Billionaires

[Dr. Jones]

Does this still work well with much smaller numbers? say $500 and $5000

However, the reason for using the call option is the limits placed on how much money can be added to the ROTH IRA in each year. I believe the number is $5,500 per year.
So, in order to have greater gains within the IRA at non-taxable earnings is through an option.

Bottom line is you are quite limited as to the amount you can put into the IRA, but not limited as to how much it earns. Use the example of flipping a house. You could buy an option to purchase the home with your IRA for $2,000 - example) and, let's say, you think you will earn $50,000 on the flip. You could personally (or using another entity) buy the position (the option) your IRA has in the house for, say, $40,000. The entire profit ($38,000 in this example) is earned tax free. You can now use the money to do similar transactions and amass retirement wealth pretty quickly.

An example I am doing right now. I have located a ranch that I estimate is worth about $6M. I have negotiated a deal to buy it for $2M. I used my ROTH IRA to buy an option on the property for $5,000. I already have a buyer lined up that wants to take my position to purchase it for $2M. However, I am selling my option for $1.5M. (The buyer is okay paying $3.5M for the ranch.)

So I invest $5,000, earn $1.5M from that investment, and pay no taxes on the earnings. Rinse/repeat.

EDIT: You can't personally buy the option from yourself, you have to sell the option to an unrelated party.

 

[Dr. Jones]

As explained, this makes little conceptual sense and probably might skirt the IRS rules on a prohibited transaction.

It does. I meant to say that someone else is buying that option for me. The way I wrote it, you are correct.

As far as it making little conceptual sense, you lose me. I've been doing it for more than 10 years.

 

[Dr. Jones]

So is this something you started doing right when you turned 59, or did you wait a few years?

I threw that softball out there for ya. YW.

 

[Jamezz]

However, the reason for using the call option is the limits placed on how much money can be added to the ROTH IRA in each year. I believe the number is $5,500 per year.
So, in order to have greater gains within the IRA at non-taxable earnings is through an option.

Bottom line is you are quite limited as to the amount you can put into the IRA, but not limited as to how much it earns. Use the example of flipping a house. You could buy an option to purchase the home with your IRA for $2,000 - example) and, let's say, you think you will earn $50,000 on the flip. You could personally (or using another entity) buy the position (the option) your IRA has in the house for, say, $40,000. The entire profit ($38,000 in this example) is earned tax free. You can now use the money to do similar transactions and amass retirement wealth pretty quickly.

An example I am doing right now. I have located a ranch that I estimate is worth about $6M. I have negotiated a deal to buy it for $2M. I used my ROTH IRA to buy an option on the property for $5,000. I already have a buyer lined up that wants to take my position to purchase it for $2M. However, I am selling my option for $1.5M. (The buyer is okay paying $3.5M for the ranch.)

So I invest $5,000, earn $1.5M from that investment, and pay no taxes on the earnings. Rinse/repeat.

EDIT: You can't personally buy the option from yourself, you have to sell the option to an unrelated party.

Mind blown.

 

[The Pearl]

However, the reason for using the call option is the limits placed on how much money can be added to the ROTH IRA in each year. I believe the number is $5,500 per year.
So, in order to have greater gains within the IRA at non-taxable earnings is through an option.

Bottom line is you are quite limited as to the amount you can put into the IRA, but not limited as to how much it earns. Use the example of flipping a house. You could buy an option to purchase the home with your IRA for $2,000 - example) and, let's say, you think you will earn $50,000 on the flip. You could personally (or using another entity) buy the position (the option) your IRA has in the house for, say, $40,000. The entire profit ($38,000 in this example) is earned tax free. You can now use the money to do similar transactions and amass retirement wealth pretty quickly.

An example I am doing right now. I have located a ranch that I estimate is worth about $6M. I have negotiated a deal to buy it for $2M. I used my ROTH IRA to buy an option on the property for $5,000. I already have a buyer lined up that wants to take my position to purchase it for $2M. However, I am selling my option for $1.5M. (The buyer is okay paying $3.5M for the ranch.)

So I invest $5,000, earn $1.5M from that investment, and pay no taxes on the earnings. Rinse/repeat.

EDIT: You can't personally buy the option from yourself, you have to sell the option to an unrelated party.

I think the confusion lays in your description, definition, and vehicle used in the "buying the option."

 

[Dr. Jones]

I think the confusion lays in your description, definition, and vehicle used in the "buying the option."

Okay, call it whatever you like. It's a call option.
My accountant handles all my 1031's and IRA transactions, so I may not be using the correct verbiage, but the gist is there.

 

[♪alt13]

However, the reason for using the call option is the limits placed on how much money can be added to the ROTH IRA in each year. I believe the number is $5,500 per year.
So, in order to have greater gains within the IRA at non-taxable earnings is through an option.

Bottom line is you are quite limited as to the amount you can put into the IRA, but not limited as to how much it earns. Use the example of flipping a house. You could buy an option to purchase the home with your IRA for $2,000 - example) and, let's say, you think you will earn $50,000 on the flip. You could personally (or using another entity) buy the position (the option) your IRA has in the house for, say, $40,000. The entire profit ($38,000 in this example) is earned tax free. You can now use the money to do similar transactions and amass retirement wealth pretty quickly.

