Welcome to The Real Deal, a series of investing stories and suggestions from veteran real estate investor Allan Szlafrok.
The incredible highs, the frustrating lows, and everything in between…Allan has experienced it all and possesses the knowledge and expertise to help you become as successful as possible!
Are you enamored by the idea of investing in real estate, but want a clear picture of how the whole process looks in practice? Any experienced investor would advise that you do your research before getting into real estate, but tips and concept explanations can only go so far.
To better help people understand what comprises a real estate deal, we believe that nothing works better than our oldest (and most compelling) method for passing along information: storytelling. Fortunately for you, real estate lends itself to some great stories. Also fortunate for you is that, courtesy of Broad Financial friend and veteran real estate investor Allan Szlafrok*, we have a stocked inventory full of 100% authentic real estate stories.
In fact, here are the precise details of a recent imperfect deal that Allan successfully navigated. A deal that you could realistically be making with your Checkbook IRA:
There was a property in Jersey City on the market for $340,000, which he considered cheap for how big the house is, and it’s situated in a good area. Upon visiting the property, however, Allan decided he wasn’t terribly excited about it for the listed price. He decided his next move would be to candidly tell the broker he would make a low-ball offer, but nothing near the listed price.
The property had a buried oil tank of which he didn’t know that status, and this made Allan, a wisely cautious investor, a little wary. On the other hand, he understood that it’s located around the corner from the light rail, which is a huge selling point for tenants and buyers. Ultimately, Allan was told that there were several offers at list price, so he walked away as he was disciplined enough to not go that high.
A couple months later, the owner of the property called after a deal fell through. He asked if Allan could make an offer. Allan stuck to his original proposal: the low-ball offer of $300K. Once again, though, the owner scoffed at that number and said he had better offers.
Since we’re telling you this story, you may have guessed that the owner called back again. This time he asked for $315K which, after careful consideration, Allan agreed on the condition that the owner removed the 2nd floor tenants by the time of closing. Apparently, they were not cooperating or paying rent. The owner wasn’t experienced in eviction, so he declined and the two settled on Allan being credited 3 months of rent for that unit and Allan would then take care of it.
By the time Allan closed on the property, it turned out the 2nd floor tenant didn’t want to be there anyway as the place was in disrepair. So, she and Allan agreed she would leave in a month and he’d give her back her security deposit. That’s exactly what happened, and as a result Allan was left in possession of a vacant unit.
Finally, it was time for Allan to get to work. His plans involved upgrading the electric systems as well as replacing the old steam furnace with 2 new gas fires furnaces. Additionally, he would be placing the utilities in the tenants’ name, unlike the previous owner, and therefore increasing cash flow for when he holds the property as a rental.
Allan will also be able to get high rents for the second unit once it will be fully renovated, the total costs of which would run him an estimated $80K. These renovations include all systems, interior and exterior upgrades, and appliances. He estimates resale for the place will be around $450K, which isn’t quite a home run, but he will be making an 87.5% return on the amount he spent on repairs.
He is also expecting to see an 18% increase in the value of the property over what he’s all in for and the whole job should be done in approximately 6 months. At that point Allan plans to either flip the property for a $70K profit (before fees and such) or hold it as a rental where it will provide steady income for him.
This is all certainly great news for Allan, but how does it pertain to you?
Well, nearly every transaction Allan made or will make can just as easily be made by you in your IRA LLC. Your ability to write your own checks for all your purchases, renovations, landscaping, etc. is the exact same as how Allan did it. Just be sure that you only use your IRA funds to do so in order to avoid any trouble with the IRS.
The only aspect of Allan’s story that would not be compatible with your Checkbook IRA is his use of cash plus a line of credit he has with a lender for the purchase. In a Self-Directed IRA, you are allowed to receive a loan for additional funds to purchase a property, but it must be a non-recourse loan.
Aside from that, follow the example set here by Allan, as well as the guidelines specific to a Self-Directed IRA, and you could be well on your way to a financial windfall like Allan’s. And of course, feel free to reach out to us with any questions you may have on investing in real estate with a Checkbook IRA, non-recourse loans, and anything else on your mind. We will be here to answer them.
Happy investing!
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*Allan Szlafrok is the author of How NOT To Make Money In Real Estate: Lessons from a seasoned investor who really should have known better which is available on Amazon here.