Investment Examples

The rules governing allowable investments by IRAs preclude an IRA’s investment in life insurance, collectibles (e.g., artwork, antiques, metals, gems, and most coins) and S corporations.

All other types of investments are permitted, and thus the range of possible investment choices is nearly unlimited. Consequently, an IRA can purchase any form of real estate. Investing in real estate for your retirement may serve as a means to diversify your retirement portfolio to hedge against the cyclical changes in the stock market, economy and bank and government-based investments.

Real estate IRA investing opens up a broad range of alternative investments for individuals who are knowledgeable about real estate investing or who work with knowledgeable advisors, sponsors, or brokers.

For many who are experienced with real estate investing, real estate investments hold the potential to protect against the loss of principal while generating better than market rate returns whereby, both income and capital gains can flow back to IRAs tax-deferred (or tax-free if the IRA is a Roth IRA).

Own an Industrial Building or Business Park

Industrial and Retail Investment Examples

Own a Retail Shopping Center:

Retail Investment Examples

How Debt Investments Work

Self Directed IRA Corp. provides our IRA investors 10% returns by arranging Direct Investments where our investors act the new lender. We originate low loan to value First Trust Deeds on commercial property.

  • Stability
  • Low risk
  • Strong equity position of the borrower acts as a “cushion” of protection
  • Direct Investment on first trust deed
  • Investment secured by the property

Here is an example of a new loan origination:

Broker Tom tells Self Directed IRA Corp he has a client that must replace a loan placed on his properly 5 years ago that is now due in 60 days. The property is a 10 year old industrial building worth $10,000,000. The loan is only $5,000,000 but the trouble is the borrower waited too long and he cannot get financing from traditional sources in 60 days. Moreover the borrower is attempting to sell another property but until that is completed, banks will not approve of the borrower’s liquidity.

Self Directed IRA Corp. sees little risk in a low loan to value loan on a newer industrial building, with a $5,000,000 equity cushion and an otherwise strong borrower with substantial net worth.

The loan is originated and in 30 days replaces the old loan. The terms are 10% interest only, no prepayment penalty, due in three years. This is a win for Self Directed IRA Corp’s investors because they are on the deed, they are getting 10%, and they are protected by a strong equity cushion. This is also a win for the borrower since he has a new loan for three years with no prepayment penalty.

Here is another example of a new loan origination:

An investor must close his 1031 transaction in less than 60 days. The property he has selected is a 2 story office investment leased for another 4 years. He is putting close to 60% down, but the banks do not like the borrower’s global cash flow picture, meaning some properties in his portfolio are not cash flowing.

Self Directed IRA Corp looks to the real estate as sole security since the borrower is already coming up with 60% down. A new loan is originated at 10% for 5 years ( one year after the 4 year lease is up to allow time for re-tenanting and refinancing).

This is a win for the Borrower since he can refinance sooner if his cash flow improves, or if he sells an asset to free up cash. He also completes his 1031 transaction and saves big on taxes, and finally he has enough time to re-tenant the building if the tenant leaves.

This is also a win for Self Directed IRA Corp since our investors are directly on a First Trust Deed with a 60% equity position as a cushion. If the loan is paid off early, investors simply move funds to another similar loan with Self Directed IRA Corp.

Debt Investments

Self Directed IRA Corp. also provides investments in loans purchased from individuals or banks at a discount. Returns can be 11% or more since the note is purchased for under its face value, yet payments are the same from the borrower.

These tend to have higher returns since there is more risk.

Here is an example of a note purchase:

A local Bank has too many construction loans outstanding on commercial construction. A builder/borrower has completed a commercial retail center financed by the bank but has not stabilized the project. The bank does not want to carry the construction loan nor provide a mini perm loan to allow more time to the developer.  The bank decides it must discount the loan to sell quickly.

The $3,000,000 loan is reduced for quick sale to $1,800,000. Self Directed Ira Corp’s Investors purchase the loan and now act as the new Lender. The face amount of the note stays the same at $3,000,000 but investors enjoy a higher return, 10% in this example. Assuming the loan is paid in full, after the property is stabilized in about three years, then the return will be much greater and likely to be more than 18% in this example.

Here is another example of a note purchase:

Mary owned a commercial property but later sold it for $1,000,000 and took back a $700,000 seller First Trust Deed to help close the sale. The sale concluded two years ago and there are three years left on the loan. Payments come in on time at 6% interest only. Since Mary needs money now, she will sell the note at a discount equal to $500,000 cash.

Self Directed IRA Corp. makes an offer to buy the note and performs due diligence on the underlying asset.  The monthly payments are $42,000 annualized, which yields an immediate return of 8.4% to Investors.

Later the borrower pays the full face of the note upon refinancing. The return to investors is about 13% annualized since the payoff is for the full $700,000, $200,000 more than Self Directed IRA Corp paid for the note.

