Top 10 Due Diligence Tips from Spartan Investment Group

Top 10 Due diligence tips
Estimated reading time: 6 minutes

Taking well-calculated financial risks is a key part of any business or investment strategy.

But for investors, failing to recognize potential liabilities until after a transaction is closed can have disastrous ramifications. At Spartan Investment Group, we believe that due diligence is the most important part of a deal. For many investments, it’s the point that determines whether you make or lose money. When we vet a new self-storage investment opportunity, our due diligence helps us to uncover improvements we need to make to get the most out of a property. It also exposes any legal or financial issues the seller must address before we close a deal.

Due diligence will look very different depending on whether you invest passively in commercial real estate or buy an investment property outright. In either scenario, designing a thorough and thoughtful process for evaluating risk will pay dividends.

Due Diligence for Active Investors

As a commercial real estate investor, there are two types of due diligence to consider: corporate due diligence and property due diligence. If you are an active investor looking to acquire and manage your own assets, investment property due diligence is your first line of defense against issues with the transaction.

At Spartan, the scope of our due diligence process ranges from mystery shopping competitors to meeting with the local planning and zoning department. We perform environmental site assessments and geotechnical studies. We also look at the physical and financial state of the property so we can understand what steps we need to take to transform an underperforming asset into a competitive business. Because risk mitigation and transparency are core priorities for Spartan, we make our property due diligence checklist publicly available.

Here are five priorities for vetting a real estate transaction as an active investor.

Have a Thorough Process

Make sure you have a due diligence process set up before you go out looking for deals. You will learn something new during each investment, but you need a solid rubric to evaluate opportunities against. After a deal closes, look back at what you missed, and use it to improve your process for next time.

 Don’t Rush into Investing

When operating in a seller’s market, it can be easy to get swept up in a false sense of urgency. Don’t let sellers pressure you into cutting corners. However painful it may feel to pass on what looks like a fantastic deal, it’s far worse to lose money because you dropped the ball on due diligence. At Spartan, our 700+ point checklist helps us move through due diligence quickly and efficiently. That means we can protect ourselves while still being able to progress at a competitive pace.

Trust Nothing — and Verify Everything

Don’t base your investment on hopes, promises or assumptions — and don’t take anything at face value. Vet all the documentation your seller provides and ensure it is thorough, sound, and legitimate.

Be Upfront

Having a consistent procedure you follow for every deal makes it easier to set expectations with brokers. Let them know what your due diligence looks like, what documentation you’ll need to get started and how long it will take. By sharing this information ahead of time, you can expedite the process and avoid surprises for the seller.

Invest with the Right People

At Spartan, we have a team of over 100 full-time employees and in-house experience that spans property management, syndication, acquisitions, development, and asset management. Still, we recognize the value of external expertise. Whether it’s a civil engineer or a lawyer, we invest in hiring the outside talent we need to move forward with confidence. Don’t be tempted to cut costs when it comes to bringing the right people into your deal. Due diligence is expensive — but it represents a fraction of the money you stand to lose if an investment goes badly.

If property due diligence feels like too much of a financial commitment, investing passively in commercial real estate syndication may be a better fit for you.

Due Diligence for Passive Investors

Passive investing is an excellent route for investors who want to reap the benefits of investing in commercial real estate but don’t have the desire or capacity to manage property. In this case, you’ll likely enter a deal as a limited partner. A sponsor or operator will handle the investment, oversee how funds are deployed and coordinate any construction or improvements. In return for providing some portion of the capital used to finance the deal, you may receive some cash flow and upside from the investment.

While you can assess individual offerings by looking at documents provided by the operator, like offering memorandums and pro formas, you won’t be responsible for property due diligence. Instead, your due diligence will focus on assessing the sponsor or operator. Below are Spartan’s top five tips for performing due diligence as a limited partner.

Focus On Communication

As a passive investor, you’ll rely on your sponsor to provide timely and consistent updates on asset performance. As a result, your sponsor’s approach to communication will play a key role in how good — or bad — your experience is.  Ask to see examples of previous messages that your sponsor sent to investors. Review the samples and ask questions to ensure you are comfortable with how and when they communicate.

Ask Good Questions

If you’re considering investing with a new operator, an interview is your first chance to get to know them.

Develop a list of questions that help you understand their background, investment philosophy and approach to investor relations — particularly when faced with a challenge. Common investment questions include

  • How many deals have you taken from start to finish?
  • What do you like about this deal? What don’t you like?
  • What does a worst-case scenario look like, and how are you prepared for this possibility?

In Spartan’s latest eBook, “How to Evaluate a Sponsor,” we break down 120 questions to ask a sponsor — from minimum investments to when you can expect your K-1 tax form.

Lead with Values

Your operator’s mission, vision and values will frame their work — and your relationship. Do some research into the companies you’re considering investing with and see how their priorities align with yours. How do they treat investors? Employees? Sellers? If their values resonate, you’re off to a promising start.

Talk to References

Referrals are a great way to get outside perspectives on your sponsor. To ensure you get as complete a picture as possible, speak to a range of clients. Ask the sponsor to refer someone who has invested in 75% or more of their deals — and someone who only invested in one. Try to speak to an investor who was involved in a challenging deal, too, so you can get their feedback on how the sponsor handled communicating through a crisis.