An example I am doing right now. I have located a ranch that I estimate is worth about $6M. I have negotiated a deal to buy it for $2M. I used my ROTH IRA to buy an option on the property for $5,000. I already have a buyer lined up that wants to take my position to purchase it for $2M. However, I am selling my option for $1.5M. (The buyer is okay paying $3.5M for the ranch.)

So I invest $5,000, earn $1.5M from that investment, and pay no taxes on the earnings. Rinse/repeat.

EDIT: You can't personally buy the option from yourself, you have to sell the option to an unrelated party.

Totally interested in real estate. I have been since I was a dirt poor kid. I used to comb through the classified papers looking for deals. My problem has always been how to secure capital. Completely oblivious of this real estate call option. Thank you. Quick question. I imagine that you need a significant term so that the 3rd party doesn't just wait out your option and then deal with the property owner directly. How long is a typical term?

 

[Dr. Jones]

Totally interested in real estate. I have been since I was a dirt poor kid. I used to comb through the classified papers looking for deals. My problem has always been how to secure capital. Completely oblivious of this real estate call option. Thank you. Quick question. I imagine that you need a significant term so that the 3rd party doesn't just wait out your option and then deal with the property owner directly. How long is a typical term?

Someone (Pearl) will maybe weigh in and say this isn't kosher. I get it.
Everyone raise your hands if you think most wealthy people play straight out of the playbook.
No one?
Okay.
Normally these deals are done with an already pretty good understanding of who all the players are in advance.
To answer your question more directly, I normally only take a 90 day option and then have an NCND with anyone I show the deal to. I have only ever had one guy go around me. I sued him based on the NCND and won easily.

 

[moevillini]

speaking of billionaires, I went to the Getty Museum today. That guy (or rather his estate/foundation) put up $1.3 billion to build that place in the 1990's.

 

[RJF]

The Pearl?! Moment of silence please!

 

[moevillini]

https://graphics.wsj.com/billion-dollar-club/

interesting chart - I'll try to post the image

Too much to post the entire list / Gerry the first half
All Companies as of September 2015
Select a company to read a full profile.

CompanyLatest Valuation
Uber
$51.0 billion
Xiaomi
$46.0 billion
Airbnb
$25.5 billion
Palantir
$20.0 billion
Snapchat
$16.0 billion
Didi Kuaidi
$16.0 billion
Flipkart
$15.0 billion
SpaceX
$12.0 billion
Pinterest
$11.0 billion
Dropbox
$10.0 billion
WeWork
$10.0 billion
Lufax
$9.6 billion
Theranos
$9.0 billion
Spotify
$8.5 billion
DJI
$8.0 billion
Zhong An Online
$8.0 billion
Meituan
$7.0 billion
Square
$6.0 billion
Stripe
$5.0 billion
ANI Technologies (Ola Cabs)
$5.0 billion
Snapdeal
$5.0 billion
Stemcentrx
$5.0 billion
Zenefits
$4.5 billion
Cloudera
$4.1 billion
Dianping
$4.0 billion
Credit Karma
$3.5 billion
Tanium
$3.5 billion
Global Fashion Group
$3.4 billion
Jawbone
$3.3 billion
Fanatics
$3.1 billion
Delivery Hero
$3.1 billion
VANCL
$3.0 billion
Legendary Entertainment
$3.0 billion
Pure Storage
$3.0 billion
DocuSign
$3.0 billion
Moderna
$3.0 billion
ContextLogic (Wish)
$3.0 billion
Ele.me
$3.0 billion
HelloFresh
$2.9 billion
Bloom Energy
$2.9 billion
Slack
$2.8 billion
Powa
$2.7 billion
InMobi
$2.5 billion
Lyft
$2.5 billion
Garena Online
$2.5 billion
Social Finance (SoFi)
$2.3 billion
Houzz

 

[NAOS]

Can we get back to the unstoppable march of human ingenuity, value creation, and progress?

 

[Gameface]

Can we get back to the unstoppable march of human ingenuity, value creation, and progress?

I get that something like a pristine lake has value and no person gave it that value, but are you trying to make some sort of point that human progress is worthless?

 

[Joe Bagadonuts]

Joe Bag hasn't just taken the bait of the neoclassical synthesis, he's swallowed the hook.

His notion of "value" is so lopsided and full of blind spots that I don't even know where to begin. Here's a little start: I have friends in Trinidad whose grandparents grew up near the bubbling tars. The locals at the time didn't find them "valueless"; on the contrary, they were utilized for certain health benefits and there was plenty of local lore that grew up around them. "Technology" didn't give these places value. The value was already there; it just wasn't seized by, striated, and subsequently controlled by the (colonial) State.

I'm not arguing about the "falsity" of Joe Bag's comments. Many of them are "correct" from within the fictions of neoclassical economics and Keynesian theories. That doesn't make them universally correct. When I read these kinds of comments, I'm amazed at how often HUMAN WILL and TECHNOLOGY appear as God-like in their beneficence.... creating something from nothing. Belief in that miraculousness is what buoys the fiction. Value was there already, y'all. Just because the market and State didn't recognize it doesn't mean it wasn't there. Humans don't create objects from inanimate or "dumb" matter. Nonhuman entities have agency in this creation... and they have value regardless. Good grief.

