How Self-Direction is Changing Real Estate Syndication: The Syndication Shift

real estate syndications
Estimated reading time: 5 minutes

It’s no secret that real estate is a hot market, but there’s been a shift in the way people invest into that market. There is no doubt a change has occurred. It has always been common practice for the average property investor to invest their money into single-family homes by doing deals like fix-and-flips, rentals, or contracts such as options or wholesales. These deals often required the investor to provide a lot of hard or physical labor just to get the return on their investment. Now, investors are able to get the same returns without the hard and physical labor often associated with tenants and contractors.

So, why the change? What we are seeing is that more and more people seeking out passive property investments. People are discovering the power of real estate syndications and the ability to invest their Self-Directed IRA money passively.

What Are Real Estate Syndications?

A syndication is a strategy commonly used by real estate investors that allows multiple people to pool their resources and invest in large real estate projects. This process of pooling resources with other investors to invest in a large property or real estate project can often been seen with investments such as an apartment complex (commonly referred to as multi-family for investors) or a commercial retail development. Syndications can also be for raising capital for a multitude of other investment projects such as storage, mobile home parks, oil and gas, and more.

Real estate syndication is not just the process of pooling financial resources, though. Syndication also extends to pooling intellectual resources to make educated decisions about the properties you and your partners invest in. In a syndicated relationship, one party may invest the money, while another invests labor and time to find the property and run the day to day operations.

There are different roles that investors hold when getting involved in syndications. Some of the key roles that come together to make a real estate syndication happen are

  • General partners
  • Sponsors
  • Key principals
  • Passive investors
  • The lender and the broker

The party investing the labor in the property is called the sponsor. Typically, the general partners include both the deal sponsor and the operator – but it’s important to note that sometimes these can be the same person.  Sponsors usually still invest some money, but the amount is much smaller than what the passive investors put in. Often, you’ll see syndicated partnerships structured as an LLC.

Pros and Cons of Syndications

There are numerous benefits that syndications offer, one of the biggest ones is accessibility. While single-family property may be more difficult to locate, there are still a ton of syndications – many that are happy to pull funds from Self-Directed IRAs. Real estate syndications are a great way to be passive and if you want to be more hands-off, self-directed multifamily investors don’t have to deal with management or the hustle and bustle of the local market. With real estate syndications, after the initial funding, self-directed accounts grow over time. When the investment has reached the point when it’s time to exit, the deal sponsors will liquidate that investment, and you see a lump sum of dividends return to your self-directed account!

Another syndication benefit is the possibility of generating a big profit, larger than the average single-family investment. Most syndications give their investors double-digit returns. The last benefit of real estate syndications is the ability to quickly get projects off the ground. If you have a property that you are interested in, syndication is one of the best ways to get the investment going fast!

How much is needed to get into a real estate syndication? The answer varies. There is no set number for syndications because every syndication is different, but on average, one can expect to contribute around $50,000 to $100,000. For some, this could be seen as a downside because not everyone has this amount to put towards a real estate syndication, but this is not unreasonable, and is still easier than producing the total amount of capital needed for this level of investment. If you’re looking to invest in large real estate projects but don’t have the funds to get a project started on your own, real estate syndications can be a great way to get your foot in the door.

Arguably one of the biggest downsides, though, is that you cannot leverage your credit to get into one of these types of investments. For example, with a fix-and-flip loan, the lender can provide funding to help out with the project, meaning you can begin doing deals with as little as $10,000 to $30,000.

 

Self-Directed IRAs for Syndications

This is where Self-Directed IRAs come into play. While some may have larger amounts of personal cash available for investments, other Americans simply don’t have extra personal money in the amounts needed to get involved in real estate syndications. So, where do you have that type of capital? The answer is: your retirement accounts, like a Self-Directed IRA. On average, people have more money in old 401Ks or IRAs than they do inside of their own personal checking accounts. Custodians like Quest Trust Company allow individuals to use those funds and invest in all the same deals that one would already be considering.

Syndications have become much easier to participate in in recent years, as investors and sponsors can easily connect online and at marketing events that happen all over the country. Being able to use Self-Directed IRAs to pool money together has made doing real estate syndications much more accessible for the average person, because you can contribute relatively small amounts of investment or retirement money to a real estate project that is interesting to you and reap the benefits accordingly.

