Investor’s IRA Funds Space for Artists, Entrepreneurs

Returns beyond his IRA: A community rebounds

Fund managers projected 10-percent returns per year, but Larry’s on track to receive 15-percent cash-on-cash returns. In addition to the monetary return on investment, Larry says there’s nothing like knowing he has an impact on the tenants and the region.

“It feels good to be investing in a property where a lot of high-energy and creative people interact with each other and have a community,” he says. “And it’s also great because you read the statistics about Baltimore and all the jobs they’ve lost over the years. They rebuilt the harbor then they’ve just had political and social problems in Baltimore city; it’s sad.

“But here it is, a bright spot. And I guess there are several other of these hulking old factories that are doing similar things: they’re becoming brewpubs, for example. Just the fact that you’re taking old buildings, recycling them, keeping the history, and providing a place where small businesses can thrive, that feels good.”

The returns are more meaningful when he can see this type of tangible impact, rather than just investing in a nameless fund from a fund manager you don’t know, he adds. “When we go back to visit family, we go to the factory and just walk around, say hello to the tenants. It’s cool.”

Larry’s due diligence

Larry’s level of comfort with his first self-directed investment increased after talking through the process with his CPA and Equity Trust associates. His confidence in this specific investment came after he flew to Baltimore to get a first-hand look.

“To me, no investment in the world is any good without people,” Larry says. “And I just loved the people who ran the place. It is just its own culture; very cool. And the people who are on the ground day by day doing operations, have been there 15-20 years. They know that old building and every little creak and sound, so I like the people.”

In addition to his own understanding of financials, Larry trusts his friend who led him to the opportunity. “Richard’s a total straight shooter and has an MBA in addition to three other degrees, so I can talk financials with him and work through the spreadsheets and understand them,” he says. “So that’s a big advantage.”

What Larry learned about self-directed investing

Some of Larry’s friends had not heard of the concept of a self-directed IRA. He had read about them and considered opening an account in the past, but it was this connection to his friend and the investment that got him fully on board.

For others considering opening an account, Larry recommends they start by talking to their CPA and understanding the ins and outs, as well as taking in education from sources such as Equity Trust.

“Read through that stuff and understand the rules very well first,” Larry says, “and then maybe start picking the brains of people. Maybe (beginners) can get references from their CPA or others who might be willing to talk to them and give them some ideas about how it works. And then they should invest in something that they’re comfortable with, that makes sense to them.”

Seeing the investment in person is an effective way for Larry to vet a potential investment.

“It was obvious the minute I stepped in the door,” he says. “I got the nuance, the feel, I met the people, I saw the crowded parking lot, I got to look at the books. The fact that it wasn’t just some fly-by-night thing, they had ten years of financials and revenue and margins.”

The other factor to consider, Larry says, is that these investments aren’t as liquid as holding mutual funds in an IRA.

“If I want to take a penalty on this one, I’ve got to go begging to the other investors in the LLC and see if they want to buy me out early and if they do, I’m going to take a haircut because they smell blood in the water,” Larry says. “I also have to trust that the investors are looking to enrich themselves by getting appreciation on the property and selling to another group of investors down the road.”

Larry adds, “I need to be quite content just having this $100,000 sitting in there for many years while I’m just building on the dividends. But if you’re expecting just total liquidity and you’re hung up on that, don’t do it.”

Timing and life stage are also important, Larry adds. “At age 72 or 75, this might not have been a smart idea for me because I might need the money for some medical thing that I don’t have today,” he says. “But at age 61 when I got into it, that’s 10 years to run.”

What’s next for Larry’s wealth building journey

Larry jokes that when he retires, he’ll probably end up working another ten years. He figures he’ll work until he’s 74. If he has to retire early for whatever reason, he’s confident that his investment strategy will leave him plenty of cash in his retirement fund – untouched by COVID or other factors – which he’s counting on for loved ones.

“Some of it is for our four grown children, and some of it is security for my wife, Rita, and myself,” he says. “She’s ten years younger than me. I want to make sure I leave a legacy for her because it’s likely she’s going to outlive me. I want her to have a good life because I love her to pieces.”

In the near term, Larry can’t wait to find more investments like this.

“It’s been one of the most fun investments I’ve ever done,” Larry says, adding, “You can’t downplay to people that you own part of an old clipper ship sail factory that makes 10-11 percent a year that your best friend got you into. The story’s just good.”

Case studies are provided for illustrative purposes only. Past performance is not indicative of future results. Investing involves risk including possible loss of principal. Information included in the above case study was provided by the investor and included with permission. Equity Trust Company does not independently verify all information provided by third parties.