American IRA, LLC’s CEO, Jim Hitt, Addresses A Question His Self-directed IRA Clients Often Ask About Commercial Real Estate Investing
American IRA, LLC’s CEO, Jim Hitt, addresses a question his self-directed IRA clients often ask about commercial real estate investing. An in depth look at the ‘due diligence’ needed to safeguard your investment.
Jim Hitt has been a successful investor for over 39 years and has a unique expertise in investing with and without a self-directed IRA.
Jim Hitt shares, “When investing with self-directed IRAs, it is the responsibility of the client to do their ‘due diligence’. Recently we have had a wealth of clients asking for a detailed list of ‘due diligence’ items. Many clients know what ‘due diligence’ means but they don’t know the overview. At American IRA, LLC we provide a wealth of information so they are able to do their ‘due diligence’. Readers should keep in mind that while this list is extensive, it is not the end. A professional team is always required when purchasing any type of business.”
Market Analysis: Demographics:
*The offering will say to the effect “gross potential” a.k.a. “pro forma”
- REO, foreclosures, and distressed sales will need to be evaluated on a case by case basis. These fundamentals will still apply however;
- Get the real numbers NOT “pro forma” based on the future plan to operate the property
- Obtain the properties tax return
- Existing loans
- Can loan be assumed?
- Is there a prepayment?
- Is an extension available?
- What is currently owned and what are the terms?
- Verify income
Leases are the most important of all the documents. When reviewing a lease investors should look to see if there are any special arrangements such as: the tenant agreeing to do something each year (ex. New paint, carpet, etc.) and/or the tenant having the first right of refusal on purchase or additional space. Investors should also compare the rent roll to the income documentation and make sure that both report the same income. It is important to see who owns the lease hold improvements. Of equal importance, the investors should carefully read every lease, line by line and they should make notes of anything that stands out to them.
For anyone not familiar with ‘rent rolls’ they include the list of current tenants as well as their name, amount of rent they pay and their contact information. These rolls are important as a high turnover rate in tenants can indicate that there is a problem.
A careful review of expenses is also very important. Bills that should be reviewed include but are not limited to: utilities, taxes, insurance, lawn maintenance, bookkeeping/accounting, and pest control.
Investors should go over every expense and income and be sure they are accurate. Investors are buying ‘income’ and if it does not match up to the proposed price, the price should come down or the investor should exit the deal.
Jim Hitt says, “There is so much more to consider, too much to include in this press release. Some of the additional items of consideration are: surveys, easements, encroachments, and title issues. There are also third party reports that should be ordered: appraisals, environmental, zoning compliance, building, engineering, and ADA compliant. Finally, there are documents that you need to prepare to protect your interest: Tenant and Mortgage Estoppel letters and signed list of personal property included. Investing done correctly can be a winning situation!”
American IRA, LLC was established in 2004 by James C. Hitt in Asheville, NC.
The mission of American IRA is to provide the highest level of customer service in the self-directed retirement industry. Mr. Hitt and his team have grown the company to over $250 million in assets under administration by educating the public that their self-directed IRA account can invest in a variety of assets such as real estate, private lending, limited liability companies, precious metals and much more!
As a self-directed IRA administrator they are a neutral third party. They do not make any recommendations to any person or entity associated with investments of any type (including financial representatives, investment promoters or companies, or employees, agents or representatives associated with these firms ). They are not responsible for and are not bound by any statements, representations, warranties or agreements made by any such person or entity and do not provide any recommendation on the quality profitability or reputability of any investment, individual or company. The term “they” refers to American IRA, located in Asheville, NC.