Don’t Get Hung Up on Fees

Fees are often a passive investor’s first priority when assessing an opportunity. But while low fees may seem attractive, they can be a red flag. If a sponsor doesn’t have the resources to steward the transaction forward, it’s likely to stall — and may even fall through. Rather than seeking out the cheapest deals, ask sponsors thoughtful questions about how fees will serve your investment.

Closing the Gap

At Spartan, everything we do focuses on mitigating risk for our investors and ensuring they have access to the best self-storage investment opportunities. Over the years, our rigorous due diligence checklist has grown to over 700 points. We only close on a deal once every box is ticked.

Due diligence isn’t about removing risk. It’s about assessing potential liabilities, so you can make informed decisions and identify the best opportunities for you. It reduces the gap between what a sponsor or seller tells you and the reality of an investment opportunity. It can be a lengthy, frustrating and expensive process. You may even lose deals along the way. But the narrower the gap, the stronger your process — and the lower the likelihood of a post-transaction surprise.

Ryan Gibson is CIO of Colorado-based Spartan Investment Group, a privately held real estate investment firm specializing in the self-storage industry. To connect with Ryan directly, email ryan@spartan-investors.com. If you’re interested in learning more about how to evaluate a sponsor or operator, you can read Spartan’s new eBook on the topic.

 

Are Health Savings Accounts Changing Health Care?

Health Savings Accounts affecting health care
Estimated reading time: 4 minutes

The United States currently spends more money on health care than almost any other country in the world.
On average, Americans spend about 4.1 trillion dollars a year, which breaks down to over $13,000 per citizen, per year. One of the biggest issues surrounding health care is awareness. According to one survey conducted by Empower Retirement, 34% of consumers are not aware of the amount of money needed for health care in retirement and even less have funds set aside for their health care needs for the future.

What is a Heath Savings Account?

Many financial institutions have a solution, one that regularly helps Americans minimize the amount they spend each year on health care. Financial institutions like Quest Trust Company are teaching citizens the power of the Health Savings Account, commonly known as an HSA. A Health Savings Account is a very powerful wealth building tool that provides the account holder with numerous benefits not only for retirement, but for today, too. One problem remains: 46% of consumers have never had one.

The Health Savings Accounts can be set up by an individual or by a company for their employees as an option with their insurance. With HSAs, the funds in the account can be saved up throughout the years and compounded through contributions. They can be transferred or moved with limited requirements and can also be leveraged for almost any type of investment. Self-Directed HSAs allow account holders to invest in almost any private asset available with limited restrictions, providing additional diversification. The institution where the Health Savings Account is held will determine the types of investments one can choose to place their funds. Common examples include stocks, mutual funds, cryptocurrency, and real estate.

The Health Savings Account is one of the few accounts where earnings from any investment can come back tax-free and be spent in the present day rather than waiting until retirement. It is also important not to confuse the HSA with a Flexible spending account (FSA). While it is not uncommon for people to have some form of FSA, others have questioned how beneficial it actually due to the account rules; Americans find they have shoveled money into an HSA throughout the year just to lose the ability to use it due to not spending it. The Health Savings Account works differently.

HSAs and Tax-free Investments

Once the Health Savings Account is created, the IRS labels these as a “tax exempt trust” (as seen in IRS publication 969, page 3) . This newly formed account can now buy and sell investments. With a HSA, the account holder gets a tax deduction when any type of contribution is made. On the other end, distributions that are for qualified medical expenses are tax-free. The full list of medical expenses that qualify for a tax-free distribution can be found in IRS publication 502, but the list is almost endless. Tax-free distributions can cover COVID related expenses such as face mask and hand sanitizer, over-the-counter medication (something the average U.S. household will spend $442 on every year, research from the Consumer Healthcare Products Association reports), and anything that can be related to “Prevention of Disease or Sickness” (IRA Publication 502, Page 2). With the ability to invest, avoid taxes, and cover medical expenses, why doesn’t everyone use a Health Savings Account for their health care needs?

One reason that could explain this is the lack of quality, accessible education. 8% of Americans say they have never even heard of a Health Savings Account. When people do seek out information about retirement savings, a whopping 42% of consumers say they turn to the Internet, and when it comes to education surrounding how to save for health care expenses, they would rather go to employers, friends, and family over a financial advisor. These preferences indicate that people could be receiving incomplete or incorrect information.

Another factor that can hinder someone from opening and using a Health Savings Account is the requirement that says one needs to qualify. The first qualification is that the account holder must have a High Deductible Health Plan (HDHP) insurance plan in place. In addition to having a HDHP, the account holder is also not allowed to be a dependent of anyone. Lastly, the account holder cannot be on Medicare, which is mostly seen in people over the age of 50.

Why have an HSA?

Based on the resources shown, it is apparent how expensive medical aspects in the U.S. can be. These accounts can be used to cover various medical needs, the individual can take tax deductions by making contributions, the accounts can be fully invested in a wide range of options, and all the earnings can be considered tax-free. Some say the Health Savings Accounts is one of the most powerful investment tools the IRS has given us to date.

The question remains. Should everyone out there have an HSA? While the answer may take some personal reflection and research, the power behind this account is clear to see.

Navigating Choppy Waters – 7 Investing Principles

7 Principles to Invest By
Estimated reading time: 6 minutes

It is impossible to escape the headlines.