Adding Self-Directed IRAs to your investing strategies will not only allow you to create money for the future, but will help you today, too. If you are interested in doing real estate syndications, Quest representatives would love to speak with you. You can talk to the expert team at Quest Trust Company, or view any of the numerous other resources Quest offers, like videos, blogs, and educational events. We’re here to help educate and provide flexible investment account options designed to meet the needs of modern investors, so give us a call today to start your passive investing journey with real estate syndications.

 

 

 

 

Quest Trust Company Celebrates 20 Years

Quest 20 years of service
Estimated reading time: 2 minutes

When we opened our doors in 2003, we  never expected to grow into the company we are today. Here we are twenty years later, and we’re proud to celebrate our 20th anniversary in 2023! Since we started and continue to grow, our name has changed over the years, but the same great service our clients have come to know has never left. Starting as an Entrust franchise, growing into Quest IRA, and becoming a chartered trust company under the rules and regulations of the State of Texas as Quest Trust Company has taught us how to become adaptable while still being able to maintain our core values. Quest continues to pride itself on our ability to provide “world famous customer service” in alternative investments.  

Celebrating Two Decades of Quest Investment Services

Over the years, we have grown from just a few hundred active clients to over 25,000 self-directed investors, from a handful of employees to over 110 – with more than 50 Certified IRA Services Professionals on staff, and the number of educational events and opportunities we put on and attend is now averaging more than 300 events a year. We know none of this would be possible without each person we’ve worked with over the years.  

Some of our biggest accomplishments have been opening remote offices in other territories, hosting large scale events like our Quest Expo, which had over 750 attendees present, and of course, providing top-tier IRA and alternative investing education to clients and non-clients everywhere. Over the years, our executives and staff have attended meetings in Washington D.C. to lobby, produced and published educational materials for helping investors, and created improved systems to make investing as seamless as possible on the client side as well as internally.

We’ve even won some notable awards that we are so proud of! 

  • Best Self-Directed IRA Company for 2020 
  • Best Real Estate Investment Service Provider for 2020 
  • Lifetime Achievement Award for Quincy Long, QTC Founder for 2020
  • Best Self-Directed IRA Company for 2021 
  • Linda’s Legacy Industry Impact Award for 2021
  • Best Self-Directed IRA Company for 2022 

We’re not done – we’re never done growing! As every milestone lights a new fire, this anniversary is no different. In the upcoming years, you can expect to see even more amazing growth and investment opportunities for Quest clients, other alternative investors, and staff alike.  

We are always looking to see how we can provide the best experience for all those who work Quest no matter if you are a client or not.
Do you have a suggestion for ways we can improve?
Do you have an idea for a class topic or speaker you would like to see on our educational platforms?

We want to know how we can help, contact us at Feedback@QuestTrust.com to tell us how!

 

What is a 1099-R?

What is a 1099-R
Estimated reading time: 2 minutes

With the start of the new year, we’re getting all of our ducks in a row! At the beginning of the year, IRA custodians like Quest are busy gathering information so we can provide you with valuable tax reporting forms. We want to ensure you know what this form is and what you may be responsible for! Below is an overview of the 1099-R form you may expect to receive in the upcoming weeks to prepare for the upcoming tax season.

What is IRS Form 1099-R?

The 1099-R form is used to report potentially taxable distributions from retirement accounts. Generally, you receive one if you have completed a distribution of $10 or more from your retirement plan. They are made available to you in January (which you can view in your Client Portal), if applicable. You send these in with your yearly IRS tax filings.

Will I get a 1099-R?

The IRS requires issuers to file a 1099-R whenever they make an eligible distribution from any of the following plans:

  • Profit-sharing or retirement plans
  • IRAs
  • Annuities
  • Pensions
  • Certain life insurance contracts
  • Charitable gift annuities
  • Survivor income benefit plans

In some cases, there are other movements that would generate a 1099-R, such as

  • Taking an early distribution from a traditional IRA
  • A rollover from a 401(k) to an IRA
  • Closing a traditional or Roth IRA

 

What do I do with my 1099-R ?

