Author Archive
Using Your Self-Directed IRA to Invest in Hard-Money Lending – Part 1
Posted on September 2, 2013 byWhen a real estate developer runs into a snag, and needs additional money to complete a project, or he wants a shorter-term loan of, say, six months to six years, he frequently turns to the “hard-money” market. In a nutshell, these are lenders who are looking to get a decent return on their money, with a margin of safety. They usually do this by holding a lien on the property, or on another property the borrower owns, in a practice called “cross-collateralization.”
If you’ve got a lot of money in your self-directed IRA, and it’s been earning relatively weak returns, hard money lending provides a potentially lucrative way for you to “take charge” of your assets. With hard-money lending, you aren’t depending on the skills of a mutual fund manager you’ve never met, nor do you need to settle for the lackluster interest rates currently available from investment-grade bonds and treasuries.
Instead, you’re free to seek your own deals with any number of private real estate developers. Here are the advantages to hard-money lending in your self-directed IRA: Read More→
Self-Directed IRA and Real Estate – A Popular Combination
Posted on July 31, 2013 byCombining a self-directed IRA and real estate is a trend that is picking up speed fast! Real estate investors are redirecting their focus and purchasing homes with their self-directed IRAs in mass. Partly because they refuse to settle for living on the measly average $1,230 per month social security check that many retirees are forced to budget with.
Large companies are cutting back on their employees’ hours in preparation for the Obama Care regulations and this change is causing people to rethink their futures prompting them to obtain both a self-directed IRA and real estate investments. With their salaries shrinking, they are looking for alternative revenue streams to build their retirement accounts.
So why is real estate picking up steam? Many people have lost their homes to foreclosure, others can’t get financing due to the new bank regulations, and some people simply do not have enough confidence in the real estate market to buy a home so they are looking for rental properties to live in. For these reasons, the demand for rental properties is at an all-time high and real estate prices, while slightly on the rise, are still low enough to make this an investors’ market. Large cities listed in the top 10 fastest-growing U.S. cities of 2013 are among the most sought after in the rental market. There are droves of residential properties on the market at great prices and investors are buying them up quickly. Read More→
Your Most Important Deal… Keeping Your Investments and Family on Track!
Posted on June 27, 2013 byYou’re prepared right?
The first step is one that many real estate investors have already taken care of…drafting a Last Will and Testament. So, you have it all spelled out…you have met with your lawyer and carefully drafted a Will that details who inherits all of your assets right down to your great great grandfather’s pocket watch. While this is an important first step, if you are an active real estate investor, the fact is that you have some additional preparation needed in order to allow your loved ones to continue to maximize the benefits of all your hard earned investments.
The Real Estate Investors Portfolio
Drafting a portfolio is critical when you own multiple real estate holdings and other investments. The portfolio should detail: Read More→
Protect Your Nest Egg – Mistakes that Can Cost You!
Posted on May 31, 2013 byLack of Knowledge
Many people make mistakes due to a lack of understanding of the governing rules. This article covers two of the most common mistakes. Understanding these rules can help you grow your self-directed IRA without fear of losing out to avoidable errors.
Violating Once-Per Year IRA-To-IRA Rollover Rule
You have two options when moving assets between your IRAs; one is a transfer and the other is a rollover. Under a transfer, the delivering IRA custodian pays the amount to the receiving IRA custodian for the benefit of your IRA. Transfers can be done for an unlimited amount of times.
Unlike a transfer, a rollover can only be done once during a 12-month period per IRA. Failure to follow this rule will result in loss of tax-deferred status, which means that the amount would be treated as ordinary income and could be subject to the 10% early distribution penalty if the distribution occurs while you are under age 59½. The amount could also be subject to a 6% excise tax if not corrected by your tax-filing deadline, plus extensions. Read More→
Commercial Real Estate – The Profit is in the Details!
Posted on May 1, 2013 byCommercial Real Estate
Buying Commercial real estate with your self-directed IRA is not much different than buying a residential property, except commercial real estate purchases require a whole lot more due diligence.
