This week we're joined by Dan Zitofski and he's a pro at advising people on how to invest those retirement $$$ into real estate for big gains. It can be confusing knowing which processes work and which don't... not to mention the laws that oversee them. If you're retired and looking to invest your money smartly, then this episode will not only give you some new ideas, but it will also provide clarity on which is the best investing route for your personal situation. You do NOT need to just invest in traditional methods such as stocks and brokerage accounts. This is perhaps the only investment opportunities you'll see offered by certain institutions... but this doesn't mean it's the only method for someone in your position. Dan Kryzanowski is a serial revenue driver and active alternative asset investor. Prior to joining Rocket Dollar, Kryzanowski led new initiatives, partners, and teams across multiple startups and Fortune 50 companies, including General Electric and Merrill Lynch. He also serves as an advisor to entrepreneurs and executives across the FinTech world and self-storage industry. In addition, Kryzanowski is a certified Project Management Professional and a graduate of GE's exclusive Experienced Commercial Leadership Program. He also serves as the Corporate Board President of Hugh O'Brian Youth Texas Capital Area. Join us this week and strengthen your knowledge of investing with your retirement dollars. If you have any questions about this topic then drop them in the comments below and we’ll be happy to advise.
This week we're joined by Dan Zitofski and he's a pro at advising people on how to invest those retirement $$$ into real estate for big gains. It can be confusing knowing which processes work and which don't... not to mention the laws that oversee them. If you're retired and looking to invest your money smartly, then this episode will not only give you some new ideas, but it will also provide clarity on which is the best investing route for your personal situation. You do NOT need to just invest in traditional methods such as stocks and brokerage accounts. This is perhaps the only investment opportunities you'll see offered by certain institutions... but this doesn't mean it's the only method for someone in your position.
Dan Kryzanowski is a serial revenue driver and active alternative asset investor. Prior to joining Rocket Dollar, Kryzanowski led new initiatives, partners, and teams across multiple startups and Fortune 50 companies, including General Electric and Merrill Lynch.
He also serves as an advisor to entrepreneurs and executives across the FinTech world and self-storage industry. In addition, Kryzanowski is a certified Project Management Professional and a graduate of GE's exclusive Experienced Commercial Leadership Program. He also serves as the Corporate Board President of Hugh O'Brian Youth Texas Capital Area.
Join us this week and strengthen your knowledge of investing with your retirement dollars. If you have any questions about this topic then drop them in the comments below and we’ll be happy to advise.
KEY TAKEAWAYS
1. You don't need to just invest in traditional accounts such as stocks and brokerage accounts. This is perhaps the only investment opportunities you'll see offered by certain institutions... but this doesn't mean it's the only method for someone in your position.
2. Taking out money from your retirement will NOT create penalties and fees. This is a common misconception.
3. A custodian is someone who will look after your money and make sure you're on the right path with legal compliance.
4. LPs - if you're not a general partner or sponsor on the deal (not taking the ownership equity and making decisions) you can invest in anyone's deal by working with a custodian.
5. You can't invest in your brother or your sister's deal. There are complicated rules so make sure you speak to a professional and get proper advice.
6. Spread your assets across various risk level portfolios so you've got a nice mix of high returns with high risk and lower returns with lower risk.
LINKS
https://www.linkedin.com/in/danielkryzanowski/
https://www.crunchbase.com/person/dan-kryzanowski
https://twitter.com/dkryzanowski
Steven: [00:01]: Investing in real estate with the retirement dollars. In today's episode, we have Dan Kryzanowski, who is an expert when it comes to -- how do you move your money into alternative assets like real estate? And we'll be diving deep into some of those strategies today. Let's get into it.
INTRO: This is The Investor Mindset podcasts and I'm Steven Pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode we explore lessons on motivation and mindset from the most successful real estate investors and entrepreneurs in the nation.
Steven: [00:00:45]: Investors have you grabbed your copy of the passive investor playbook yet, if you haven't, I recommend you go pick up the Ultimate Guide to passive real estate investing at theinvestormindset.com/passive, you can grab that in the show notes right down below, as we've interviewed tons of the top experts and brought together all of the knowledge that we have on passive investing so that you can lay a foundation for yourself to make sure you're making the right decisions in your investing career, you can grab that guide at theinvestormindset.com/passive, I hope you'll take advantage of it. Well, let's get back to it.
Steven: [01:30]: All right guys, welcome back to the Investor Mindset Podcast. I'm your host, Steven Pesavento, and I'm excited today to have in the studio Dan Kryzanowski. How are you doing Dan?