In some cases Self Directed IRA Corp partners with our IRA investors via an LLC, in other cases the IRA investors are Direct Investors on the deed. Call us at  949.748.7447 to see what transactions and loans we are currently underwriting, or sign up to stay informed!

Typical Equity Investment Formation Process:

  1. We contract for the property purchase and start its typical due diligence such as physical inspections, financial analysis, and title work.
  2. Once the property passes inspection, the new single asset LLC is formed. The new members will be IRA/Sep investors under their respective IRA or Sep account name. We are the Managing Member.
  3. The sale is closed all cash, through escrow and title once the due diligence has completed and the investors have signed an agreement to wire funds at closing over a two day closing period.
  4. All members are paid a preferred return before any profit splits. Typically, on equity investing where we are the owner of  the real estate, returns will be 8% to 10%, then investors receive profit sharing which could push the returns over 15%. Each property has its own merits so be sure to contact us to see what types of properties we are underwriting.
  5. Self Directed IRA Corp. manages all aspects of ownership, including managing, tax reporting, K1 distributions, acquisition, disposition, and any tenant issues. No debt is placed on the properties.

Title is held in the LLC. All investors/members in each LLC and are invited to participate in biannual conference calls. Email updates cover all newsworthy status on the property. Monthly financial reports are mailed to investors.

Equity Investments

Industrial Properties

Self Directed IRA Corp. seeks out Multi-tenant Industrial Investments with the following parameters:

  • California infill location, meaning well located or difficult to replicate the location.
  • Minimal rollover risk, meaning no tenants having a suite or multiple suites larger than 10% of the size of the property.
  • An opportunity forcing a sale and offering some upside in rents, leasing or better management.
  • Or a situation where the property offers an above market Cap Rate.
  • Minimal build out in the majority of suites, so that vacant units require minimal cost to re tenant.
  • Rents at market or below, or a price reflecting room in the event rates go lower.
  • Good location and access.

Note: This type of property has always been hard to find. Today’s market environment allows some exceptions.

Retail Centers

Self Directed IRA Corp. seeks out Retail Centers with the following parameters:

  • California A+ location. Due to the current retail real estate market the only way to buy Retail is to buy in A+ locations, or locations with tremendous barriers against future retail development.
  • Minimal loss of anchor risk.
  • Either a situation forcing a sale and offering some upside in rents, leasing or better management, or a situation where the property offers an  above market Cap Rate.
  • Rents at market or below, or a price reflecting room for positive cash flow in the event lease rates drop.
  • Excellent access.
  • Units in the center have good street visibility and the center is near amenities and strong retail trade area.

Note: Retail leasing has been hit hard. The properties for sale are often subject to leasing problems so the goal would be to acquire core assets not in trouble where the owner needs to sell to shore up other aspects of his portfolio.

Several debt examples are explained here:

Debt

Self Directed IRA Corp. provides our IRA investors 10% returns by arranging Direct Investments where our investors act the new lender. We originate low loan to value First Trust Deeds on commercial property.

  • Stability
  • Low risk
  • Strong equity position of the borrower acts as a “cushion” of protection
  • Direct Investment on first trust deed
  • Investment secured by the property
 

Here is an example of a new loan origination.

Broker Tom tells Self Directed IRA Corp he has a client that must replace a loan placed on his properly 5 years ago that is now due in 60 days. The property is a 10 year old industrial building worth $10,000,000. The loan is only $5,000,000 but the trouble is the borrower waited too long and he cannot get financing from traditional sources in 60 days. Moreover the borrower is attempting to sell another property but until that is completed, banks will not approve of the borrower’s liquidity.
Self Directed IRA Corp. sees little risk in a low loan to value loan on a newer industrial building, with a $5,000,000 equity cushion and an otherwise strong borrower with substantial net worth.
The loan is originated and in 30 days replaces the old loan. The terms are 10% interest only, no prepayment penalty, due in three years. This is a win for Self Directed IRA Corp’s investors because they are on the deed, they are getting 10%, and they are protected by a strong equity cushion. This is also a win for the borrower since he has a new loan for three years with no prepayment penalty.

Here is another example of a new loan origination:

An investor must close his 1031 transaction in less than 60 days. The property he has selected is a 2 story office investment leased for another 4 years. He is putting close to 60% down, but the banks do not like the borrower’s global cash flow picture, meaning some properties in his portfolio are not cash flowing. Self Directed IRA Corp looks to the real estate as sole security since the borrower is already coming up with 60% down. A new loan is originated at 10% for 5 years ( one year after the 4 year lease is up to allow time for re-tenanting and refinancing). This is a win for the Borrower since he can refinance sooner if his cash flow improves, or if he sells an asset to free up cash. He also completes his 1031 transaction and saves big on taxes, and finally he has enough time to re-tenant the building if the tenant leaves.  This is also a win for Self Directed IRA Corp since our investors are directly on a First Trust Deed with a 60% equity position as a cushion. If the loan is paid off early, investors simply move funds to another similar loan with Self Directed IRA Corp..

