Networking - How valuable is it? Picture by Corey Robinson

Real estate investment clubs are an invaluable resource for investors of all experience levels. Whether it is finding a seasoned professional in the area to be a mentor or forging partnerships for future opportunities, real estate investment clubs offer a low cost opportunity to build substantial and lucrative contacts.

What can I gain from a real estate investment club?
Real estate investment clubs can provide you with the “in” you need for the markets you want to invest in. Many members have long-term experience in the market and will be able to share their experiences with you. Many clubs also offer professional development courses as part of their regular meetings that can offer you tips and tricks for use in your own investment strategies. It also will provide you with a common ground to talk with other professionals in the area that have similar experiences and interests.

If you are new to real estate investing, these clubs are great for introducing you to people who have worked with private investors. Additionally, many club members have years of experience in working with a wide variety of financial products including private financing, credit partners, conduit lending, mezzanine lending, and government backed mortgage securities like Fannie Mae, FHA and Freddie Mac. These meetings offer informal ways to pick the brains of the pros in your area and be introduced to their financing contacts.

How can I network at a real estate investment club?
As the old real estate saying goes, it’s all about “location, location, location.” If you attend the meetings, you gain the exposure.

To get value out of a real estate investment club, you should:
• Contact the group president or membership officer to find out more about the club. If the club is focused on strip malls and you focus on multifamily properties, keep looking.
• Ask to attend a meeting.
• Once you’ve attended a meeting determine if you like the structure of the group. If it seems like everyone was trying to sell something or you don’t like the founders, keep looking.
• Once you’ve decided that you like the group, become a member.
• Take business cards.
• Dress professionally.
• Introduce yourself to every person there and exchange business cards.
• Send a thank you email or note to every person with whom you exchanged cards within 2 days.
• Ask to present a success story or lead a seminar for the group.
• Attend any local area conventions or affiliated meetings.
• Become a member of the board.

Networking can also provide you with investment opportunities you might not otherwise know about. Regardless of market conditions, investment properties are always available. However, finding the properties and opportunities can be an arduous task. The informal sessions at the clubs will provide valuable conversations on investment options that others may have passed up or do not qualify to invest in.

I’ve been investing a long time. What other tips can I use from real estate investment clubs to grow my business?
If you are a seasoned investor, than you know the more people you maintain relationships with, the more likely you are to prosper. If you regularly write articles for real estate press or maintain a real estate blog, ask to add your contacts from the club to an email list or listserv. Sending relevant articles about the market or your experience is a valuable way to build your credentials as an expert investor. Remember that if you do regularly email a list of people, you first need to obtain permission and provide an opt-out feature. Additional requirements may be necessary according to the appropriate state laws.

How do I find a real estate investment club?
There are several Internet and print resources available including:

http://www.nreiclub.com

http://www.creonline.com/clubs.htm

As with all inquiries, do the appropriate research.

Where do you start with your self-directed IRA?

This is Part 3 of a Multi-Part Series on Investing with Self-Directed retirement accounts.

In order to be able to participate in the type of “creative” investments mentioned in the last article – things like mortgages, real estate, businesses, etc. – with your tax-sheltered retirement funds (Roth and Traditional IRA’s), you’ll need to have a custodian for your account that allows you to truly self-direct your funds into the many different types of investment articles allowed under the law.

A good self-directed IRA custodian will help guide you through the thorny process of designating your investments, ensuring your investment partners comply with applicable reporting standards, and making sure your IRA funds maintain their tax-protected status by complying with applicable law.  Look for great service and a track record to rely upon.  After that look for reasonable fees.

Here are a few custodians we’ve worked with, that you may want to consider:

1) Pensco Trust (http://www.PenscoTrust.com) – This company has a more complicated fee schedule.  There is a $50 set up charge, plus an annual maintenance fee of $350 for accounts valued at $1 – $69,000.  After that, there is a sliding scale that reflects both a fixed fee, plus a percentage of your portfolio’s value.  Click here for the fee schedule: http://www.penscotrust.com/fees/ira_fees.asp

2) Equity Trust Company (http://www.TrustETC.com) – Formerly known as Mid-Ohio Securities.  This company charges a $50 set up fee and account maintenance fees based on the assets under management, starting at $190/year for the smallest accounts (you can begin with just $1.00) and ranging up to $440/year for $200,000 under management.  The fees cap out at $1,850/year for a million or more.  These fees are all-inclusive and the company avoids nickle-and-diming you with transaction-related fees.

3) First Trust Company of Onaga (http://www.ftconaga.com) – I was not able to find a published fee schedule on their website.  They do charge fees for each activity you request of them, but whether or not this is cost effective will depend on their fee schedule, your portfolio size, and your anticipated activity level.  I suggest you call the company to find out more about their rates.

These are three good companies that investors we know have worked with.  Any of them would be able to help you invest your retirement funds in a non-traditional investment vehicle, as long as the investment type was allowed by the US government and the investment followed the rules about being an arms-length transaction.  Check out these vendors and decide which one is right for you.  Call them up and get the forms you’ll need to switch over your funds.

