Does anyone have experience with self-directed IRA?

[tenant13]

Hmm ... I think most of our IRAs here are self-directed. Certainly DW's and mine are.

Possibly you are referring to IRAs that hold unusual assets. I used to do that with some private placement/venture capital investments and once held a real estate limited partnership share in a Schwab IRA. Unusual assets are, well, unusual so they do take some extra care.

One problem is finding trustees that will take them. Schwab used to but a decade or more ago they stopped. The promoters of deals that I was involved in usually had a cooperative trustee lined up.

In a broad sense yes, all IRAs are self directed: we make investments decisions ourselves when we buy funds, stocks and bonds. Schwab and the like are just custodians. And you're right that for investing in "unusual assets" one needs a custodian that would allow that. It's fairly easy however to become your own trustee: https://www.rocketdollar.com/learn/.../checkbook-control/what-is-checkbook-control?

I personally don't see real estate as an "unusual asset" and the ability to buy an investment property with cash makes SDIRA an interesting option. Clearly, there are benefits in doing that with taxable money but that applies to US and similar markets - where property taxes and HOA fees might be very high. On the other hand property bought and sold within IRA does not owe any taxes on capital gains.

 

[Bruceski44]

Tenant 13,
I found a company that offers high quality TIC shares that could be purchased through a SDIRA.

Would you please share more info on this? Company name? Website?

TIA,
Bruce

 

[Happyras]

Would you please share more info on this? Company name? Website?

TIA,
Bruce

I am looking at Mill Creek Commercial. Here is an example property;
Advance Care Medical – Romeoville, IL
$4,800,000 Total
6.25%
20 year lease
2% Annual escalations
Lease guaranteed by publicly traded company with $98mm net worth
New Construction deal

https://www.millcreekcommercial.com/

Essentially, you can purchase shares of the TIC (or your SDIRA would actually) for any portion of the offered sale price. Say you want 10% interest, your SDIRA would pay $480,000. This includes all costs of the sale except for your custodians fee. Your SDIRA would get regular income of 6.25% (the cap rate which is net of the management fee of 1.75%).

Specifically, Colliers Asset Management would be the property manager for the TIC and make these distributions. Mill Creek Commercial is the marketing agent, and Mill Rock Investement Fund owns the property that is sold to the TIC.

I really would like others opinions on this deal. It checks the 4 boxes of investment grade asset recession resistant, corporate rating of tenant, long term lease, and escalation for inflation.

 

[Happyras]

I was looking at uDirectIRA, myrealestateIRA, mysolo401k and premieroffshore. This last one in case I wanted to get even more adventurous than real estate.
For some reason SDIRAs get a lot of flak on this forum. I'm not sure why. As long as I go into them with my eyes open and treat them as a way of diversifying my portfolio I don't see the problem.

Thanks, I have been trying to understand the issue with SDIRA, it appears to be an execution risk more than anything. The IRS rules must be followed, and if you invest in real estate, the custodian is required to file an annual form to report the value and type of asset held. The IRS is specifically auditing these SDIRA's for compliance as many do not follow the rules and get their IRA disqualified.

 

[Happyras]

I guess I might add that the TIC shares are somewhat liquid. They can be offered for sale but I believe it would go through Mill Creek Commercial. If one had a majority interest in the TIC, you may have other options but I believe sale of shares would be controlled for the interest of the other share holders.

 

[OldShooter]

... Mill Rock Investment Fund owns the property that is sold to the TIC. ...

This is an important rock to turn over and look underneath. What is the purchase price history of the property? The county assessor should be able to help with this. Most likely "Mill Rock Investment Fund" bought the property recently and will make a huge profit when this deal closes. Is that OK with you? What does that imply about the real value of the property and its future prospects? Do any of the promoters have skin in the game after the deal closes?

Re "Lease guaranteed by publicly traded company ... " get a copy of the guarantee and read it carefully. If you are not sure how to interpret it, have an experienced real estate lawyer read it. Arbitration clause? Ability to transfer the guarantee to a third party of their choosing? ...