Inflation is at a 40-year high. A recession is coming. A recession is here. What will America look like in the next year or two?

However, recessions are not new for the United States. Since World War II, the US has been through 12 recessions with an average economic contraction of 2.5%, an average unemployment rate increase of 3.8%, and an average duration of 10 months.

So where are we in the market cycle right now?

In my search for the answer, I realized that even the brightest economists do not agree on where we are in this market cycle or when a recession will hit. This means as investors we must learn the guiding principles for investing so we can navigate any market cycle…even perilous ones.

 

7 Principles to Invest By

When you study the greatest financial minds, you find that they rarely time the market, rather they subscribe to a set of investing principles so they allow them to make money in almost any market and spend as much time in the market as possible.

Capital Preservation

Most investors have heard of Warren Buffett and his two rules of investing.

“Rule #1: never lose money. Rule #2: Don’t forget rule #1.”

This means the first step to investing in any market cycle is to invest in hard assets where your capital invested cannot go to zero (this is THE main reason I love investing in real estate). As an extension of this principle, you want to invest in assets where you can control the value of the asset. This means investing in assets that are their value on net operating income or expected gross income not on the whims of the market. Additionally, any asset that you invest in must be well capitalized with capital expenditure and operational reserves to mitigate loss and to keep the need from selling in a down market unnecessarily.

Cashflow

Another principle of conservative investing is to invest in assets that have multiple streams of income that begin from day one of owning the asset rather than waiting for cashflow to kick in months later. When an asset has immediate cashflow, this indicates that the asset has an element of stability in today’s market. Another way to protect the cashflow is to ensure that the are several rental comps in the area that are higher than the subject property so you can be competitive in the market should you need to adjust rents. And like rule #1, around capital preservation, you want to ensure that the asset is well capitalized from day one to mitigate any sort of loss and to protect the current cash flow on the asset.

Equity Growth

There are two types of equity growth: natural market growth and forced equity growth. Ideally, you want to invest in assets that takes advantage of both levers is possible. To tap into market growth potential, and since you personally cannot control it, you need to invest in assets that are in areas of the United States where the population is growing, jobs are growing, incomes are growing, jobs are diversified, poverty is coming down, and crime is coming down. You want to stack the investing cards in your favor. To take advantage of forced equity growth, you need to look for assets where you can raise the income on the asset, decrease the expenses associated with the asset, or add additional streams of income to the asset. The real power is when you can pull all three of those net operating income levers at the same time!

Tax Benefits

One pillar of conservative investing is to invest in assets that have tax benefits associated with them (the IRS is incentivizing investment to solve a problem). Again, this is another reason I love real estate. When you invest in real estate you can create paper losses through depreciation, including accelerated depreciation and bonus depreciation. These losses can help shelter taxation on income the asset generates.

Another tax benefit of investing in real estate is the 1031 exchange. One of the major benefits of doing the 1031 exchange is the ability to defer the tax on capital gains and to avoid depreciation recapture. The tax benefits of real estate are one of the most powerful builders of wealth.

However, how important are the tax benefits if you are investing through a SDIRA? Glad you asked! The SDIRA account itself already has tax advantages built in, so any depreciation will remain in the account itself and not pass through to you as the individual. Additionally, SDIRAs cannot participate in a 1031 exchange (they don’t need to save on tax). When you invest in real estate through an SDIRA, you really do not need the tax benefits anyway!

Inflation Hedge

An inflation hedge is an investment where the decreased purchasing power of a currency results from the loss of its value due to rising prices either macro-economically or due to inflation. When you invest in a real estate asset, you can periodically increase your income that you are earning and pass through your expense increases to the end customer. For example, with multifamily properties you can adjust your income annually at lease renewal. For self-storage property you can adjust your income monthly. For express car washes and hotels, you could adjust your income daily if you like. Being able to respond to the market to protect your purchasing power is one of the most powerful aspects of any commercial real estate business.

Leverage 

Another pillar of conservative investing is understanding how to safely arbitrage the interest rate environment to use leverage safely to amplify wealth. In today’s rising interest rate environment, we are in the cycle where fixed rate debt that covers the term of the hold on any project is KING and short-term floating rate debt should be used with immense caution. If you come across an operator using floating rate debt, ensure that the debt has a cap and that the project has been underwritten to that cap for the duration of the hold. Since this type of debt is short-term, ensure the operator has also purchased extensions to the debt term upfront to cover the hold period, and has multiple avenues for a successful exit should their debt strategy fail.

Invest with Experts

Without a doubt, the most important conservative passive investing pillar in this market or any market is to invest with experts that you know love and trust. While most investors are drawn to deals with high returns, the success of any deal hinges on the operator’s execution. So be sure to invest with a team that has knowledge of the investment strategy, a track record of positive performance, the ability to secure credit and lending for high quality assets, the ability to reliably pool investor capital to close and manage the asset, and a professional team to source, acquire, operate, and reposition any deal in their portfolio on your behalf. Finding such an operator makes you not only feel confident that they can preserve your initial investment and execute their business plan, but you also get your time back… your most nonrenewable resource.

 

Is a Recession in the Future?

Some economists declare that the next recession will begin in Q4 2022 and last through 2023 predicting it to be a shallow yet prolonged contraction. Other economists challenge that the real recession will not realize for another 18-24 months.

So, what does 2023 and beyond hold for us? I truly do not know.