Dan: [01:39]: Wonderful, Steven and brownie points for saying my name correctly so early in the morning.
Steven: [01:45]: Absolutely. And as some of you guys may or may not know Dan, he's an active investor. He's an expert when it comes to using retirement dollars to invest in real estate. And today, we're going to dive into that exact topic, how you can use money from your IRA or 401k or other vehicles in order to invest in real estate, and why this is his go to alternative asset. Ready to get started Dan?
Dan: [00:02:09]: Let's do it.
Steven: [00:02:10]: All right. So taking a look back at much earlier in your life before you got into real estate, before you started learning about all these strategies, tell me what events or influences from your childhood shaped who you are today?
Dan: [02:24]: Yeah. It's a great question. And I’m honoring my father, today would have been his 78th birthday. And he was a high school principal and educator and, part of it is just showing up every day. And I think he instilled that in me. And of course, my mother, just a tremendous heart, but super smart lifelong social workers. So they were from, I'd say, the pension generation, but I was fortunate when I was younger, a lot of my grandparents, my older aunts and uncles were alive. And a lot of them somewhat, by default were entrepreneurs taken from the depression or otherwise, but they bought parcels of land, I remember, we called it the farm, which was the farm house back then. So kind of real estate got slowly pushed into me, although probably took a few decades for me to really act on it.
Steven: [03:12]: Yeah. It's good to have those kinds of influences early on, and how that can end up shaping you and driving you down this path. And so now after all these years, you've been investing yourself in real estate, and focused in particular on this asset, or this section of the market, really helping people invest from their retirement into real estate. And there are so many misconceptions here. And a lot of our listeners are experts, they've already been doing this, they're going down the path. So we're definitely going to get into some advanced topics today. But for those people who aren't really aware, talk to me a little bit about some of those common misconceptions that people have when it comes to using their retirement dollars to invest in something like real estate?
Dan: [03:50]: Yeah. I think two big things. The first is folks are not aware, even a lot of our friends that called the finance MBAs out there just never came up in conversation. And we can talk about why in a moment. And the other misconception is that this should be an early withdrawal. So you're going to have penalties, fees, etc. When it's actually not, basically the legalities behind it are basically the same as where -- if your money is set with Vanguard or fidelity. So there's probably about 30 seconds, there's enough education, get people over the hump, but most folks are never aware of this.
Steven: [04:31]: Yeah, a lot of people don't know, they've been investing in those traditional accounts. And from my perspective, it's clear that these institutions have a big interest in making you think that there's only one way to invest and that's to invest in those kinds of index funds in those brokerage accounts and directly in stocks, because that's what their business model is all about. They don't make money when you're investing in assets like gold or real estate or art or other types of things you can invest in with a self-directed type of account. And when someone's going to go down that path, and they want to start investing, what are some of those questions that they typically bring up to you, Dan?
Dan: [05:15]: Yeah. So the first one is, can I do this? Is this easy? So of course, you can do it, it's legal, it's been around 50 years. Is it easy? Generally speaking, it wasn't as easy as, say, opening an online account or opening a checking account or as folks like rocket dollar, and some other new players in the space have made it just as easy five minutes, personal information, driver's license, credit card, a sign, boom, you have control of your retirement dollars. So I think it was a mindset shift within the self-directed industry, that as I like to say, it's Country Club cool for you to say, "Hey, took back part of my retirement, I invested in this big real estate deal and then when the dividends came in I put into some crowdfunding I put into this bar down the street, or this female entrepreneur. And it's literally just as easy as doing that with your piggy bank checking account, while retaining all the benefits of a retirement account.
Steven: [06:10]: Yeah. So this has been around for 50 plus years, this is not something new. But for some people, it feels new, because they hadn't really heard about it. And so as companies, like the ones that you mentioned, have made some of those changes, they've made it frankly easy, because for many years it's been available, and it's been an option, but it just takes some time and effort to be able to get that money into the right account and then know how to go about investing it.
Dan: [06:36]: Yeah. You're absolutely right. Most folks go to their nine to five, they max out the 401k, they leave their job, they're probably sitting on cash half the time, they don't realize it, and they just assume, snap the fingers at 60 years old, and the market is going to be at a high and everything's going to work out. The big lightbulb moment for me a few years ago, I was talking to some high net worth folks and family offices. And even in front of open doors, they said, "Hey guys, we have less than 10% of our stuff. [00:07:05 Inaudible] It's stocks and bonds. So you wonder how kind of work things become in high net worth family offices maintain, not only the principle, but also the lifestyle to live off, frankly, it's from private assets, such as real estate.
