As I have shared in my previous articles, our investing model is based on recycling our investment capital over multiple deals. In short we buy a distressed asset with cash, repair the property and then after finding a renter we secure a passive investor to replenish our capital. Our goal is to recycle at least 90% of our capital across each investment property.
Over the years we have refined our model and partnered with several passive real estate investors. Our investors tell us they value the return and the security of lending against performing assets versus the option of buying stocks or lending on a distressed property, with only promises of future security.
As we’ve continued to work with more passive investors, our model has become more structured and defined. We offer a standard set of returns and terms to all of our passive investors. This means that on occasion we have had to decline some investors who were looking for shorter terms or very high rates.
Until recently, one of the rules we adhered to was each passive investment would come in the form of a cashier’s check, and we would send payments directly to the investors. We knew about the opportunities available via leveraging Self-Directed IRA’s, but our business was growing fine via word of mouth and we didn’t see a reason to expand.
I can give you all kinds of reasons why we didn’t leverage this source of capital before, but they would just be excuses. We were simply content with what we had going and we were lazy.
That was until we met an investor who wanted to put a significant amount of capital to work via his Self-Directed IRA. The key was the investor was willing to work with us over several deals. We met for dinner to vet the investor and discussed our program in detail. We wanted to make sure we were very comfortable with each other before we took the next steps given the potential commitment.
The dinner meeting led to a few follow up meetings, a couple of trips to Fresno and some discussion with the Self-Directed IRA Company. We needed to make sure we understood all the ins and outs of the investment before we moved forward.
As it turns out, the process is almost exactly like the cash deals we had done to-date. The process is not quite as fast as all cash deals, but it is by no means slow, as it only takes 2 weeks to fund and close on average.
The good news is we have already completed two transactions with this investor and we have a third transaction lined up for a small apartment building that should fund in late December.
The investor is very pleased as he loves the return and security he gets from lending against a performing asset.
The best part is since we have opened this source of capital for one investor, we have already secured a second investor interested in earning a secured return on his Self Directed IRA Holdings.
Lesson learned: I should have looked to leveraging Self-Directed IRA’s as a source of capital sooner. IRA investors love the idea of securing a guaranteed return for multiple years and they really like the idea of lending against a performing asset!!!