Throughout the remainder of 2017, I want to devote several posts to a common theme: building a playbook that real estate investors can rely on as a consistent resource. To begin, I want to talk about an overarching principle I see based on my vast experience working with real estate investors across America. Seek simplicity!
Whether you’re just getting started in real estate investing, designing a marketing campaign, structuring a deal, or putting together the terms of a contract, whenever possible, seek simplicity. What is the simplest way to do it so everyone can understand what is being done? How can we phrase the language in our agreements and contracts to make it clear enough to anybody reading the document what is being agreed to? Above all, what are the simple, understandable, repeatable things that can better position you for success?
In a conversation with a potential new client regarding funding a very large land development deal, I explained that a far better strategy would be to use an IRA-owned, multiple-member LLC whereby four different IRA accounts can come together and buy into one new LLC rather than titling all the transactional documents in the names of four different IRAs. I also explained why it would be a far better structure to be a lender rather than an owner in that same transaction. By following my general guideline of seeking simplicity, I would be able to make the transaction significantly easier, cheaper and, more importantly, better to defend if something goes wrong.
When talking with this investor, I asked, “Which would you rather deal with if your borrower defaults? All four IRAs jointly as tenants in common having to initiate a foreclosure action against the borrower, or simply instructing the manager of the one LLC to pursue foreclosure?”
I realize that self-directed IRA investing using IRA-owned entities is not simple, but I still took a very complicated transaction and simplified it as best I could. Whether you are a brand-new investor, moderately experienced, or are a very savvy investor who has lost track of how many deals you have done, the principle of seeking simplicity will benefit you.