Steven: [07:18]: Okay. So, let's say, and we're going to get into some advanced strategies here in a second here. But let's say that I love what you're saying, I'm excited about it. Well, where do I start? How do I actually go about getting my dollars from the account that it's currently in into something that I can actually start investing with a sponsor or on my own?
Steven: [07:39]: Yeah. It's very sub-traditionally, meaning in the past 50 years, you would go to what's called a custodian. Now once again, the fidelities in the world of custodians, this is a self-directed custodian, and you would fill out their paperwork, and you probably need a scanner, fax machine, etc. Let's not talk about that, let's think of what you can do in the modern days with the likes of rocket dollar, five minutes, sign up online, you sign a few documents, then you go back to -- since I'm a fidelity client, on fidelity you'll fill out a one pager, and you'll transfer as much or as little of your account balance as you want to into a self-directed account and then from there, assuming this is a checkbook control, self-directed account, you can invest just as easy as you could with your piggy bank checking account. So this I say the investors fully taking the control bull by the horn, a lot of times will happen those many of the great sponsors, the syndicates that we know out there will educate or inform their investors say, "Hey, folks, did you know you can also use your retirement?" And that seems to be the catalyst that is also an ecosystem that I'd say the likes of one of the new self-directed providers are providing.
Steven: [08:50]: Okay, so I go to a custodian, tell us what a custodian is.
Dan: [08:54]: Yes. Without going into too much legal [00:08:56 Unintelligible] custodian basically manages or, I should say, holds on to your money. I like to think of it as when you were a kid. And wants your mom and dad to give you an allowance and you know you're going to get it, but you have to go through the dog and pony for 15 minutes to get your pizza money for the week, where I see the industry going is in checkbook control accounts. And why do I say that? A few things. One is outside of health, time and money, particularly time is our most valuable asset. Secondly, a lot of folks have had a good experience. So let's say Steven, I invested with you, I might say, "hey, every quarter I want to put in 25 tags, I want to be in four deals." It makes no sense for you and I to be on the phone for an hour with a third-party custodian filling out their paperwork for sake of, I just want to write you a check. You just want to take my money, invest my money, and send me a dividend. This is how the self-directed world was progressing. This is even kind of outside of retirement dollars. How investing is only thinking of different crowdfunding sort of campaigns. So with that, we're just saying "listen, there's a pool of 10 [00:10:00 Unintelligible] with the T, there's a tiny slice 100 billion that's actually in the self-directed accounts, we're letting you take your little slice, to invest in what you want when you want.
Steven: [10:09]: Yeah. So the custodian really is just somebody to make sure that I'm doing things the right way. And they're jumping through these hoops, but they're not confirming that I'm making the right type of investments, they're not there, to make those kinds of decisions. They're just there to check boxes and fill out paperwork for the government, essentially, to make sure that things qualify correctly. But if you were going to do checkbook control, that just means that you have the right to write the check without talking to the custodian, but you are the one who's responsible for making sure that you're doing things properly, which takes a very quick education.
Steven: [10:43]: Yeah. You're right, it does. And the best analogy I give, and also share some hard data behind it. Think of it as a health savings account. So you go out, you need surgery, you're going to have your debit card from some random credit union swipe it, and that's great. You can break [00:10:58 Unintelligible], you can do the same, that said, if we're going to go out and use non health related, we know, that's something the IRS would model up. In a very similar vein, in self-directed accounts, the IRS is low life insurance, no collectibles, think artwork [00:11:13 Unintelligible] the big thing is no self-dealing, so not yourself or your linear family. So what does this really mean? Don't invest, say, in your property in vail and stay there on the weekends or my long points here, don't buy a flat in Austin, and have your kids stay in it when he goes to school, or she of course -- So with that, it's very easy of what you can do. So versus what, two or three things you cannot, you're open to address not only in the US, but across the whole world. So, opportunity -- and you're right, it's very easy, what we just described, like that's it. And what I can share from a Rockefeller perspective, the first thousand plus clients, nobody ended up in the gray area. And what you see, a lot of folks in the self-directed space, there is a pretty in depth FAQ, a lot of folks on the sales in the support side are very smart, kind of like our antenna App, we can tell they're probably trying to get in the gray area on purpose, we're just going to back them away or say for example, now in Washington, DC, they haven't been approved cannabis, you cannot invest in something cannabis. That said, if you're in a retail strip mall, and a hemp joint comes in, you're going to be okay. So those are the types of I'd say detail a lot of folks in the industry have, which is great for investors.
