How to invest in real estate without needing cash, credit or a bank

How to invest in real estate without needing cash, credit or a bank

Would you invest in real estate if you did not need cash, credit or a Bank?

The self-directed IRA is perfect for a savvy investor who wants to make their own investments outside of the traditional stocks, bonds and mutual funds because it offers the account holder many alternate investment options.

Invest without needing cash, credit or a bank

Invest without needing cash, credit or a bank

One of my favorite alternate investment options that provide a great return in today’s market is real estate.  Everyone knows that real estate is on-sale across America and that plenty of fantastic deals are available in all markets and in all asset classes.  The good news is that with a self-directed IRA that is easy to invest in real estate.  Even better news is that a self-directed IRA can be passively invested into real estate without the account holder needing to deal with any tenants or toilets.

 Joint venture investing in real estate works extremely well when a self-directed IRA account works directly with a real estate catalyst.  The real estate catalyst is an experienced investor who does all of the work and the self-directed IRA funds the investment and shares the upside return on investment.  Both parties in the transaction are critical to the overall success and return on investment. 

 The Real Estate Catalyst will identify the real estate opportunity, negotiate the price and complete the acquisition using the funds from the self-directed IRA.   Once the acquisition is completed, the real estate Catalyst will then be responsible for managing construction and renovations, if required.  Once the renovation is complete the Catalyst is responsible for managing the property, along with all the tenants and everything that goes along with property management.  Essentially the Catalyst does all of the work and is the active member of the joint venture.  The Self-directed IRA infuses the capital by funding the venture, but remains completely passive and does no work.

 In today’s real estate market a good Catalyst should be able to find and acquire houses at a 40% discount price point.  What that means is that the purchase price and all the necessary repairs together will not exceed sixty percent of the value of the house. 

                                          Here is an example:

                  Purchase price of house:                $50,000

                  Necessary repairs to house:        $10,000

                  Value of house after repairs:       $100,000

The total investment is $60,000 and the house is worth $100,000 which equates to a 40 percent discount on the overall value.  Looking at it the other way, the $60,000 investment has $40,000 of built in equity upon purchase of this property.

In my market here in Richmond, VA, a house like this one will be a typical 3 bedroom, 2 bath house in a county suburb working class neighborhood.  This house in Richmond will rent for $900 per month creating a nice income stream for the joint venture investment.  The primary on-going expenses associated with holding real estate are taxes and insurance.  In Richmond, the taxes and insurance combined will be about $150 per month for the house in this example which leaves $750 net for the on-going monthly income stream for the joint venture.

The $60,000 investment has now been used to pick up $40,000 of gross equity and a $750 monthly income stream.  I hope you are wondering how this gets applied back to the members of the joint venture because the answer is anyway that the Self-Directed IRA and Real Estate Catalyst come to terms.  For simplicity sake, let’s assume that the two joint venture members agree to a 50/50 split in this venture.

 With a 50/50 split, the $750 monthly income stream is split so that both members receive $375 each month; along with this monthly dividend style income stream both member also will share the upside equity at some point in the future.

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 Let’s make one last assumption to show how the ultimate return can be easily calculated for both members of this joint venture.  Let’s assume that both members hold onto this investment property for five years and then sell it for $100,000 which is today’s value of the house.   What did both members earn on this joint venture?

                  Self-directed IRA earnings: 

                  $375 per month for 60 months:                                   $22,500

                  Upside equity split of the total $40,000:                 $20,000

                  Total return over the five years:                                  $42,500

                  Total investment made:                                                     $60,000

                  Annualized return on investment:                      14.16%

                  Real Estate Catalyst

                  $375 per month for 60 months:                                   $22,500

                  Upside equity split of the total $40,000:                 $20,000

                  Total return over the five years:                                  $42,500

                  Total investment made:                                                     $0

                  Annualized return on investment:                      Infinite

                  This is an example of a win-win transaction for an IRA that can joint venture with a sharp real estate catalyst.  The real estate catalyst can invest without needing a traditional bank mortgage to buy real estate and will earn $42,500 which is an infinite return since he made no capital investment.  The IRA invested $60,000 and received dividend type earnings of $42,500 which is an annualized return of 14.16%. 

Would you be interested in making investments like this one? 

What is holding you back from moving forward? 

Leave comments or questions and I will be happy to respond.

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Comments

  1. Very interested!
    Ime in UK and have two interesting offers from agents right now. How to get in touch?

  2. Hello Jim ,I have been ur fan and following u on Facebook ,ur article make sense and is reasonable ,I am interested in a becoming a real estate catalyst ,pls get in touch with me ,thanks

  3. Patricia Rose says:

    How can you help me? A person with no funds?

  4. Kylet Barnett says:

    How do you start investing with absolutely no money and a 480 credit score? Also I am brand new. No experience in Real Estate. I look forward to your answere. Have a blessed day.

    • Jim Ingersoll says:

      Hi Kyle

      Yes you can. I would suggest starting with wholesaling so you learn to find good deals, write a contract and flip to investors.

      Jim

  5. Hello Jim.

    I know how to research profitable tax deed, purchase it and the sell it. Do you know how I can get in touch with private lenders that are willing to work with me?

    Thomas

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