All Forum Posts by: Fred T.

While it is possible to "Leverage" your IRA to acquire Real Estate, this does take a Non-Recourse Mortgage and I have not seen anyone issue a LOC because their is no asset to secure the money to.

You can, however, Leverage your IRA and get a Non Recourse Mortgage at usually 50-60%LTV for any type of residential, income producing farm land and commercial building assets (usually not vacant land though).

This is another way to increase your IRA's Acquisition Power instead of paying all cash for the asset. Keep in mind there are special taxes involved in a Leveraged Transaction such as UBIT/UDFI that you should be aware of but there are also strategies that can be deployed to offset that tax base...speak with a GOOD Attorney/CPA to assist you with that info.

(DISCLOSURE: I am NOT an Attorney, Banker or CPA and this is NOT meant to give you any legal or financial advice in any matter and consultations with appropriate Professionals ARE REQUIRED FIRST!)

As with anything, it's best that you do your homework before starting anything new...this is no different. You will want to consult with an Attorney first that knows and understands IRA/LLCs. Then interview Custodians which your Attorney can assist you with too. Then understand what you can and can't do with that special account. Finally, have a great accountant that also understands that form of LLC and usually has some relationship or knowledge of the Attorney that set the entity up for you as well as the Custodian's reporting requirements. The key to this is good flow and continuity between all of your strategic partners.

The process looks something like this (NOTE: I am NOT an Attorney, Custodian or CPA and this is NOT meant to give you any legal or financial advice in any matter and consultations with appropriate Professionals ARE REQUIRED!)

1) Locate and Interview A Custodian that you are comfortable with. Self Direct your IRA and be sure to advice the Custodian that you plan of forming an IRA/LLC..this way they can set you up appropriately and allow you to purchase the LLC with ease once your Attorney has it set up.

2) Form an IRA/LLC - this requires an Attorney who is familiar with this formation as it is no-where near a normal LLC - also your IRA must be Self Directed before the LLC can be formed.

NOTE: Steps 1 and 2 may want to be done together...consult with both professionals first, put a plan together and then use them to execute the plan.

3) Sell the LLC to the IRA and open a checking account - this now gives you full control of the funds and you don't need to go through the Custodian for anything during a transaction...the Custodian will keep your records so a few times a year you will have to report to them what the LLC is doing so make sure your records are "tight"

4) Use the IRA/LLC Checking Account responsibly and be sure to avoid Prohibited Transactions

5) Work with an accountant/CPA to be sure that you are paying the lowest UBIT possible which does require excellent book keeping

6) You then are the Manager of the IRA and can execute all related transfer documents regarding the asset for your IRA...keep in mind that you can not ever pay yourself or other disqualified individuals out of that account.

AGAIN...I STRESS... this is a great strategy to deploy BUT you MUST know what you are doing, what is going on, how you can use this powerful strategy and when in doubt..ASK FIRST not after the fact./

(DISCLOSURE: I am NOT an Attorney, Custodian or CPA and this is NOT meant to give you any legal or financial advice in any matter and consultations with appropriate Professionals ARE REQUIRED FIRST!)

Motivation is key on this one and an upfront conversation with the Seller should be had to make that determination.

1) If you determine the motivation is he doesn't want to deal with the Tenants or Building Upkeep, then try a Master Lease approach coupled with an Option Agreement for x-years. The Master Lease fee would be the base current rent, minus taxes and insurance and then 50%. The option would be set at the best possible price you can negotiate for the longest period of time. Using this method, the Seller doesn't have to worry about the tenants or building and will get even more than their asking price in the future and you will have a cash flowing rental that you can remove the existing tenant, spruce up the place and increase your cashflow with a fresh tenant OR better yet a tenant that for a fee would take over the option and related expenses. Of course this is an advanced strategy and consultation with an attorney to get all of the paperwork right is very important.

2) If the Seller won't budge on the price, then you could ask the Seller to carry a mortgage and after 3mths you will show him how he can sell off that mortgage to get his cash. Using this method, the Seller would have to come down on the amount of cash he would be willing to receive BUT he doesn't again have to worry about the asset or tenants.

3) If Cash is the driving factor, my thoughts are he would have listed it with an Agent...especially having a tenant in it. But let's say Cash is the motivation...then you have to make the case that the property won't likely be sold on the retail market with a tenant in it...so he would have to remove the tenant, spruce up and repair the place, possibly stage it for sale, hire an agent, pay a commission, wait to see what the market does as far as buyer interest, be willing to drop their price if no movement in 30days, play the Buyer mortgage process of WDO Inspection, home inspections, appraisal report and rely on the Buyer that they can close. By the time all of this process is completed, who knows when it would be sold and for what NET Profit..not to mention they now have a vacant property and anything can happen while they are waiting for the sale process to run its course...and I (you) am here now..so let's negotiate. Then run your numbers and let the numbers speak for themselves. Out of state owners usually don't like the retail approach...so use the entire process and stress-fullness of the out of town retail sale process to help you in your negotiations.