Steven: [00:12:28]: And so you mentioned something about no self-dealing, so if I'm a sponsor, and for all the sponsors out there, and I've got a deal, and I'm putting it together, and it's a 506B or one of the REG D offerings, is it correct, that I cannot invest using my self-directed IRA into one of those accounts?
Dan: [00:12:47]: Yeah. So you as a person of control cannot. So meaning, think of the CEO Board of Directors, when you own 10% more equity, you cannot, nor if it was your spouse, your child, etc. There are certain situations like, say, if you work for Amazon and want to buy more Amazon stock, yes. Because you're not just business, you can do that. But yeah, it's a little tricky. So generally speaking, without learning of all the details, probably say no to your own properties and your own money. That said you could be passive if you are going to invest, if you're not going to take active management of that you could be a passive LP investor. So [00:13:33 Unintelligible] that?
Steven: [13:35]: Yep. So LP's, if you're not a general partner, or the sponsor on the deal, if you're not taking that ownership, equity and making management decisions, you can take your money and invest it in anybody's deal, very simply by just working with one of these custodians
Steven: [13:51]: Spot on. Yeah. Custodian or other self-directed providers. And just some terminology, a lot of times custodian is for self-directed IRA. So SDI IRA [00:14:00 Unintelligible] of the industry, that's been around 50 years. What I'm more excited about, in the early 2000s, the solo 401k, also known as the individual 401k, [00:14:08 Unintelligible] EQRP and this is where you're literally managing your own money, you're self-employed, legitimately self-employed, so I think you're a consultant, a 1099 realtor, maybe you're pretty active in the gig economy. So tremendous benefits of these accounts, contributing 50,000 Plus, having a pre-tax checking account, a post-tax Roth checking account to kind of shift money during plan conversion. It's extremely powerful. And the biggest thing is, there's no custodian by default, by the way, this account is set up, there's no custodian. So when you think of how many folks are self-employed, or moving towards it. It's an extremely attractive account for you to invest in what you want when you want.
Steven: [14:53]: Yeah. And so as I'm an investor, I'm thinking about going and setting these, one of these accounts up. I've got the money there, what are some of the biggest roadblocks that people typically run into when going down this path and how can they overcome that?
Dan: [15:08]: Yeah. I mean, some of it can be timing. So some folks assume that they can invest in a deal tomorrow, literally, or within a few days. And that's not the case, it still takes you even on an expedited service, probably a week, because you have to realize, you have to complete paperwork, and you have to go back to your fidelity, move the money over, and then make the investment. So even hyper streamlined and rocking dollars we've done this critical path, etc. And we're still looking at seven to 10 days with the traditional custodian, particularly if you don't give them notice, your paperwork is going from division to division, you could be looking at a month. So that's kind of the main thing, the second thing is just not being aware, some folks thinking about going to run business or on startup, you can, once again, we talked about being a person of control, and you cannot do that. So that's -- some folks may get confused with a [00:16:04 Unintelligible], which, basically, I won't go into detail. But this allows you to take your retirement dollars to invest in your own company, but there's a whole lot of fine printing rules and regulations. So it's very separate. And so I share all these two subjects and might do a Google search later, and I'd say, ooh, I heard I can use my retirement. But let's be clear where you're using it, so for a good first investment might say, you're going in as an LP and something solid, like real estate, that's a very [00:16:29 Unintelligible] transaction.
Steven: [16:32]: Yeah. Very simple for them to go about doing that. And it's important to know, if you're going to go down this path, as part of the process of moving your money over and, and starting to managing your money, you're going to want to start learning what are some of the Ins and Outs, and working with your custodian or your representative or somebody that's going to be able to answer questions, because there is some intricacies. But don't let those overwhelm you. Because at the core, it's actually a very simple process, so a little bit of paperwork here and there, making sure that you're reporting things in the right way, understanding that you can't invest in your wife's deal or your son's deal. But am I correct, you can invest in your brother or sisters deal or other family members. But there's certain transactions that you can't do.
Dan: [17:20]: Correct. Yeah. Oddly enough, brother and sister are not part of your family, but she grew up with them. Like anything, you have to be cautious, let's just put on our sponsor hat, that you do not give one investor preference over another, particularly if that one investor is your sister versus your four other colleagues. But a lot of folks, but the sponsors are going to go through [00:17:43 Unintelligible] survey to the PPM and they do their offering, memorandum, etc. And so as an investor, you're just basically investing in an A share, or B share of a deal.