In the next article, I will will explain how to find OTHER people with funds in their IRA’s who will be your private investors when you have a deal come through.  Educating them about how to get control over their funds so they can invest in your deals is a great next step!  Stay tuned for more information on investing your IRA in real estate!

Until next time….Emily

self-directed IRAs

Individual Retirement Accounts, IRA’s, are usually started one of two ways – either by rolling over a 401(k) account from a former employer or by going to your local stock broker/mutual fund specialist/bank or other financial institution, and opening the account with a small deposit – often the minimum allowed, and then feeding it over the years, buying new shares or adding a bit from your salary each month, but never exceding the legal maximum contribution limit – $5,000 a year in 2008 and now indexed to inflation for 2009 and beyond.

Needless to say, your method of entering the IRA arena can make a big difference in the amount of money you actually have in your IRA that is available to invest.  If you have a 401(k) at work, you can sock away up to $15,500 of your own money each year, plus whatever amount your employer wants to match on top of that.  This means you can accumulate assets inside your retirement plan more than three times faster through your 401(k).  The downside of 401(k) investments, is that you are very limited in your investment choices – you can only invest in the options that your employer and benefits coordinator makes available to you.

If you want to use your savings to invest in real estate, putting them into a 401(k) won’t pay off until you leave your job and are able to roll that 401(k) over to an IRA.  So, if you plan to stay gainfully employed with your current employer long term AND you want to invest in real estate, I would consider first funding your 401(k) to max out any employer matching offered, then max-out your ROTH IRA.  You can use your IRA funds to invest in real estate if you have a self-directed custodian, which we’ll get to in a minute.

If you have funds available beyond that, you can do what I do, save them up in a non-retirement account (just cash in the bank) and put them into deals you’d like to buy yourself.  (One of the big hang-ups, which we’ll also see, with investing your IRA in real estate deals is that there are extra taxes to pay if you get a loan, and you’re not supposed to buy deals from youself (self-dealing).

Interesting Fact: Did you know 45% of employees cash out their 401(k) – and pay taxes for the priviledge – when they leave their job.

So, if you have an IRA (either traditional or ROTH) set up, let’s take a look at it… it either has a big amount of money, or a small amount of money in it.

Depending on how involved you are in real estate investing, and how much access you have to different high-quality deals that are being put together, you may or may not want to use a small IRA to invest in real estate.  For example, if you do a lot of no-money down deals where you buy houses for a dollar subject to the existing financing and that type of thing, then yes – you could pretty easily get some of those deals into your IRA even if it was small.  But watch out – you or your family members can not be the property managers for that property – you’ll have to hire an independent outide firm, which can be costly for smaller properties.

Emily Cressey

If you’re just starting your IRA now, and say you have $5,000 – $25,000 in your IRA, that might not be enough to bother with trying to get into a commercial real estate investment with.  For a high-quality commercial property, you’re going to have to put 20% down in most cases in today’s real estate environment, and that can be quite a sum.  Additionally, if there is a mortgage on the property your IRA buys, the IRA will have to pay taxes on a portion of the property’s rental income at your ordinary income tax rate (ouch).  This is called Unrelated Business Income Tax (UBIT) and it applies unless you use funds from your IRA to purchase the entire property free-and-clear.

You can find a lot of good high yield real estate investments for your self-directed IRA, but you just have to make sure you know the rules and follow them as they are very strict – penalties can include the failure (and taxation) of your entire IRA balance.

Here are some things you can invest in with your IRA:

1) Mortgages

2) Buy a property free and clear

3) Buy a property with a mortgage and pay UBIT

4) Buy a share of a company that is acquiring a piece of real estate.

When my partners in Grassland Investments and I first started putting together deals with  private investor’s money, a number of them wanted to participate in our deals using funds from their self-directed IRA.  That meant, we got to find out a lot about how that works.  It was actually very clean for the type of deals we have done.  We bascially created a new company, an LLC, that was acquiring a property using a mortgage. Our investor clients bought shares of this company for $25,000 each.  They are then entitled to distributions that the company makes, just like if they owned stock in the company.  This has worked well for our investors.

The key to investing with your self-directed IRA is to follow all the rules and avoid prohibited transactions and activities.

You will need an advisor to lead you through all the steps because they can be pretty dicey, and a mis-step is expensive!

If you are considering investing through your IRA, consider these steps:

1) Get Money Into IRA. Feed your IRA so it is big enough to have it be “worth while” to do self-directed investments.  You don’t want to pay  http://www.trustetc.com/company/fees.html to your custodian and park your money in a low-yeild savings account while you wait for a big deal to come along.  Especially if your IRA is so small, you likely won’t have enough in your account to participate in a big deal for a while yet.  When my Roth IRA was young, I started it with Vanguard.com because they had very low fees and I was able to invest in mutual funds and money market funds while I built up the account value.