As a student of history, I believe that success leaves clues. And successful investors made money through all 12 modern recessions… and these seven principles of building wealth were the key to their investing confidence.

 

What are yours?

 

About the Author:

Whitney Elkins-Hutten is the Director of Investor Education at Passive Investing, a private equity firm with $1.3 billion in assets under management, including 3300 multifamily units, 6600 self-storage units, and 16 car washes. To date, PassiveInvesting.com has achieved an LP ARR of 29%, an LP IRR over 26%, and a 56%+ increase in asset valuation in three years or less.

 

 

 

Start the New Year at Quest Con Live: Forecasting 2023

Online Financial Conference
Estimated reading time: 3 minutes

Quest Trust Company is hosting their end-of-year online conference, Quest Con Live: Forecasting 2023 on Friday and Saturday, December 9th – 10th. Quest Con Live: Forecasting 2023 will be one of the best online alternative investing events held this holiday season!

After a couple of unpredictable years, life is finally getting back to normal, meaning real estate investors across the country are ready to take 2023 head-on! Our focus this time is forecasting the new year with investment experts discussing everything from the current state of real estate investing, creative real estate and private lending strategies, and other economic topics that will help set investors up for success as they transition into 2023 and consider their financial options.

Quest Con Live will feature a two-day event filled with leading financial industry experts, and we’ve made sure to bring the best speakers to our stage. With over 20 national speakers, this will be an opportunity to participate in insightful panels and special keynote presentations, as well as network with hundreds of attendees at the same time.

“You hear the great things that happened in the last year and about pitfalls or investment mistakes experts made so you can avoid making those mistakes yourself in the future,” says Quest Trust Marking VP Ingrid Chavez.  “Quest Con helps prepare you for what to expect in the investment world for the next year so you can get a kickstart on your financial new year’s resolutions.”

With brand new speakers and topics, Quest Con is an unbeatable way to spend your weekend and a great opportunity to start making new future connections.  Past participants have loved this event with some even going so far as to say it was lifechanging, and this year will be just the same for new and repeat attendees.

“This is my first experience with Quest Trust,” said one new attendee Kim Wiita when asked how they enjoyed their first Quest Con. “I am very impressed by the quality of this event.”

Quest Con Live will also feature a special networking Happy Hour the evening of the first day of the event. Share your deals, services and, of course, you’ll want to have your cocktails ready! This is a great opportunity to virtually mix and mingle with other investors that are a part of Quest Con. There will be opportunities for everyone to share what they’re interested in or looking for.

Katie Schluer, Marketing Manager and IRA Specialist and Quest share that “it’s the best of everything. You have the ease of a virtual event, so you enjoy the education from wherever you are from your phone or computer, and you still get to network with people from all over the states with not only the virtual happy hour but with the slack channel, too.”

Quest’s investment conference will have something for everyone, so save the date and don’t miss your chance to get your ticket to Quest Con Live: Forecasting 2023! Reserve your spot online now or call our office for more event information at 855-FUN-IRAS.

What are the 2023 Contribution Limits?

2023 Contribution Limits
Estimated reading time: 3 minutes

Another year has almost come and gone, and the temperature isn’t the only thing changing as the year comes to a close. The IRS recently announced that contribution limits for various IRAs and retirement accounts will be increasing this year, and we have all the updates! Many investors have already started planning for 2023, and you can join them with these helpful updates.

With the announcement of the 2023 contribution limits, it’s important to note you still have time to contribute for 2022. Every contribution counts, and each year that you miss out on making your yearly contribution is another year of missed compounding growth! Check out the  2022 Contribution limits or keep reading to find out what’s new for 2023!

Traditional and Roth IRAs

The contribution limits for these two personal plans increased $500 from $6,000 in 2022 to $6,500 in 2023. Additionally, the age 50 catch-up limit remains, as it is always fixed by law at $1,000. The income ranges that determine one’s eligibility to make deductible contributions to Traditional IRAs or contribute to a Roth IRA have also increased.

Employer Plans

Employer plans, like SEP IRAs and SIMPLE IRAs, saw a change as well. For SEP IRAs, contribution limits will increase to $66,000 per year for 2023, up $5,000 from 2022 which was $61,000. The amount one is allowed to contribute to a SIMPLE IRA increased to $15,500, up from $14,000. If you are age 50 or over, the catch-up contribution limit also increased, making it possible to contribute an additional $3,500 for 2023, up from $3,000 in 2022. For those with a Solo 401(k), the limit for the total contribution is increasing from $61,000 to $66,000 ($67,500 to $73,500 for those 50 and older). Solo 401(k) contributions work a bit differently than other accounts, so if you hold this type of account and still have questions about your allowed contribution, call our office and ask to speak to Solo 401(k) specialist!

Health Savings Accounts

The Health Savings Account, or HSA, contribution limits are expected to increase, too. For single coverage, it will go up to $3,850 for 2023, an increase from the $3,650 limit in 2022. For HSA accounts with family coverage, you can expect to see the limit go up from $7,300 in 2022 to $7,750 in 2023. These were already announced previously. Those who are 55 or older will still be able to contribute an additional $1,000.

Coverdell Education Savings Account

The Coverdell ESA will be one of the self-directed accounts that will remain the same. Just as in 2022, the maximum contribution limit for Coverdell accounts will be $2,000 per child per year in 2023.