Steven: [17:54]: And so when you're talking to some of these high net worth individuals, some of these family offices, some of the wealthiest individuals in the country, what is it that they're doing differently than the everyday person? And how can we kind of model some of those same investing behaviors for ourselves?
Dan: [18:11]: Yeah. When you think of the bell curve of, let's just say, high net worth to very under-banked, high net worth they use their dollars for leverage to lumber often to buy things. On the flip side, as you see folks with high foot credit cards, they get themselves into debt, self-directed accounts are actually the top part of the bell curve here. So probably accredited, but not ultra-high net worth. When we did some personas, one was called Mike, I think early 40s, VP at a company like Dell, he's a techie by day but loves biotech. For example an investment maybe that first deal he's going to put 100,000 into, and if it goes really well, he might shift, a few hundred thousand more to another similar deal or maybe expanded out into real estate, for example. So this is the typical, I'd say persona that you're seeing as somebody that's has some acumen and it's more, I'd say, the -- I don't want to say risk, but it's appetite. It's more the awareness and the foresight, not to just blindly put your money in a few mutual funds. And for some folks, it's just to your question, Steven, it's not a 60/40 stock bond split. This kind of network folks. It's spread out either where they have hyper expertise, but more often, I call it a pretty pie chart. So you're going to have -- right now some folks are taking advantage of opportunity zones, it's good for tax it's actually not as good for retirement dollars, but for your piggy bank checking account, it's great. So you see a lot of trust and such doing that. At the same time, think of something like RV parks, self-storage, last mile industrial, these are amazing for your retirement dollars, why? Let's say everybody's 40-year-old, 20 years [00:20:03 Unintelligible] take out retirement before penalty, you're going to earn dividends on an ongoing basis, and the deals are probably going to go for five to seven years. So it's an amazing deal, and by the way, since equity goes up and your principal goes up, you're not paying taxes. So to kind of sum it all up, I'd say average [00:20:23 Inaudible] in America that has a sizable 401k with companies a few times, you're in a very good spot to take a portion of that to put it into hard assets. And either with somebody you know and trust, somebody to diligence on or back into your community.
Steven: [20:43]: So at the core of what you're talking about is that, those folks that tend to be in that accredited high net worth, and they're frankly, very educated on where they're putting their money, they're not just putting it into one place and leaving it in the generic vanilla mutual fund. They're understanding what assets they have an advantage in and finding out how can they invest in those assets, and then they're going and taking action and putting that capital there so they can get those risk weighted returns while still having asset allocation that's dividing it up so maybe they have some high risk stuff in this bucket, they have some very low risk stuff in this bucket. And they're spread across multiple different types of assets.
Dan: [21:30]: Yeah. You're spot on. And the great thing I like, a checkbook control retirement account is if we just think about going back to Mike and he's on his third company, he has a lot of these old 401k dollars, he might be sitting on 100k in cash, because times are busy now, he rolled over from his old company, and that's earning zero percent 1% at best, you move it into something like a last mile industrial fund, which is like a bond wrapped in real estate, you're getting your 70% dividend. No, you're 10% plus IRR on the back end within five years. So if you really think about Mike's situation for this, even this 100K piece at 1%, kind of not moving for 20 years, with some very stable real estate. You can do the chart, it's pretty nice. So that's where I think folks that are still seeing this awareness of folks that even if they're still heads down with their day job, their [00:22:21 Unintelligible] job 50 hours a week, they're going to say "my buddy knows this guy, Steve, and he invested with him. I've ever been to Colorado, but I look at the demographics. People are moving there, you know what? multifamily Yeah. People have to live somewhere and this makes sense to me” And you're going to show great returns in the first year, and then they're going to be like, wait, why am I sitting on cash? Why am I on a 2% bond fund? Why am I paying 70% to grant this sort of fun, and slowly, I think you're going to see certain folks once the mind is shifted, then the dollars come?
Steven: [22:55]: Yeah. Definitely, as well. With that, we'll wrap up here. Where can people find out more about you or get in touch?
Dan: [23:01]: Yes. So Dan@dankryzanowski.com is a great email. I love LinkedIn. And please reference it, listen to the podcast here and happy to do a one on one call. And of course, if you're in Austin, Texas or boots on the ground sorority community. So I would love to sit down, have coffee with anybody.
Steven: [23:19]: Absolutely, Dan. Well, thank you so much for joining us today and walking us through some of the different ways that people can start putting these retirement dollars to work in real estate, starting to realize that there's more options than just the reet that they think is the only option that's available to them. So thank you so much. We'll have all the contact information you mentioned in the show notes and look forward to the next time we get to do this again.
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