Using a real estate investment company to help you out ... good/bad?

Question

So I finally have my self-directed IRA set up and all funds invested in my LLC. Ready to start investing. My problem is, I've never invested in real estate, but it's what I definitely want to do with my self-directed IRA. I'd like to either do a rental or notes, although I don't have much to start with so my options are limited. I've only got about $20,000 to work with :(

With that kind of money, I know people would say do Lonnie Deals, but unfortunately I just don't have too much time to put into it .... this is retirement investing, not a full time job after all.

I've seen some companies out there that provide services for locating properties, providing turn key rentals, and/or finding notes or creating notes for investments. They help you out every step of the way.

Question: Would using these types of services be advisable for someone who's never invested in real estate? If so, are there really good reputable companies out there?

David Beard · Answer

For $20K in an IRA, forget rentals, borrowing restrictions will keep you from getting to a dollar amount that makes sense, PLUS you really need to keep a healthy cash reserve in your IRA (I'd argue for $10K) to cover cash contingencies that might arise with your property (large new capital expenditure, tenant destroyed house, etc.). You have to keep funds in your IRA to pay these kinds of things. If you fund repairs from outside your IRA, then the IRS can "distribute" your entire account, ouch.

Really, I don't know what you do with such a small amount. You could certainly buy a note off of Granite's note selling platform, but do your homework, as you don't enough funds there to get any sort of diversification.

Really, I don't know what you do with such a small amount.  You could certainly buy a note off of Granite's note selling platform, but do your homework, as you don't enough funds there to get any sort of diversification.

Dawn Anastasi · Answer

You could partner with someone else and buy a single-family home for cash.  (Maybe not in your market.)  I just bought one for $21,000 with a partner and it's requiring about $1,500 in rehab to get it rent-ready.  Having $20,000 isn't *that* much of a limiter in investing in real estate, especially with a SDIRA where you can't do the work yourself.

Brian Parsons · Answer

Thanks everybody for all your replies! Much appreciated!

David Beard & Steve Babiak - Yes, that's the conclusion that I'm coming to. Like I mentioned in my initial post, I'm interested in either rentals or notes. But considering I don't have much to start off with, I think I have to go with notes to start with. That way I can build up my IRA along with contributions, so that at some point I can get into rentals. my end goal would be to have a decent set of rentals generating a nice cash flow. So for notes, you'd recommend Granite Loan Solutions?

Regarding note investing, are there any other sites/companies that are good in helping new investors get into note investing?

Thanks again everybody!

Chris Clothier · Answer

David makes an excellent point about holding reserves back in an IRA account.  Im not sure if you have 20k liquid and 20k in an IRA, but at those amounts, you can also get hurt very bad and very quickly.  Yes you can leverage, but you can;t use one account to help the other in either direction and if you use all of your funds to buy a home, you are out any reserves.

No matter what you do, i would encourage you to get as much together, even if that means delaying a bit before you buy.  You do not have to rush.  Three are deals in every stage of a real estate cycle and it will be better to buy at a later date than to risk put yourself in a potentially risky situation where you have leveraged all of your funds into a deal.

Just an opinion with limited info.

Chris Clothier · Answer

Brian Parsons - For the question of these types of investments being advisable, I would say yes...for some investors.  It is absolutely about mindset and opportunity.  Some investors simply do not have the time or willingness to gather the needed knowledge to do active investments, so turn-key investments are a very viable alternative.  I think every good and reputable company out there, and there are plenty, will tell you to research the market, research their company, ask good and even tough questions and make sure you are comfortable before going forward.

There really are good opportunities in several cities around the country with really good companies offering their services.  As you noted, most investors using those services do so knowing that they give up some return on investment in exchange or a smooth and less stressful & complicated investment process.

All the best to you and let me know if I can help you with any questions.

Brian Petty - I appreciate the heads up and the kind words.  Good luck with your investing as well!

Chris

Brian Petty · Answer

I would recommend talking to @Chris Clothier.

I don't know if that tag isn't working because I'm on my mobile or what, but he is a respected member here and does turnkey rentals in Memphis, TN where that 20K will take you further than you think.

It's been a couple years since I've been to his company's site as I moved out of the area, but from what I know of the Memphis market, he may have something to buy for 20K, but I know you could at least get 40-50% toward something with that amount.  His site is probably in his signature if you search for one of his posts here.

Ali Boone · Answer

There are some companies who specifically loan to IRAs within LLCs. But the down payment will still be a little higher. So it really depends on what you are trying to buy. $20k will be tough.

Steve Babiak · Answer

Maybe you should consider letting a hard money lender broker your funds from your SDIRA.

Jason Flynn · Answer

That helps a ton. Thats how I assumed it would work but wasn't sure.

I might look at doing that for a longer term plan with some property, and then keeping some other properties outside of it for more immediate cash flow.

Brian Parsons · Answer

Jason Flynn - Think of the LLC (In which you are the manager) as a business that your self-directed IRA invested all or most of the funds in. That's how it's structured and when you think of it that way, you can treat the LLC as a true investment business.

With that in mind, the property is owned by the LLC. The rent money will be sent to your LLC bank account available for any other investment you'd like to make. You just can't take the rent money and spend it on yourself like it's money in your pocket, so yeah in that respect you can't touch it until 59 1/2. But for investments, the sky is the limit with the rent money coming in, you can reinvest it all you want.

Hope that helps.

Using a real estate investment company to help you out ... good/bad?

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