2023 contribution limits

Getting ahead and familiarizing yourself with the 2023 contributions limits will help you prepare and budget for the new year, so as you start preparing for the end of the year be sure to keep contribution limits in mind. It’s never too early to start planning! If you ever have questions about how to make a contribution to your Self-Directed IRA at Quest, call us at 855-FUN-IRAs or schedule a free consultation with an IRA Specialist.

 

 

How Do Retail Trends Affect Real Estate?

woman shopping
Estimated reading time: 2 minutes

The real estate space is like a well-oiled machine. Just like many other industries, there are numerous factors that play a part in the overall success or failure for real estate investors. With there being so many outside influences with the ability to impact the real estate industry, it’s so important to not only be following trends in our own field, but that of others as well. Understanding trends and predictions in similar industries can be a crucial help when gauging what to expect in your own day to day real estate investing career.

A recent article from the Washington Post shared retailers and stores are sitting on merchandise that consumers are simply not interested in buying, and also noted while the country faced product shortages throughout the pandemic, the exact opposite is occurring now. In short, these reports could be an indicator of the way the economy is headed. Are people spending less because they are being more frugal, saving more instead of spending?

Although the two industries – retail and real estate – are very different, they both could be affected by these economic and financial trends. IRA Specialist, Nicole Bacot likes to think of it like a tower of building blocks. What you do to the block in the middle of the tower influences the entire tower.

“I follow trends in manufacturing because it can predict consumer goods, overstocking, too little product, and supply chain faults. These can be indicators of what is to come and where people are going to put their money,” Bacot says. “Being an informed investor is key to also being a successful investor. I follow trends in the stock market, even though I don’t invest in it because it does give you the overall financial feeling at the time.”

The Washington Post also reported extra goods are creating a lack of storage space and a shortage of cash – new challenges for retailers. The dramatic sell-offs in the stock market are also a result of concerns over diminished profits. Now more than ever people may be choosing to turn to self-direction, where they have the ability to invest beyond traditional assets and earn a better return. While the success is still in the hands of the investor, the opportunity is possible inside of a self-directed IRA.

Secrets to Legally Building Wealth Tax-Free Using Self-Directed IRAs Revealed

Quincy Book
Estimated reading time: 2 minutes

NEWS PROVIDED TO PR NEWSWIRE BY

Quincy Long 

Author H. Quincy Long spoke and signed books at Quest Expo, offering strategies for making the most of retirement accounts—before retirement—and empowering investors to create income and (re)build savings.

Self-Directed IRA Secrets Revealed by H. Quincy Long provides a clear overview of alternative investment strategies that give financial investors more control over their investment choices and potentially reduce risk.

Quincy LongSDIRA secrets revealed

Author H. Quincy Long,                            Self-Directed IRA Secrets Revealed
Founder and CEO of Quest Trust Co.

A nationally recognized expert in Self-Directed IRAs, Quincy Long wrote Self-Directed IRA Secrets Revealed to make this method of investing understandable and accessible to readers who may not have a legal or financial background. A licensed attorney in the state of Texas, Long has more than 30 years of industry experience specializing in real estate transactions and investing. In his new book, he explains how Self-Directed IRAs can be used to purchase a wide variety of investments, including real estate, and why that choice can make sense for everyday investors.

“Self-Directed IRAs are a great tool for diversification if you don’t want to risk all your hard-earned money in the stock market. You have complete flexibility in the type and timing of your investments,” Long says. “By taking control of your retirement funds, you can reduce the risk of investing by purchasing something for your retirement that you know and understand. For many Self-Directed IRA owners, what they know best is investing in real estate in some form or another.”

Long conducted a book signing where he shared insights and strategies for building wealth using Self-Directed IRAs at this year’s past Quest Expo, the nation’s largest alternative investing conference. He and more than 55 financial industry experts provided case studies and practical information to educate and equip participants to take control of their financial future. Over 150 books were sold and signed that evening.

Thoughts to Consider: Were the Inflation Rates Transitory?

Inflation rates rising and falling
Estimated reading time: 3 minutes

Written by Tom Olson – Special Guest Contributor

In 1980, the United States deficit was 30% of gross domestic product GDP. As of fall of 2022, it’s 122%. Why the drastic difference? Let’s think about it.

In the 80’s, the government could raise rates with little to no worry about what it would do to affect the U.S. deficit. Today, for every 1% of federal funds rate, it adds $285 billion to the United States deficit. Just for this year, we remain on track to add one trillion dollars in deficit simply because of federal debt interest.

Rates Should Have been Increased

Last year, it was said inflation was transitory. At that time, the Fed thought a .10 federal funds rate was the right move. Knowing what we all know now, we realize this was wrong and we should have been raising rates slightly back in 2021. Many now admit that they were wrong about inflation being transitory.

Personally, I think inflation had a chance to be transitory, but it wasn’t something that was going to get fixed overnight like people assumed would happen. Most of the inflation we’re witnessing today is not being caused by interest rates; it has been caused by supply chain delays and simple supply issues that cheaper or more expensive money couldn’t fix. We very well could have had a scenario that, if all of the countries of the world were actually fully open by now (and they are not), inflation could have ended by the end of the 2022 year. Momentum was lost and needed to be started up again.

