Catherine's Story

Featured Image

I loved living in San Francisco. Over our six years in the city my partner and I renovated five properties, all multi-family, and nearly all pre-1900 Victorians. I discovered a passion for finding attractive investment areas, evaluating prospective cash flow and later purchasing and rehabing properties. I even enjoyed working with the renters. But most of all I liked this growing feeling that real estate investing was an activity I could understand and control, and one that could ultimately support me in retirement.

I stopped loving San Francisco after the 1989 Loma Prieta earthquake. To be clear, it was not simply that one earthquake, rather the 99 others following the big one that encouraged me to leave. At the time I was an engineer working for Pacific Gas and Electric in the gas system design department, and it was our job to piece the gas system back together. I saw the devastation both personally and professionally.

Relocating to Boulder, Colorado was a sudden and, we later determined, perfect decision. After 20 years as an engineer in nuclear power, construction, gas distribution and transmission, I was ready to launch a second career. Further, the properties we purchased and nurtured in San Francisco, thanks to the IRS Section 1031 exchange rules, turned into cash flowing student rental properties around the University of Colorado. I could see buying homes to rent meant control, and might be the only job I needed.

At the same time, 20 years of consistent 401(k) and IRA contributions grew into a sizable sum, providing me comfort that I would also have retirement portfolio income from those plans. As the financial services industry does, my brokerage firm would periodically suggest moving money into other investments. This was not my area of expertise so I usually agreed. After all, this is what I was paying them for.

Nevertheless, while I knew nothing about public market securities, over time I had become increasingly frustrated that I couldn’t invest my money into investments I understood. Then one day a thought occurred to me - what about buying rental property with my retirement savings? To my surprise, and disappointment, my advisor told me that I couldn’t invest my IRA in real estate. Despite continuing to ask my question of financial advisors the answer remained the same. Yet the question continued to gnaw at me. Finally I decided to take action.

As often happens in life, through a Boulder Road Runners group I met Bill Humphrey, an experienced CPA with a specialty in personal taxes. I asked him how much I’d lose if I simply withdrew funds from the IRA and invested in real estate. A shockingly high amount, Bill said. Yet in spite of the steep taxes and penalties I was still willing to withdraw the funds for the right to manage my retirement through investments I understood and could control. Bill asked if I would be willing to pause and provide him some time to research my problem. I had piqued his curiosity - why would the IRS limit IRA investments to securities, as I’d been told by my brokerage?

A week later he called to tell me what my brokerage firm didn’t, maybe because they didn’t know, or maybe just because it wasn’t a service they offered. Maybe both.

As Bill uncovered, the IRS doesn’t tell you what to invest in, only what not to. They even provide a specific list of prohibited investments. Real estate is not on this list. Indeed, the only catch Bill found was you needed to find an IRA custodian that allowed the sort of investments you were interested in. I further learned that this was called a “self-directed” IRA (not a distinction made by the IRS, just an industry marketing term).

In 2001 my IRA invested in an 11-unit building in Denver, partnering with non-IRA investors to make the acquisition. We used debt financing which my non-IRA investing partners guaranteed, as my IRA was unable to.

A few years later, in 2003, Bill uncovered an opportunity to become a self-directed IRA provider. Remembering our conversation, I was his first call. That was 17 years ago. 12 months after launching we knew we had found a market for our service. We also uncovered a wonderful opportunity to educate clients and prospective investors, and discovered a knack for doing so.

From the beginning our motto has been “Invest in what you know,” with education for our clients and our employee partners. We feel investors do best when they invest in what they know, and our passion is in giving them the tools they need. As I write this in 2020 with over 30,000 accounts and $2.5 billion in assets, I’m certain that education made New Direction Trust Company what it is today. After all, it's where I started my journey.