Commercial Real Estate – Get the Real Numbers!
The offering says gross potential, (a.k.a. pro forma). This is one of the things you’ll run into all the time. The broker says it’s got a great pro forma. Here’s what it can generate. You want to find out what it did generate, not what it’s going to generate. You want to buy what it’s doing today.
With REOs, foreclosures and distressed sales, you’re going to have to evaluate things on a case-by-case basis and get the real numbers.
Commercial Real Estate – The Truth is in the Documents!
This section outlines the many important documents you need. Having said that, remember you can make the offer in advance of receiving all of the below as long as you make the offer contingent on the receipt of the documents you need. A note about contingencies: make sure you are very specific including amounts you expect to see on the documents, ability to get insurance at the current cost, verification from the county of zoning specific to what you intend to do with the property, etcetera.
A lease is the most important document. Read every lease line by line and make notes, or get somebody that knows how to read leases line by line. Are there any special arrangements? The landlord says they’re paying $1,000 a month, but it turns out that I’m obligated every year to repaint the place, re-carpet the place, and so forth. Read More→
Is it an Art? Is it a Science? No it’s Fairly Simple! How to Find Investors!
Posted on March 26, 2013 byHow to Find Investors – It’s Fairly Simple!
When you’re looking for private money, it is not an art. It’s a fairly simple process.
How to Find Investors – Benefits
The benefits really depend upon the negotiation with you and the lender. Here are a few of the many possible benefits:
- You’re dealing with an individual who can make the decision right then and there, or as close to right then and there as you can.
- You generally pay points for loan origination fees to traditional lenders, with private lenders, whether points are paid or not is a matter of negotiation.
- Traditional lenders require payments on loans; with an IRA it may be possible to arrange a no payment loan.
- If you need a one-year or two-year loan to do a rehab and the investor says “I don’t need the cash flow because it’s in my IRA, I’d rather have the extra one or two percent.” That’s great; you’d rather not make any payments until the house sells.
- You set the terms with the private lender, not the bank.
- Many times, there’s no personal credit required; however, not always.
- There are often no personal guarantees; this varies by lender and negotiation.
- In some cases, you can get dollars upfront for funding expenses.
- That’s not always the case. Many private lenders will say “no money upfront”; still others will say “100% as long as the Loan to Value is 65% or less.”
- Some lenders will require some sort of equity, “skin in the game”, to make a loan. That’s one of the nice things about dealing with private lenders; the terms are completely negotiable between you and the lender.
Are Self Directed IRAs Safe?
Posted on February 28, 2013 byFDIC Insured
All un-invested cash in your self directed IRA is FDIC insured.
As a note, FDIC insurance only covers cash balances, not once you make a purchase of a non-traditional asset. All credit card transactions are safe — American IRA is certified by Security Metrics. All accounting is processed through a top-rated trust accounting system. We maintain professional insurance coverage, including crime shield policy and errors and omissions policy.
Asset Vesting with Your Self Directed IRA
All assets are vested in the client’s name at the time of purchase… “American IRA, LLC for the Benefit of Client’s Name IRA”.
Investing with Your Self Directed IRA
Investing within a self directed IRA is completely within the investor’s control. Is it safe? Yes, to the extent that the investor controls it. Here’s something that’s overlooked many times when we’re talking about safety between the securities industry, and let’s say in this case we’re talking about the real estate industry. Each investment has its own characteristics as to safety. Read More→
Learn How to Be a Blue Collar Genius!
Posted on January 30, 2013 byBlue Collar Genius Defined
A Blue Collar Genius is all of us who have mastered our craft with hard work, diligence, taking action, creating experience, making mistakes, and most importantly never giving up!
That’s a blue collar genius by my definition. How many times have you said I’m smarter than he is, but he’s driving the big Cadillac and you’re driving the little economy car? How could that guy ever make any money?