These real estate deals can be really stinky. Black hats outnumber white. Caveat emptor.

 

[Happyras]

These real estate deals can be really stinky. Black hats outnumber white. Caveat emptor.

Thanks, you make some very good points. So far I know the property is new construction for a major Urgent Care facility corporation with several build outs across the country. They appear not to be acquisitions of existing facilities, but remodels of some properties. The corporate guarantee is also backed by a Loyd's of London bond for 1 year of lease payments if defaulted.

The triple net lease is signed under the corporate entity, and not under an individual LCC for the specific property. I am certain Mill Rock will make a ton on selling to the TIC, net of costs of sale/commissions etc. My bigger concern was the asset managers role pulling 1.75% (apparently the lease cap rate is 8%, and net is 6.25%). I would need to know why it is so high. It appears to be a misquote by the person I spoke with. The sales data detail shows a 6.36% lease cap rate and a net of 6.25%, not a 1.75% spread.

A triple net lease on a new construction should not need any management other than to collect rents. The tenant pays all taxes, and maintenance etc. So this is the factor I need to first unwind.....it says its an absolute NNN bonded lease with Zero landlord responsibilities.

Typically they try and put in exceptions for roofs and structures, but I did not see this stated so far...

 

[OldShooter]

Continuing cynicism ....

... A triple net lease on a new construction should not need any management other than to collect rents.

So you believe in the Easter Bunny too? Any time the word "should" must be used, you are in some degree of a faith-based exercise.

The tenant pays all taxes, and maintenance etc. So this is the factor I need to first unwind.....

Yup. Assuming there is a tenant or tenants and they have the cash to pay. Taxes are particularly sticky because there are usually significant penalties if they are late. Assessors have no sense of humor when the landlord comes to ask for a waiver of penalties.

Health care is also sticky because of low reimbursement rates from the increasing number of government programs and, IMO eventually, single-payer health insurance.

The implication of what you said seems to be that there is only one tenant. That is worst-case for a rental property.

Finally, I would suggest pulling a D&B on Mill Creek Commercial and also having an attorney do a background check looking especially for lawsuits and judgments on the corporation and its principals. There is virtually no substantive information on the web site except it looks like it is a family business. No idea when it was founded, for example.

As a matter of principle I would never look at a 4-color glossy prepackaged deal like this. I have done a few deals but all were local and generally with people I knew or who were friends of friends. Offering circulars were laser-printed black type on whiite copy paper. YMMV, of course.

 

[Happyras]

Continuing cynicism ....

All good, I do appreciate your time taken to critique this idea. You have some very clear insights that help point out the risks. Thank you!

 

[Bruceski44]

I am looking at Mill Creek Commercial. Here is an example property;
Advance Care Medical – Romeoville, IL
...

Very interesting, thanks for the added info.

I've become very careful as to which states I invest in. Here in CA, where I live, but do not invest, there has been a lot of talk about rent relief which would really disadvantage landlords. The landlord could apply to be reimbursed for missing rents, but would have to agree to a number of onerous conditions, like agreeing to not raise rent for 5 years. This may be limited to residential right now, but there's really nothing to restrain them here.
https://www.latimes.com/california/story/2020-05-12/coronavirus-rent-relief-tax-vouchers-plan

I'm not certain about IL, but it may be right behind CA on this crazy train.

I think any medical care facility would be a strong target for government meddling right now, what with all the focus on COVID-19.

Think about the long-term environment for where you want to invest and decide if the risks are acceptable.

 

[OldShooter]

Oooh ... I missed the "Illinois" part. Don't do this deal. Illinois is headed for some form of bankruptcy. Real estate taxes, other taxes, and fees are headed to the moon, and property values are headed for a crash.

The decline of the state is a well-known problem: https://www.chicagotribune.com/news...0190925-55e2uha64rardg7pa5734u6twu-story.html
In their dreams, the Illinois pols are now seeing the rest of the country bailing them out under the cover of COVID-19. There are several states, including California, with similar dreams. It ain't gonna happen.