Wall Street Retiree Continues Shift to Alternative Investments with Dollar-Store Deal

By Heather Taylor0 Comments
Retiree Joe K. of Georgia’s background is on Wall Street, but his search for steady, predictable, passive income has him turning to alternative investments.

Joe received word of an opportunity to buy a store that was newly built expressly for Dollar General. The store, which carried a 15-year triple-net lease (making the tenant responsible for property taxes, building insurance and maintenance costs), would cost Joe $1 million and would provide a yield of $83,750 per year.

Joe researched the potential deal and deemed it a safe investment with enough profit potential to make it worth his while. The only obstacle in his way was that he didn’t have $1 million at the ready in his IRA – he only had $600,000. Joe approached a local bank and convinced bankers to lend his IRA the remaining $400,000.

“You had to be careful on how you did it,” Joe says, explaining that loans for self-directed investments aren’t the same as a typical loan. “It was a non-recourse loan. I got that, which allowed me to purchase the asset.”
Joe paid the bank 4.75 percent in interest, while gaining almost 8.5 percent in returns for his account. This resulted in a cash-on-cash yield of about 12 percent.

Double-digit returns

Due to the non-recourse loan, Joe was subject to Unrelated Business Income Tax (UBIT), which wouldn’t have been the case if he hadn’t used debt financing. Still, the investment was worth it, he says.

“Even then, I had cash-on-cash return better than 10 percent,” he says. 

Joe kept the asset for two and a half years before selling the remaining lease and property for $1.3 million, netting $300,000 in addition to approximately $60,000 in profits he had already received.

“It was absolutely a homerun and I couldn’t have done it without having an alternative investment platform through Equity Trust and working with them, and the local bank to leverage the loan,” he says.

The shift to alternative investments

Despite his Wall Street background, Joe estimates he has about 80-85 percent of his portfolio in alternative investments.

“When I retired, I decided that the amount of connections I would have to make and the time I wanted to spend on investing was not conducive to being in the stock market” he says.

Joe and his wife, Mimi, whom he describes as a “heavyweight when it comes to finances,” work together on many investments. Joe appreciates that they can pool their self-directed accounts together to produce the capital to make investments that wouldn’t have been possible with only his IRA funds.

Additional self-directed investments that either one or both of them have made include hard money loans, storage facility loans, multi-family real estate loans and trailer parks.

“If the deal makes sense, I’ll do it,” he says. “I have criteria I try to meet: I try to combine good cash-on-cash return (and to me, that’s at least 8 percent currently) with some upside potential. I get an internal rate of return in the mid-teens.”

Some might say, “Well, that’s easy for a former Wall-Street man to say.” But Joe counters that self-directed investing is doable for investors lacking his financial background.

“All you need is to have somebody walk you through it,” he says. “Going through alternative investing to me is as easy as buying stock through a stock broker, though you fill out a couple forms you don’t with a stock broker. After you get through that minor clerical hurdle, if you will, it’s no problem at all.”