When production stops, it doesn’t just start turning again once production lines have been reopened.  It can take three, sometimes even six months for full production lines to be open and a product to actually be delivered.  The response to the pandemic is what has caused what many people are calling inflation. Yes, there is oil and Russia and food prices that may have still had some issues, but many would agree the pandemic has been the biggest factor.

We are quickly seeing markets take a turn for the worse. They are dropping like flies now. And while the Fed is speaking very hawkishly, I believe that very soon we will begin to see them quickly start to back-peddle.

Future Fed Predictions

I believe we will see the Fed reverse some of this by spring of next year and maybe even sooner. They will have to choose between adding to the deficit because of interest or adding to the deficit by putting measures in place that will increase GDP. Either way, we continue to print money we don’t have and either way isn’t good for us in the long haul.

We are going down and some will crash and burn. Others will take this as an opportunity to be the best time of their life and business, and some will simply sit on the sidelines till it’s over and then get back in the game after the real money has been made.  What side will you be on?

 

Quest Trust Company Fees Explained- A QTC Schedule Deep Dive

company fees explained
Estimated reading time: 7 minutes

All Fees Explained

At Quest Trust Company our World Famous Customer Service begins and ends with our clients. So, when it comes to our fee structure we want to keep it simple and transparent. Also, every dollar you spend on a Quest Trust fee goes back into making sure your self-directed IRA experience with us is the best it can be.

While other IRA custodians may boast cheaper fees, you may find that their services do not meet all of your needs. You will find that our fees remain average with industry standards and that the customer service and education we provide will easily pay for itself.  Simply put, you’ll receive a much higher value for a reasonable fee!

What Types of Fees Can I Expect to See?

With a Self-Directed IRA at Quest, you will never experience a hidden charge. Our outlined Fee Schedule allows you to accurately plan for any fees you would expect to see during an investment, ensuring you never have to be shocked by an unplanned charge. Additionally, with 3 different Annual Fee Plans, you have the option to choose the best structure that works for you rather than being locked into an all-inclusive plan that may not fit your needs.

Initial Fees

Getting started is easy and won’t cost you an arm and a leg. For just $100, we can establish and generate an account number for a new self-directed IRA. Then, when you’re ready to fund your first transaction, there’s only a few charges you’ll incur. Any other fee you’d see at Quest would surround account maintenance, such as end of year reporting or additional investment processing, or yearly investment fee plans.

INITIAL FEE SCHEDULE

With Option 1, or the “Fee Based on Number of Assets” option, you will pay a flat fee of $350 per asset per year. At the time you purchase your investment, this fee will be assessed and you can expect to see it a year later on the same date. If you select Option 2, the “Fee Based on Total Account Value” option, your fees will be quarterly and will depend on the total account value, meaning the value of the assets and the cash. You can see below that this option is tiered. Note – if you have cash in the account but do not have any assets, this chart will not apply and you will only be charged the $30 quarterly maintenance fee.

The last option is Option 3, The Gold Family Concierge Plan. This is our all-inclusive plan at $3,000 a year. With The Gold Family option, you can open multiple accounts for you and your immediate family without having to pay the $100 account opening fee. All other fees are included with this fee plan, except for a few special fees like asset research and overnight mail costs. On top of the fee benefits, there are many others that you can find in our FAQ section below.

Transaction Fees Explained

When you do a transaction at Quest, our Quest representatives will work diligently with third parties to ensure your investments is funded smoothly. At the time we conduct a new transaction, there may be a few fees you could incur. Purchasing, selling, exchanging, or re-registering an asset will have a $125 transaction fee and you can either choose to send the funds for different costs, as seen below. The “Other Fees” section contains fees you will see at Quest if you select to use an optional service, require paper versions of certain online documents, or incur a late fee. These do not always apply. Other fees such as the Non-Recourse Loan fee, Roth Conversion fees, and Asset Research fee may not apply to your situation, so these fees are only assessed if applicable. Learn more about when this fee is charged in the FAQs!

transaction fees

Self-directing shouldn’t come with aggressive fees every way you turn, which is why we believe in only charging a few main fees for the more difficult services we provide. As you shop around, you’ll see our fees are remain average with other custodians in the industry. We are confident that our service will show any potential or current client the value of Quest Trust Company. If you have questions about our services or fees, give us a call at 281.492.3434. To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

Fee FAQs

What if I have chosen to pay my fees by deducting from my account, but there is no cash available to deduct the fee from?

  • If we cannot deduct the fee from your account, we will default to the credit card we have on file.

What if I am set to deduct fees via a credit or debit card, but the card is declined?

  • Quest will reach out to the client in order to obtain correct card information. If we are unable to reach the client after a certain time, the account could be closed due to unpaid fees.

Can I change my fee option?

  • Yes! You can always change your fee option based on what fits your wealth building strategy at the time!

Is there a cost to change my fee option?

  • No, there is no cost to change your fee selection.

How do I change my fee option?

  • You can change your fee option by submitted an updated Fee Schedule document in the Client Portal!

How often can I change my fee option for my account?

  • There is no limit for the number of times you can change this option!

When are the quarterly fees charges?

  • The quarterly fees are assessed at the end of March, June, September, and December.

How can I pay my Quest fees?

  • There are a few ways you can elect to pay your fees. You can either pay your fees via credit or debit card or you can choose to deduct the fees from your Quest account.

