

Let me tell you how I have seen the best investors find real estate investments for your IRA.

  1. Join a REIA Club (Real Estate Investment Association). There are national groups and local groups. Surround yourself with like-minded people looking for deals and to share the knowledge they have learned. There are many types of Real Estate Groups, one place to look them up is meetup.com
  2. Ask friends and acquaintances if they know of anyone interested in selling because you may be interested in buying. Without a real estate broker, you automatically save 5-6% of the purchase price. As mentioned before, the money is made on the purchase.
  3. Scour Craigslist and look for the oldest listing on Zillow and Realtor.com. You are not looking for a beautiful house; you are looking for a property that will make you money. Also, follow up on a real estate deal that fell through. A contract may have fallen through because the roof was bad, but that may not scare you because your cousin in the roofing business.
  4. Have friends that are Realtors; they know of deals before they even hit the market. Realtors and a real estate office may have a pocket listing. A pocket listing is a property that the seller wants to get rid of but has not listed it on the local MLS.

One last tip, be good at math. I would recommend knowing a couple of easy calculations. How to calculate capital gains? Taxable gains are sometimes different than book gains. Understand the concept of basis; Basis is the tax term for Cost plus additions less depreciation. Second, know how to calculate an income statement for rental property. A rental property may have a mortgage payment, and typically an income statement, you do not deduct loan principal. I would learn how to run a cash flow statement. You need to know when you are making and losing money.

Finally, (I know I said the last tip above), know a good banker, preferably a community banker. A Community banker can make the deal so much easier, plus they can be a trusted source when you need advice on whether that property cashflows. FYI, most properties purchased in Self-Directed IRAs are cash purchases and do not use a mortgage.

For more information on how to set up a real estate IRA, check out Midland Trust’s Real Estate page. Buying real estate is not hard, but it does take hard work to stay on top of your investment. I always like the Warren Buffet philosophy; while you may not make money on every investment, make sure you do not lose money. It can be hard to recover lost money.

Midland Trust Resources for Self-Directed IRA Investments:

  1. Real Estate IRAs
  2. Types of IRA Accounts
  3. How to Handle Income and Expenses

Happy real estate hunting.

Dave Owens

President & CEO of Midland Trust Company