Real Estate Agent

Self Directed IRA Turns Condemned House Into Investment

Investor Don Pettit is always looking for opportunity, especially in today's distressed Northern Virginia real estate market. Don and his business partner, contractor Rick Steeby, look for houses to rehabilitate and resell, typically with a holding period of less than six months. Recently, Rick received a call from an elderly widow desperately looking to dispose of a dilapidated house. The house had been condemned and was about to be sold to satisfy the county's judgment. The homeowner – facing a ninety day court order to renovate the house or be severely fined -- was at her wits end. Fortunately Rick and Don had a plan to help her. They worked with the owner to get a court order enabling them to purchase the house, which they plan to tear down. They then have the option to sell the lot or rebuild on the now vacant lot. Don and Jack were able to move quickly partly because of the unusual structure of Don's self-directed IRA account, which Don used to make the purchase. Don uses an Administrative Manager of his self directed IRA. This company created a special purpose limited liability company for Don's IRA, thereby enabling him to make opportunistic investments. They even wired Don the cash he needed to make the purchase the same day he requested it and took care of all of the back-office details. Don and Jack plan to make a good profit on their investment, and Don's share will be tax deferred as a part of his IRA. And the property owner? She put cash in her pocket rather than having to spend money she could not afford to "rehabilitate" a property that needed to be torn down. This is just one more success story from those that use a self directed IRA.In another story we have Ray Millette who was in the final stages of opening a restaurant, Da Beef King, but he was a little short on cash due to last minute expenses that were higher than he had expected. $25,000 short to be exact. Lucky for Ray, he had a friend who had faith in both Ray and the Aurora, IL restaurant and was determined to help. Ray's friend, David Kerlagon, worked with his self directed IRA administrator and Dave's IRA loaned his friend the $25,000 he needed. Dave knew that the mortality of new restaurants was high, and he also did not want to commit his IRA funds for an extended period of time. And of course he wanted a great return for the risk he was assuming. Therefore, Dave structured his loan so that he receives 2% of the restaurant's total monthly revenue as interest. Even if a principal payment is made, Dave will continue to receive the 2% until the principal is paid in full. Clearly, the borrower has a strong incentive to repay the loan as soon as possible! But even if the restaurant fails, Dave is protected. If for some reason the restaurant didn't open or stay in business long enough to repay the loan, his friend has personally guaranteed the loan and will pay Dave 10% interest on any balance. Self directed IRA investing can be very flexible. As Dave demonstrated, the IRA's owner can set the terms and make sure he has plenty of security. Of course, self-directed IRA investing is also full of potential problems, including prohibited transactions and disqualified persons, but Dave's self directed IRA administrator was available to help Dave navigate through any problem areas. The restaurant opened; Dave got a great return on his investment; and self directed IRA administrator took care of the back-office details. Self directed IRA investing doesn't get any better than this. Self directed IRA investing allows investors to participate in the myriad of businesses and franchises that are starting and growing around the world. Gone are the days when IRA's were only associated with stocks, bonds and mutual funds. Today's savvy investor is looking to private businesses and cashing in on the great growth opportunity private equity investing offers their retirement portfolios.