2) Find an Investment. Once you have an IRA that is big enough to invest with, start looking into what type of investments you’d like to make.  If you want to stay with stocks and bonds, most any IRA custodian will do.  If you want to invest in something more unusual, like a privately held company, or real estate – as is the focus of this article – then you’ll need a self-directed custodian, finding one will be the focus of the next article.  When you identify the deal type you’d like to do, you’ll know how much money you need to invest.  Are you looking at buying $25,000 shares in a LLC that’s making an investment?  Are you buying a house for $200,000 that’s free and clear?  Are you giving a rehabber a hard money loan of $50,000?

3) Place the Funds with a Custodian.  When you are ready to invest, and I would say not TOO long before that because the annual fees can be pretty steep, go ahead and transfer your funds over to your chosen custodian.  It takes about 30 days for them to get you set up, so make sure the types of deals you’re looking at have that time frame available for the funding, otherwise, you’ll have to put your funds in earlier.

If you want to use your IRA for investing in real estate, it can be done, you just have to figure out how.  Hooking up with a good self-directed IRA custodian who specializes in facilitating investing in real estate will really help you make sure you are covering your bases.

Like many things in real estate investing, there’s a lot of detail here that it doesn’t necessarily make sense for you to master yourself.  Understand the basics, and hire a professional to help you with the specfics.   You need to work on just two things.  First – getting enough money into your IRA so that you can do the type of deals you want, and second – finding good, qualifying deals that will justify the use of your IRA funds.

Crank the numbers and look at the fees to find out how much you’ll earn on the investment, how much you’ll pay the custodian, and how that compares to your other investment alternatives.  The other thing to take a look at is how long it will take you to find a deal.

If your money is going to be out of the market for 6+ months while you look for a deal, there is opportunity cost there.  You could be earning an average of 11% on that money in the stock market or 7% on that money in bonds, so depending on your deal flow and investment savvy, bear that in mind too.

It is for these reasons that I don’t recommend starting to invest in real estate with your IRA utnil you have about $25,000 in your IRA account unless you are a real “player.” investing in real estate full time, well connected with other investors, and confident in your risk and returns on deals.

Any questions?  Let me know here…

Also, stay tuned for the next post on finding a great self-directed IRA custodian who will help facilitate your non-traditional IRA investments.

More Self-Directed IRA Investing News and Articles:

Until next time…..Emily

Tags: IRA, self-directed IRA, individual retirement account, 401k, 401(k), real estate investing, commercial real estate investing, investing your IRA in real estate, IRA real estate investing, high yeild investments, IRA custodian

Heading into the climax of the year…..nothing surprises me anymore.  Another bank closure….commercial real estate developers want a piece of the bailout action….Santa Clause gets laid off.  No surprises here.  But what is a surprise is Detroit Lions have yet to win a game.  And….Sam Bradford and Oklahoma Sooners are headed to the BCS Championship.  Who said College Football is not POLITICAL…how else did Oklahoma end up there?

So…in other not surprising news….Circuit City leads the way into the depths of retail hell.  Check out this article HERE where Circuit City takes the position of the drowning rat…while others stand in line and watch before it is their turn. Read this snippet:

“But the issue is much bigger than Circuit City’s leases. Many retailers are suffering sales declines, closing stores and slowing the pace of expansion. That’s creating a lot of excess space along with a shortage of potential replacements. While some segments of the retail industry are still growing—most notably discounters and grocers—there isn’t enough overall demand to absorb the space that’s coming to the market right now; especially in the mid-size big boxes Circuit City inhabits, notes Andy Graiser, co-president of DJM Realty, a Melville, N.Y.-based real estate disposition and restructuring firm that is handling Circuit City’s portfolio. As a result, failed auctions of excess retail space could become a common occurrence next year, according to Graiser.”

Also….as things get worse….watch the CAP rates creep up.  Check out the CAP rate chart HERE.   How high do you think they will go?  Are you buying or running?  The opportunities are getting better and better if you know what you are doing.  What are you going to do?

More Commercial Real Estate News from the Blog-O-Sphere…..

Until next time…..rob

make the pain go away!

Greetings from the commercial real estate metropolis of Cedar Crest, NM!

To be honest, I am not a fan of “Christmas” per se.  I do love the true meaning of what Christmas is all about….but I sure have a hard time enjoying myself with all the ”stuff” that goes along with it.    The crowds….the traffic….the lines….the shopping….the “events.”  I for once….would like to have nothing to do over the Christmas holiday other than hangout with family and friends and watch college football.  I do not even mind the traveling…it is just all the “stuff” that stresses me.  I guess it does not help that my laptop died yesterday.  Dadgum you Sony Vaio!

This last weekend I had the priviledge to go to Juarez Mexico and play Santa with friends of mine from Maui Mastermind.  Maui Mastermind, via Estrellas Para Ninos, adopeted a couple of orphanages in Juarez.  It was cool to hang out with the kids, play Santa, and get grounded on what is really important.  Thanks to Steve, Andrea, Christine, Austin, and McKenna for doing most of the work and letting me tag along!

Now…..Commercial Real Estate News and Articles.  One day…one of these days…there will be some good news….but not today.   The headlines for today is all about a commercial real estate bailout…..wow!

Until next time…..rob