There are combinations of other methods you could also use, but the processes are complicated and have a few moving parts. The ones above may work in this case, based on what you said, so I would give those a try first. If the Seller is hounding you to see their place...there is some form of motivation in play...it's up to you to hone in on it to be successful.

Good Luck!/

1) Is the renter on a month to month or annual lease?

2) Have you determined the motivation behind the sale?

3) Do you know for sure the property is Free and Clear, no outstanding code violations, no outstanding liens or open permit issues, etc.? This is a big piece to a puzzle of course.

4) Do you know any other Investor in your area that has an open rental to move this tenant to if month to month?

5) Did you talk to the tenant at all to determine their financial status? If your strategy is fix/flip and you already have a tenant that has lived in this for an extended period of time, you could have a golden opportunity...if you know what I'm talking about!

Even if a property is in good or great condition, doesn't mean you can't make a win win deal on it...in that case, motivation is key.

Look forward to your response!/

:perk: bad debt? Can you elaborate on that some?

Is this building stabilized, rent restricted or is this a value add play?

General Condition of the property? 

Motivation of the Seller?

You can take this several ways...but the above information will ultimately guide the path.

Look forward to your response and more details!/

@Ilona Kovacs 

 ESRI Business Analysis Data (use the app..it's free)

CoreLogic $12 reports

Urban Land Institute and PwC Annual Trends Report

Each local Real Estate Agent can also provide you with a Market Summary Report which, when used with Core Economic Data, can provide you a good baseline to work with.

Kudos to you to want to know the Macro and Micro Economics of certain Markets as opposed to the usual spreadsheet number only review...reflects the caliber of investor you are./

Happy Investing!

Hi Elijah,

For a typical Investor, there is not enough meat on the deal. You usually want to be around the 70-75% all in (Acquisition, rehab, acquisition costs, holding costs and exit costs).

With that said, if your strategy is buy and hold then I guess you need to consider what your cash flow will be and if you're happy with the overall return on your investment.

If your strategy is a Flip, then you're cutting it close IMHO.

Good luck!/

To start out on some smaller deals, stay close to home is the best advice I can give. 

Maybe attend a local REIA Club as an "Investor" and get to know some of the players in your region before you expose the Money Lender hat.

Call other Private Money Lenders and pick their brains local to your region...they usually don't have any problems sharing their experiences with you.

Attend some Auctions to see who is playing in that sandbox, collect business cards and begin your due diligence.

When you're ready, reach out to those that you pre-vetted above. 

Maybe start out as a JV with you providing the cash and the partner provides the labor/management or something like that. In this strategy maybe you do an Equity Split instead of a Debt deal OR maybe you do both.

Sky is the limit in what you can do or how you can start...just do it smart!

Well Wishes!

@Bill Gulley I'm totally with you in regard to "Newbies". I actually wrote a post on the same subject here: http://www.biggerpockets.com/forums/88/topics/1732...

We can agree on that! :)

Ultimately, the more you understand the processes yourself, the better off you will be. Using someone else to manage your funds or make a decision with your money is getting back into that risk area. While we want to believe that most people are of good nature, when money and real estate are involved sometimes the ethics get lost in the hype and excitement.

Brokers, both Mortgage and Real Estate, are focused on a few things...except losing your money..lol. They only make money if they lend your money out or get your money tied up into a "deal" of some kind where they can make a commission. With all of the disclosures out there, the general public understands that investing is risky and no one can guarantee results of any kind no matter how hard they try or want to.

The only true way of protecting your money is to know the business you are investing in and manage your funds according to your own risk assessment. If it doesn't smell good to you..then don't invest regardless of who says what.

1) Understand the Industry and related Industries (Real Estate, Mortgages, Credit, etc.)

2) Learn how to evaluate a property so that you are not relying on someone else (valuations, construction costs, market conditions, etc.)

3) Learn how to "vet" the sponsor/developer (Borrower/Investor) with regard to overall character, credit management, experience, resources/team, attitude, etc.

4) Have your attorney draw up the Mortgage, Note, Trust Documents and related documents that will be used to secure your interest in the property

5) Secure Title Insurance with a Survey on each transaction (understand how to read a title report and specifically the B2 exemptions page(s))

6) Secure Property Insurance on each transaction (replacement value if possible)

7) Secure either a BPO and/or actual Appraisal on each transaction (as-is as well as Subject To values and an income approach on duplexes and up)

8) Do not release money on a construction project until x percentage is completed (Draw Schedule) and never release the final payment until the project is fully completed - Use a 3rd party Inspector (familiar with the Construction Industry) to determine percentage of completion / line item itemized

9) At the first sign of distress by the Sponsor or the Project, be ready to act and act swiftly

10) Have FUN! 

Treat your cash as a Business and 9/10 times you won't be distracted.