Hugh Hefner sold the Playboy Mansion for a whopping $100 MILLION dollars last year… and in so doing, he gave unwittingly provides a roadmap for how to get the tax benefits of a Traditional IRA and a Roth IRA at the SAME TIME. My friends, I proudly present the Hourglass Technique. I’m Bryan Ellis. This is Episode #278.
About one year ago, Hugh Hefner, the 91-year-old founder of Playboy Enterprises, sold the famed Playboy Mansion in the Holmby Hills section of LA, for a whopping $100 MILLION dollars… the single largest residential transaction ever in LA county. Curiously, even though the deal closed over a year ago, Hef still lives there. How’d he pull that off? Well, my friends, the answer leads to something that’s going to blow your mind.
So, in 1971, Hef buys what became the Playboy Mansion. Last year, in 2016, he sells it for $100 million to another playboy of sorts, Daren Metropoulos, heir to the company Hostess that makes Twinkies.
But here we are one year later, and Hef still lives there. What gives?
Well, my friends, this is an excellent example of the fact that real estate can be transferred in many, many ways… not just in the conventional “fee-simple” arrangement that is most common.
The deal between Hef and Metropoulos is actually pretty common. Instead of selling Metropoulos normal ownership of the property, what he did instead was to sell him what’s called a “Remainder Interest”. Hef reserved for himself what’s commonly known as a “life estate”.
Now let’s forget about the legal terminology behind this. Basically, the deal between Hef and Daren is that Hef gets to own the property until some point in the future, and Daren gets to own it after that. They based the deal on Hef’s actual lifetime. They could have just as easily based it on a set number of years, or even on the life of somebody completely different. That doesn’t really matter.
What does matter is that you get this idea: With real estate, it’s pretty easy to structure deals so that one person owns the property until a future date, after which another person owns it.
So think about that with me, if you will. Let’s say you and I do a real estate deal together. Today, I buy ownership of the property until 20 years from now, and also today, You buy ownership of the property after that.
Well, right now, my part is pretty valuable, because I get to use the property for the next 20 years. Your part is valuable too, but you’ve got to wait 20 years, so that makes yours worth less than it otherwise would be.
But think about it… when I’ve only got 15 years left rather than 20, my part of the deal is now worth LESS than before, because my time of ownership is winding down. Same is true when there’s only 10 years left or 5 years left or 1 year left… with every passing day, the value of my piece of the deal is going down.
But your piece of the deal? It’s going up every day, isn’t it? Because with each passing day, you’re one day closer to owning the property outright, and me being out of the deal entirely. With each passing day, my part becomes less valuable, and yours becomes more valuable.
Until the day when 20 years passes, and suddenly, my part of the deal is worth nothing, and you have total, complete ownership.
Follow me so far? Pretty simple.
So here’s my question: How can we apply that to doing self-directed IRA deals?
Well, my friends, the answer is that we can create absolute magic with it using the Hourglass Technique.
The hourglass technique works like this:
Let’s say you find a great piece of real estate you’d like to buy in your IRA. You could actually use the Hourglass Technique to buy it in your traditional but have the thing automatically transfer to your Roth, where you could withdraw it tax free!
You find a piece of real estate that’s a great deal. Your Traditional IRA buys that property -or rather, it will likely pay for 80-90% of the property value because maybe it’s only buying ownership for the next 30 years or whatever.
Your Roth IRA, on the other hand, only pays 10-20% of the value of the property, and then owns the “future value” of the property.
But every day, day by day, what happens? What happens is that the value of the part that’s owned by your Traditional IRA starts to disintegrate, dissolve. Disappear… but not really. Actually, what’s happening is that as the value of the “present value” part of the deal declines in value, the future value of the deal – the part owned by your Roth – goes up and up and up.
Do you see what just happened? You used pre-tax money in your traditional IRA to purchase 80-90% of a piece of real estate… but ultimately 100% of that real estate is going to end up in your Roth IRA, where you’ll not have to pay taxes on it when you make withdrawals in retirement.
That, my friends, is having your cake and eating it too.
Now this is not a strategy you should try by yourself, nor should you try it without talking with an attorney to help you.
But it’s such a powerful strategy – the ability to get the benefit of BOTH traditional and Roth IRA’s on the same deal – that I’m going to do a special webinar for you, my loyal listeners, to explain this a bit further. The webinar is free to you, just go to today’s show page at SelfDirected.org/278 and you’ll see a place you can click to register.
This one is a big deal, folks. This is some next-level NINJA stuff. And if you’re a real estate invest with a large Traditional IRA that you wish was a Roth IRA instead… well, then, my friend, you may have just discovered the golden ticket.
Again, go over and register for the free seminar where we’ll be digging much deeper into the Hourglass technique. You can register on today’s show page at SelfDirected.org/278.
My friends, invest wisely today, and live well forever!
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