Perspiration, Inspiration, and Blue Collar Genius’
Thomas Edison said “Genius is 90% perspiration and 10% inspiration”.
The Top Real Estate IRA Investors Know Lack of Knowledge = Fear
How many people do you know that have been to every seminar, they know more about real estate IRA investing than anybody you’ve ever talked to, and when you ask them “how many deals have you done?”, they say “Well, I’m still working on my first deal.” You ask, “How long have you been a member of the group?” You’re not shocked when they respond, “About eight or nine years, but I’m looking.”
Knowledge is wonderful, but you have to actually use it! Read More→
Real Estate IRA Investing – The Purchase
A young couple found a home they wanted to purchase with their real estate IRA. The purchase price was $50,000. They borrowed $55,000 and had $800 worth of repairs. I know that $800 worth of repairs for a house purchased with 1,400 square feet, three bedrooms, and two baths through a short sale sounds absurd, but these are actual numbers from an actual deal.
Real Estate IRA Investing – The Repair Bill
I’ve personally never seen $800 worth of repairs in my entire life and I’ve been in this business for 40 years. I can’t even walk through the house for $800. I don’t know what it is but I’ve never done that, so that was phenomenal to me. The deal’s great but how did you get $800? They actually got a little cash back at closing since they borrowed $55,000 for a $50,000 purchase. Read More→
Acquisition, Disposition, Good Decision?! Key Things to Keep in Mind When Investing in Real Estate!
Posted on November 28, 2012 byDue Diligence When Investing With a Self-directed IRA and/or Self-directed 401(k)– Where do I Start?
With a self-directed IRA and/or a self-directed 401(k) you are always hearing that you must do your ‘due diligence’. At American IRA, we discovered that many clients did not know how to do their ‘due diligence’. While we cannot give investment advice at American IRA, we can offer a detailed summary of ‘due diligence’ items that our clients can use as a guide. This list gives our clients a healthy starting point that they can use during discussions with their professionals. In this article we share with you ‘due diligence’ items related to real estate acquisitions. As every investment is different, you should consult with your professionals about whether there are ‘due diligence’ items you need to consider in addition to what we share in this article. Read More→
Bank Won’t Finance… Private Lending is An Option
Posted on November 1, 2012 byPrivate Lending Explained
If someone wants to just simply hold the paper secured by an asset, they’re actually going to be a private lender for that asset. That’s right…private lending simply means a private individual is loaning the money rather than a bank or lending institution.
Private Lending…The Numbers
In this example, Jack Brown has $100,000 in a Rollover IRA, which is just another way of saying Traditional IRA. He wants to loan it to an investor as a first mortgage on a property worth $135,000.
Private Lending…Determining the Value
Perhaps Jack’s realtor, an appraiser or some resource told him, or perhaps he’s sophisticated enough to look at the deal and say I’m comfortable that the deal is worth $135,000. We always suggest doing your ‘due diligence’ and using professionals to assess the value of an asset you are going to loan money on.
In this case, we’re looking at an LTV – Loan to Value – of 75%. Hold on a minute, isn’t 75% LTV a bad idea? Everyone has to determine their comfort level when loaning money. I personally do not lend on anything over 60% Loan to Value. Read More→
What’s the Buzz!?! Is it a Bird? Is it a Bee?
Posted on September 25, 2012 byBuzz Words and Warning Signs
As investors, we must always be aware that there are fraud promoters lurking in every corner waiting for their next opportunity to pounce on an un-expecting investor. To help you avoid falling victim to fraud, here’s a recent study of SEC Investor Alerts which show some very obvious but worth mentioning ‘buzz’ words every investor should watch out for:
- Guaranteed
- Can’t Miss
- Extremely High Returns
- Safe and Risk Free
- Promised _____% Returns
In the SEC alerts they are primarily discussing investing in LLCs and Private Placements; however, these warnings are absolutely applicable to real estate transactions, private loans, or any other investment a person would consider making. Read More→
