An IRA, as you probably know, is a government-sponsored saving plan. The initials, IRA, stand for Individual Retirement Account. The money your savings earn in an IRA accumulates free from taxes until you begin to draw on it. Same thing with your Sweat-Equity IRA and a Sweat-Equity IRA provides you with other, unique tax advantages the traditional IRA doesn’t.

            The Sweat-Equity IRA will build your net worth safely over time. Money invested in your Sweat-Equity IRA will realize double-digit returns and, yet, will be secure from the daily, even hourly, swings in the stock market that could find you in a down-market just when you need your money.

            The problem I faced was that I couldn’t both pay the bills and save enough to retire. Saving the amount necessary to build the size nest egg I would need at retirement would simply have taken too big a bite out of my budget.

            This is the same dilemma faced by many of us today. And how do most of us respond? We bury our heads in the sand, ignore the problem, and hope it goes away. Obviously, that is an answer; it’s just not the right answer!

            The Sweat-Equity IRA can turn your savings into a secure retirement based on the amazing fact that, once you have the plan in place, you won’t ever have to contribute another dime!

            That’s right, this plan will let you have your cake and eat it, too!

            I know that sounds too good to be true, but stay with me. I don’t mean to imply that the plan does not require an investment but in the Sweat-Equity IRA you invest your time more so than your money.

            Time and money both have value, the thing is most of us have more time to invest than money. I know I sure did!

            The basis of the plan is a single piece of investment real estate. Real estate investments get special treatment from the government in the form of special tax breaks and incentives. This special treatment is just one of the factors that empower the plan to produce returns that are hard to beat for the small investor. Or an investor of any size, for that matter!

            I think it’s fairly obvious that $20,000 is not enough to secure a comfortable retirement. If you were to take that amount and leave it in an insured account earning 6% per year, after 10 years and taxes you’d have less than $40,000; still, not enough to secure your retirement.

            Take that same $20,000 and invest it in your Sweat-Equity IRA and it’s a different situation, entirely. In those same 10 years you are almost guaranteed to have an appreciating asset that will add tens of thousands of dollars to your net worth and provide you over $1,000 a month in income, much of it tax-sheltered and, so, worth much more to you.

            That $1,000 a month makes in big difference in your retirement planning and the real beauty of it is that once you secure a mortgage on your investment according to the plan, you won’t need to contribute another dime, just your time and effort! You will invest your time to build your equity.

            What about the stock market, you ask? Who knows? But you can’t count on your money being there when you need it.

            I prefer being able to see my investments and know that the time I invest in them today is going right to my bottom line, that I’m building equity. That is the biggest difference between sweat equity investing and any other type of investment out there. No other investment even affords you the opportunity to turn time into income in quite as tangible a way.

            The time I’m talking about is the time you will invest managing and maintaining your real estate investment. Once you learn the ropes, this won't amount to much, maybe only a few hours a month. But, remember, you will realize actual profit from the time you spend collecting rents or painting shutters.

            Little by little, month after month, your property will increase in value while the money your tenants pay in rent will go to pay down your mortgage. Both of these amounts will go directly to your bottom line and increase your net worth.

            Over time, these amounts will add up to financial freedom and a significant portion of your retirement plan.  Your Sweat-Equity IRA could well be the difference between a comfortable retirement and never having the choice to retire, at all!

            There are four keys to the Sweat-Equity IRA. They are:

1.      Your renters pay the mortgage;

2.      Depreciation cuts your tax bill;

3.      Inflation increases the rent you receive;

4.      Inflation increases the value of the property, itself;

5.      A large portion of your profits are tax-free and the remainder are tax-advantaged.

            The Sweat-Equity IRA will even put more money in your pocket today! If you follow the plan and put just enough money down to allow rent to cover expenses, the depreciation that the Federal government allows will decrease the taxes on your regular income and, so, you will keep more of your income.

            That money then becomes the source of funds to turn a 20-year mortgage into a mortgage of 12 years, or less!

            And, once your mortgage is paid off, the rent you receive on your property is almost all pure income to you!

            Real estate has made millionaires of more investors than any other investment. It has done so through harnessing the financial power of leverage and inflation.

            The monthly rent for a single-family house (SFR) is usually about 1% of its market value. For a $100,000 property, this means rent should be about $1,000 per month or $12,000 per year.

            Now, some of this income will go to cover the costs associated with owning the property such as property taxes, insurance, and maintenance. These costs are known as operating expenses and are generally estimated to run about 30% of gross scheduled gross rental income. Scheduled income is income you can expect assuming 100% vacancy and that estimated operating costs figure actually includes a certain amount of assumed vacancy in it.

            After deducting the estimated operating costs from the gross scheduled income, you would be left with $700 a month or $8,400 a year.

            In an investment returning 5% after taxes (about the historical average for the stock market, by the way), you would need about $170,000 in the account to earn that same return. You can achieve that same income at almost no cost in Sweat-Equity IRA!

            And, if that $170,000 were in a Certificate of Deposit or similarly secure investment, the actual value of that investment would be continuously going down due to the effect of inflation.

            On the other hand, inflation has the effect of driving up the value of real estate, usually an average of 2% above the rate of inflation.

            Let’s look at the net effect of saving in a Sweat-Equity IRA versus money in the bank earning an after-tax return of 5% interest:

            We will assume that both investments are funded with $20,000 and that we invest an additional $300 a month into both investments.

            After 12 years, your savings account will have a value of approximately $95,500. This amount would provide an income of about $4,800, less than $400 per month.

            If you had invested in a Sweat-Equity IRA instead, your bottom-line would look more like this:

            Let’s say you bought a $100,000 Single-Family Residence (SFR), using the $20,000 as down payment ($15,000), closing costs ($2,000) and maintenance fund ($3,000).

            The principal and interest component of your mortgage payment would be $623.70, assuming a thirty-year mortgage at 8%.

            Assuming rents covered the principal, interest, taxes, and insurance and using that $300 a month towards the mortgage, you would own the home after 12 years.

            After 12 years, assuming 3% inflation each year, the property would have a market value of over $180,000.

Now we can begin to compare. First, let’s look at our net worth:

            Your bank account would be worth about $95,000, but remember, its actual value is constantly going down due to inflation.

            The house has a value of over $180,000 and will continue to go up in value due to inflation—your SEI would actually increase due to the effects of inflation!

            The SEI would be worth almost 90% more than money in the bank and be beating inflation while the bank account would be worth less in real inflation-adjusted dollars everyday.

            Again, assuming that your property rents for 1% of value per month, you would be getting around $1,800 in rent.

            Assuming annual operating costs at 30% of annual gross rental income, $540, you would net $1,260 before income taxes or $15,120 a year.

            As I detailed earlier, the other investment would be netting you about $400 per month or $860 less than your Sweat Equity IRA.

            That is a substantial difference and to earn that same $1,260 a month in interest income would require a balance of $250,000! And, again, inflation would be eroding the value of the cash while increasing the value of the real estate.

            Your tax situation would be different, as well, in both scenarios. Depreciation would allow you to shelter a part of your rental income but there are no tax-losses to shelter interest income that won’t come right out of your pocket.

            “But wait a minute,” I hear you saying, “I thought you said that the Sweat Equity IRA wouldn’t cost me anything!” Correct, and we will go into that in the pages that follow. The Sweat Equity IRA does allow you to accumulate a substantial retirement nest egg without having to fund it from present earnings. As impossible as that sounds, you will be a believer by the time we are through!