What is the value of Option 3 – The Gold Family Plan?

– Gold Member Concierges provides additional benefits you can’t get with other options. You will have a designated rep with the Gold Member Concierge service to ensure account business is handled properly and in a timely manner. Additionally, you’ll get special reminders to make your account management easy, such as maturity date and other notices, as well as access to private events exclusively for Gold Family Members.

Does Quest have account minimums?

  • Quest does not have any account minimums. You can open a new account without putting anything into you; we simply ask that we have a credit card on file at the time we establish your new account.

Will I have to pay every fee listed under “Transaction Fees”?

  • No! Certain fees will only apply to specific investments. The Non-Recourse fee will only apply to debt-leveraged loans. The Roth Conversion Asset fee will only apply if you are converting an asset from a Traditional account to a Roth account. The Asset Research Fee will only apply if you elect to have Quest do the annual research, but you have the option to do this yourself with no charge. If you require a specialty service, you will see the hourly Special Services fee.

Does Quest charge any fees for incoming funds?

  • Quest does not charge when funds are moving into your Quest account. There could be a fee for funds that are outgoing.

When would I need to use a cashier’s checks?

  • Certain investments like auction properties will require cashier’s checks. If needed, this is when the Cashier Check fee will be charged.

If my account is open with zero investments, does Quest charge a fee. If so, how often and how much?

  • If your account is open but you do not have any investments, there will be a quarterly maintenance charge of $30.

How can I tell which fee option is right for me?

  • Certain investments will work better for different plans! It’s important to look at things like the cost of the investment, the duration, and how many investments you plan to do. If you are unsure which fee plan is best for you, you can call an IRA Specialist and we can help!

Do I earn interest if I have idle cash sitting in my Quest account?

  • You do not earn interest for the idle cash sitting in your account.

 

If you ever have questions about our fees or the Quest Trust Company value, you can speak to an IRA Specialist or a Billing Specialist. Give us a call at 281-492-3434 or schedule a consultation.

 

 

How Private Equity Deals are Allowing Investors to Regain their Freedom by Being Passive

Saving Money
Estimated reading time: 9 minutes

Guest Article with NHK Capital Partners

School has started, the holidays are coming up, and it seems like daily life is not slowing down anytime soon! With such busy schedules, it’s hard for investors – especially those that may still have their W2 job – to spend time actively hunting for investments. Investing into private equity firms give investors everywhere the ability to take back their time for other priorities in their life without having to sacrifice their investment portfolio. Building wealth doesn’t have to be exhausting, and Neal Lee of NHK Capital Partners joins me today to give a real-life example of how private equity funds work and how they can allow investors to be passive.

Sarah: Thanks for joining me today! Let’s start by having you tell me about yourself.

Neal: Thank you for having me. I’m Neal Lee and I’m one of the founding members of NHK Capital Partners. I run the day-to-day of NHK. I come from a real estate investment/development background, and I started my career with a larger outlet. They had a construction arm, a development arm, and an investment arm. That was a very good introduction to the commercial real estate space for me, because I was able to experience the asset management side of it, the portfolio management, the investment side, as well as the development. As you know, these are all very pertinent aspects of commercial real estate developments and investments. In 2013 after I got my masters from MIT, I got to learn about a federal investment program that was gaining traction called EB-5, from a good friend I met while at MIT.  I joined NHK’s sister company CMB. CMB is a leading player in the EB-5 space.

Sarah: Now, what exactly is EB-5?

Neal: EB-5 is a federal program that grants permanent residency to foreign investors who contribute to the US economy by creating new, permanent American jobs through their investments.

Sarah: Interesting, thank you.

Neal: Of course. So, at CMB I helped underwrite over $2 billion in new deals in commercial real estate, and overall, the company has over $3 billion in AUM and represent close to 6000 EB-5 investors. After a while – after these investments came to maturity and now that our EB five investors were getting their capital back – the question ‘what’s our next step’ naturally came up about.

Sarah: Always. Investors and deal sponsors alike always have to be thinking five steps ahead.

Neal: Exactly. So, myself and my principles came together and created NHK back in 2018. NHK Capital Partners was our response to the demand from our existing investors.

Sarah: What was your business model? How did you structure NHK Capital Partners?

Neal: We structured it as more of a traditional private equity platform. We aimed to bring our institutional quality and investment opportunities in the commercial real estate space to our individual investors.

Sarah: I love that. I know that a lot of people that are using self-directed IRAs are interested in commercial real estate investing. What if somebody is not familiar with this, though? How does NHK Capital Partners help someone understand commercial real estate investing?

Neal: We believe in the right education. I think you first need to understand how the investment works. A common approach to commercial real estate investing for individual investors would probably be through buying shares in a REIT, right? REITs are publicly traded, so they’re easy to buy. Whether it’s multi-family oriented or hospitality oriented, they’re easy to buy and sell. However, you don’t get to control your investment. A typical way of getting exposure to the commercial real estate space would be to partner up with additional or other investors to create a larger fund.

Sarah: How hard is it to do that?

Neal: It requires you to be more of an active investor because you would have to now spend your time learning how to administer and operate that investment. That’s where NHK provides education about private offerings. These are what we offer at NHK and they can help SDIRA account holders to diversify their investment into commercial real estate without one having to be an active participant. For example, our limited partners take advantage of being a passive investor in commercial real estate developments and I would say most private offerings would follow this trend.