When I choose to view a NAOS post I am almost always treated to a guy who believes that discussion equals climbing upon an intellectual high horse and mocking the intelligence and knowledge of his opposition. Since the post above is simply more of the same I'm not going to get into a spat over any of it, but I'm interested to learn if I am the only one here who sees logical inconsistency in claiming that tar pits were used long ago for therapeutic reasons and therefore the value of vast unknown underground oil reserves was already there prior to the technology that we utilize today to exploit them. Yes, I slightly overstated the case that they had no value prior to industrialization, but come on...

 

[moevillini]

Well at least I think we can all agree that it's complicated!


And I'll admit that I do tend to think of it as a bit of a zero-sum game, which I'll also admit is a bit foolish on my part.

The history lessons on forests and tar pits and tulips and all that have been good reminders of the evolving notion of what constitutes "the good life"

Now what was the original question?

 

[Dr. Jones]

My thoughts are that both Joe and NAOS have valid arguments to the two sides of the debate.
Difference is Joe stated his opinions and NAOS did the same but in an unnecessarily condescending way.
I would greatly prefer being educated to the two ways of thinking through constructive debate with less hyperbole and personal barbs.

But it's a message board.

#modauditioning

 

[Dr. Jones]

Btw, only reason I would want to be a mod would be to get the IP address of ncoloradojazz and run through his house with my ****ing truck.

 

[♪alt13]

When I choose to view a NAOS post I am almost always treated to a guy who believes that discussion equals climbing upon an intellectual high horse and mocking the intelligence and knowledge of his opposition. Since the post above is simply more of the same I'm not going to get into a spat over any of it, but I'm interested to learn if I am the only one here who sees logical inconsistency in claiming that tar pits were used long ago for therapeutic reasons and therefore the value of vast unknown underground oil reserves was already there prior to the technology that we utilize today to exploit them. Yes, I slightly overstated the case that they had no value prior to industrialization, but come on...

I think what you are failing to recognize is that it isn't the innovator that claims the value of the pits nor is it the people who have an ancestral claim. More often than not it is a cutthroat capitalist whose contribution to the value of the pit or stewardship of it was minimal. The myth of the innovator isn't so much that they aren't adding value it is the myth that equates the capitalist with the innovator that is so frustrating. If you're so high on innovation why not tout an "innovationist" economy instead of a capitalist one. I don't want to speak for Naos but having read his posts over the last few years I think this is what he is getting at.

 

[Dr. Jones]

I think what you are failing to recognize is that it isn't the innovator that claims the value of the pits nor is it the people who have an ancestral claim. More often than not it is a cutthroat capitalist whose contribution to the value of the pit or stewardship of it was minimal. The myth of the innovator isn't so much that they aren't adding value it is the myth that equates the capitalist with the innovator that is so frustrating. If you're so high on innovation why not tout an "innovationist" economy instead of a capitalist one. I don't want to speak for Naos but having read his posts over the last few years I think this is what he is getting at.

Well said, hey.

 

[Joe Bagadonuts]

I think what you are failing to recognize is that it isn't the innovator that claims the value of the pits nor is it the people who have an ancestral claim. More often than not it is a cutthroat capitalist whose contribution to the value of the pit or stewardship of it was minimal. The myth of the innovator isn't so much that they aren't adding value it is the myth that equates the capitalist with the innovator that is so frustrating. If you're so high on innovation why not tout an "innovationist" economy instead of a capitalist one. I don't want to speak for Naos but having read his posts over the last few years I think this is what he is getting at.

I think it would be most accurate to say that I believe the oil reserves gained value to human society as a result of the technology. But yeah, I guess if the paradigm someone is arguing from is anti-capitalism then we're probably going to butt heads from time to time.

I once had a neighbor who was self-described anti-human. Maybe NAOS is in that category as well. We had some interesting conversations about his position that humans are so bad that he would be honored to kill himself as long as everyone else agreed to do the same. I told him not to hold his breath. The irony (to me, not him) is that he uses more than his fair share of resources in this world. I hold nothing against him for doing that, but by his logic, he certainly should.

My position is that humans (and human society) are a remarkable occurrence (regardless of whether intelligent life has ever happened elsewhere in the universe). I am unashamedly in favor of human progress. I love pristine places and enjoy them often, but the beauty of those places which are mostly untouched by man does not cause me to feel, like some do, that man is therefore bad. As a matter of fact, I think a world filled with innovation and competition and capitalism and religion and science and wars and victories and all the rest that comes with our complicated culture is infinitely preferable to the path this planet would be taking at this very moment had intelligent life never emerged. Yes, there would be many beautiful vistas (some of which we have destroyed), and no forest creature would ever know the terror of a rifle shot, but there would also never be anyone to truly appreciate those beautiful vistas (or to recognize that we have also proven ourselves capable of creating beautiful ones of our own) or to record the history or to argue ethics or anything else.