Self-directed IRAs for the self-storage industry
In my Home Study System, I present several different ways to raise the cash for a down payment on your self-storage facility. But once again I warn you: I DO NOT RECOMMEND OR APPROVE THE 100% FINANCING OR “NO MONEY UP” OFFERS YOU HAVE SEEN ON TV OR OTHER AUTHORS AND SPEAKERS HEARD OF! In the early stages of my real estate career, most of my single-family homes and apartment complexes were purchased with no money down, and my entire portfolio approached a 95% loan-to-value ratio at one point. As a result, my cash flow was very limited, and when the rental market soured after the events of 9/11, I came perilously close to losing it all, and at one point thought I might be headed for bankruptcy. Fortunately, by the grace of God and by employing the techniques I learned and described in my Home Study System, I was able to turn things around and have another opportunity to learn from my mistakes. This is probably the main reason why I am passionate about teaching others how to invest wisely and how to avoid the mistakes that I and many others in this industry have made when it comes to over-leveraging their portfolio.
That being said, I have done several transactions that have proven to be very successful projects that were purchased with no money down. The difference was that the deals were SO good, and the upside SO incredible, that I felt confident taking advantage of them above my usual 80% threshold. Also, I have structured the financing of my down payment in various deals in various ways to avoid a large drag on the cash flow of the property after the acquisition. Also, I don’t recommend that your portfolio ever go above the 80% loan value level, especially if you make regular payments on any down payment principal you’ve borrowed.
As you already know, there are a number of ways you can raise cash for a down payment on your storage deals. One of my favorites, self-directed IRAs, is a great vehicle that allows me to invest the money in my IRA, tax-free, in the business I love; Real estate. Plus, I can set the terms around how my IRA funds will be borrowed, allowing me maximum flexibility. I purposely structure my self-directed IRA loan so that interest accrues and no monthly payments are made until I sell a property and ultimately pay off my IRA. There are several companies that can act as custodians for your Self-Directed IRA. I suggest you talk to several before choosing one that meets your needs. In addition, there are a number of transactions that are prohibited, so be sure to ask your custodian about current laws regarding the use of your Self-Directed IRA to invest in your own property.