Sarah: That’s great. What is a common way these are structured?

Neal: In the case of NHK, our offerings are structured as a partnership. I would say this is often seen. So, our investors are admitted as limited partners on a passive platform. The general partner, which in this case would be us, would act as the day-to-day manager of that investment.

Sarah: And do most investors prefer that the general partner has most of the day-to-day management responsibilities?

Neal: I think a very big component as to why the private offering model works well is because it is an alternative way of getting exposure into commercial real estate while being able to diversify. So, I would say so. We are seeing crowdfunding grow right now. I think the differentiator between a crowdfunding platform and a private equity company (like NHK) is that the fund has skin in the game. This is important because we’re not just a promoter; we’re actually investing alongside our investors as fellow limited partners. That creates this alignment of interest between that general partner and the investor.

Sarah: One thing that you mentioned that I wanted to go back and touch on a bit more is the passive aspect of it. That’s huge for Self-Directed IRA investors. Besides the example you just gave, what are other reasons why would someone want to be passive and why would a private equity investment be a good investment for this type of investor?

Neal: Commercial real estate space is very complex and typically requires millions if not tens of millions of dollars of investments and they’re highly leveraged. There are all sorts of things specific to that investment that can and probably will come up. This is when you really do need an expert and a team to manage that investment. These private offerings, like those on our NHK platform, provide that ability to partner up with an expert group to help with originating the investment, finding the investment, but also managing it all the way to a successful outcome. That’s probably the largest reason that I can think of why someone would want to be a passive investment partner. A partnership or limited partnership is more conducive for a SDIRA holder.

Sarah: Good points, and I would agree. They can also be great because, as we know, in order to reap those self-directed IRA benefits, the investors need to keep the funds in their IRAs for a certain amount of time anyways, so they may as well let their money work for them and let it grow while they’re still working!

Neal: Yeah, absolutely.

Sarah: What are some questions or due diligence considerations that potential investors should be asking themselves before getting involved in a private equity deal?

Neal: Great question. I think the best advice is to stick to common sense. Underneath all the trends, fancy models, and numbers with 7, 8, 9, and 10 zeros is underlying common sense, right? Taking an example of a single-family residence, one thing that we do as investors at NHK, we pull independent third-party data and reports from market research firms and appraisal firms, we learn how to be competitive in the marketplace, we analyze budgets, we consider what sort of timeframe and what sort of return we will make at the end of that investment.

Sarah: That’s a good answer. We actually have a good due diligence article on our page that investors can read more about if they’d like. As a follow-up what should investors be cautious about with these types of partnership deals? Are there things to consider when getting involved?

Neal: In general, a private offering is usually open to accredited investors only. That means it is only available to investors who qualify as an accredited investor and it’s important to realize that there are rules surrounding your credit – either you have a million dollars in your in assets or $200,000 annually in income for the last two years, or if you’re for $300,000 with your spouse. The good thing is that the market value of your IRA counts toward that million-dollar accreditation criteria. There is definitely a high barrier of entry for these private offerings, if you will. Additionally, private offerings are typically illiquid, meaning once you’re committed to it, you’re in it for the duration of the investment. It could be hard to exit prematurely before the conclusion of the investment. Personally, I think those are probably the items to make sure you understand.

Sarah: Exactly, and like you said, that’s going to be typical across the board. It’s important to ask yourself those due diligence questions before entering into an investment of any sort. What is one thing you and NHK Capital Partners learned while navigating COVID?

Neal: We saw this trend of people moving away from heavily dense urban centers to more suburban settings due to the ability to work from home. So, an interesting design factor that we definitely implemented for our business at our clubhouse was to have a dedicated space for an office. That was the first thing we did. I think COVID threw a big wrench in everyone’s life, especially those of builders and developers. We saw a rise in construction cost so we shifted our focus to acquisition deals. We were never bound by an asset class and we were never bound by a single purpose. COVID taught us to see different opportunities.

Sarah: Great answer. It’s all about being able to adapt. Last question here, whether it be you or anyone in the space, how often do we typically see projects getting extended? Is it the norm for things to finish on time?

Neal: You know, it really all just depends. It depends on what’s there to begin with, what has to get done, and things like that.

Sarah: Do you have any final remarks?

Neal: Go with the investment that best fits your needs and aligns with you. At NHK, I mentioned our goal is to bring institution grade investments to our individual investors through structuring them as partnerships and providing private offerings to these to these partnerships. While we started in 2018 and are still very young, we’re very active. Our first deal was actually a ground up real estate multi-family development in San Antonio and we exited at the end of last year. Our mandate is to create the maximum value for our investors. So, quick plug for ourselves, not only do we truly handpick and make sure that our investments are good for ourselves, but investors also find that our team has the experience and the expertise to walk through these investments with our investors.

Sarah: Awesome. So, if somebody wants to learn more about these types of deals, and maybe specifically the ones that NHK offers, where can they go to learn more about what can be expected?

Neal: We have a website NHKCapitalPartners.com. Investors are more than welcome to find us there. We have a “Contact Us”. Our team will respond in 24 hours.

Sarah: Great! Well, thank you for joining me today!

To learn more about passive investing or NHK Capital Partners, click the hyperlinks to be redirected to more education! As always, to ask an IRA Specialist how we can help you!