SIGN UP NOW!

Debt

Self Directed IRA Corp. also provides investments in loans purchased from individuals or banks at a discount. Returns can be 11% or more since the note is purchased for under its face value, yet payments are the same from the borrower.

These tend to have higher returns since there is more risk.

Here is an example of a note purchase:

A local Bank has too many construction loans outstanding on commercial construction. A builder/borrower has completed a commercial retail center financed by the bank but has not stabilized the project. The bank does not want to carry the construction loan nor provide a mini perm loan to allow more time to the developer.  The bank decides it must discount the loan to sell quickly.
The $3,000,000 loan is reduced for quick sale to $1,800,000. Self Directed Ira Corp’s Investors purchase the loan and now act as the new Lender. The face amount of the note stays the same at $3,000,000 but investors enjoy a higher return, 10% in this example. Assuming the loan is paid in full, after the property is stabilized in about three years, then the return will be much greater and likely to be more than 18% in this example.

Here is another example of a note purchase:

Mary owned a commercial property but later sold it for $1,000,000 and took back a $700,000 seller First Trust Deed to help close the sale. The sale concluded two years ago and there are three years left on the loan. Payments come in on time at 6% interest only. Since Mary needs money now, she will sell the note at a discount equal to $500,000 cash.
Self Directed IRA Corp. makes an offer to buy the note and performs due diligence on the underlying asset.
The monthly payments are $42,000 annualized, which yields an immediate return of 8.4% to Investors.
Later the borrower pays the full face of the note upon refinancing. The return to investors is about 13% annualized since the payoff is for the full $700,000, $200,000 more than Self Directed IRA Corp paid for the note.
In some cases Self Directed IRA Corp partners with our IRA investors via an LLC, in other cases the IRA investors are Direct Investors on the deed. Call us at  949.748.7447 to see what transactions and loans we are currently underwriting, or sign up to stay informed!

SIGN UP NOW!

Typical Equity Investment Formation:

1. We contract for the property purchase and start its typical due diligence such as physical inspections,
financial analysis, and title work.
2. Once the property passes inspection, the new single asset LLC is formed. The new members will be IRA/Sep investors under          their respective IRA or Sep account name. We are the Managing Member.
3. The sale is closed all cash, through escrow and title once the due diligence has completed and the investors have signed an           agreement to wire funds at closing over a two day closing period .
4. All members are paid a preferred return before any profit splits. Typically, on equity investing where we are the owner of  the real     estate, returns will be 8% to 10%, then investors receive profit sharing which could push the returns over 15%. Each property has     its own merits so be sure to contact us to see what types of properties we are underwriting.
5. Self Directed IRA Corp. manages all aspects of ownership, including managing, tax reporting, K1 distributions, acquisition,         disposition, and any tenant issues. No debt is placed on the properties.

Title is held in the LLC. All investors/members in each LLC and are invited to participate in biannual conference calls. Email updates cover all newsworthy status on the property. Monthly financial reports are mailed to investors.

SIGN UP NOW!

Equity

Self Directed IRA Corp. seeks out Multi-tenant Industrial Investments with the following parameters:

• California infill location, meaning well located or difficult to replicate the location.
• Minimal rollover risk, meaning no tenants having a suite or multiple suites larger than 10% of the size of the property.
• An opportunity forcing a sale and offering some upside in rents, leasing or better management.
• Or a situation where the property offers an above market Cap Rate.
• Minimal build out in the majority of suites, so that vacant units require minimal cost to re tenant.
• Rents at market or below, or a price reflecting room in the event rates go lower.
• Good location and access.

Note: This type of property has always been hard to find. Today’s market environment allows some exceptions.

SIGN UP NOW!

Equity

Self Directed IRA Corp. seeks out Retail Centers with the following
parameters:

• California A+ location. Due to the current retail real estate market the only way to buy Retail is to buy in A+ locations,
or locations with tremendous barriers against future retail development.
• Minimal loss of anchor risk.
• Either a situation forcing a sale and offering some upside in rents,
leasing or better management, or a situation where the
property offers an  above market Cap Rate.
• Rents at market or below, or a price reflecting room for positive cash flow in the event lease rates drop.
• Excellent access.
• Units in the center have good street visibility and the center is near amenities and strong retail trade area.

Note: Retail leasing has been hit hard. The properties for sale are often subject to leasing problems so the goal would be to acquire core assets not in trouble where the owner needs to sell to shore up other aspects of his portfolio.

SIGN UP NOW!