The information found on your 1099-R will help you as you prepare your tax return. You need to gather all of your 1099-Rs if you need to report multiple benefits in your 1099-R as income when you prepare your tax return. There are many factors that determine if you have to pay tax on any distributions reported on your 1099-R, always speak to a knowledgeable representative who could help!

If you have additional questions about your 1099-R, contact a Quest specialist and we would be happy to answer any questions we can. You can always reach an IRA Specialist at 855-FUN-IRAs or by scheduling a free consultation with an IRA Specialist.

 

The Market Forecast for Continual Growth the Next Two Decades

Estimated reading time: 5 minutes

Guest article by Isabelle Guarino Smith

American investors find themselves in a unique place right now, amid a looming recession, a once in a generation inflation levels, and relatively low confidence in market conditions. Add to that, the promising future and subsequent collapsing financial confidence in crypto, NFTs, and similar lucrative ventures, and you have investors putting the brakes on the blissful outlook of endless growth.

It’s a tale as old as time, people who have money want to grow that money, and as quickly as possible. But in this economic climate, investors are increasingly looking for additional stable strategies to expand their portfolios.

Future Property Investments

Real estate has historically been the key to stable and gradual growth. However, in today’s market, with large corporations buying up most of the available housing stock, the market is becoming squeezed and small investors are being priced out entirely. This has many scratching their heads about where to turn for their next investment.

In spite of all these negative economic indicators, there has been a growing trend in one niche sector of real estate investing the past few years. One that relies less on interest rates and affords investors the opportunity to achieve two to three times the fair market rent for their properties. This investment strategy combines the historical stability and gradual growth of residential real estate with the profitability and cash flow of a thriving business.

Financial analysts are always looking for trends that point to opportunity, and right now there is a significant amount of data that points to immense growth in this sector. Population projections indicate that a unique group of consumers is set to create a massive shift in the real estate market. This group of consumers…senior citizens.

Why Invest in Seniors?

The senior demographic in America is expanding at an unprecedented rate. “Every day in the U.S., 10,000 people turn 65, and the number of older adults will more than double over the next several decades to top 88 million people and represent over 20 percent of the population by 2050.”

Many experts have indicated that this could present a potential crisis for the U.S., while others are looking to the opportunity. Some countries, like Japan, Sweden and Italy, are already feeling the impact that this change in elder-heavy demographics has on financial, real estate, and medical sectors.

Why is there such an explosive opportunity in this niche market?

In essence, it is simply down to demand, driven by significant demographic growth.

The Growing Demand in Assisted Living

The reality is, there has always been a need for assisted living homes, and the senior housing industry has been on a steady incline for decades. However, the reason there is such a massive demand now is because of the huge disparity between the population of seniors currently requiring assisted living and those who will need it over the next few decades. Specifically, there is a considerable difference in the size of the Silent Generation, those who have needed assisted living for the past few decades, and the Baby Boomer generation who are just beginning to enter the years where they will need assisted living.

According to the US Census Bureau, there was a 61% growth in U.S. births from the Silent Generation to the Baby Boomers. As these Baby Boomers enter their golden years, it will create a massive demand for assisted living housing. And it is this growing demand that has investors scrambling to find their seated table.

In 2021, the assisted living industry in the U.S. was valued at $87 billion, and it is forecast to expand to $140 billion by 2030.

Fulfilling the Need for Senior Care and Accommodations

The unique thing about this particular investment sector is that it does not depend on what the markets are doing. In fact, even in the midst of the financial and commercial difficulties during the pandemic, the U.S. assisted living market grew while most other markets declined. When Americans face financial setbacks, they will usually reduce or eliminate luxuries and expendable amenities, but what they generally won’t do is stop the care for their aging loved ones. The demand will still be there regardless of market downturns.

Savvy investors who have seen the demographic projections are beginning to position themselves to capitalize on this opportunity. As seniors age, 70% are expected to eventually need assistance and accommodations beyond what their own homes can provide. For decades, the predominant answer to this need was to place large groups of seniors in big-box assisted living facilities. Unfortunately, this is not where most seniors want to spend their golden years. And if the pandemic has taught us anything, it’s that this is not the safest place for them either.

A unique investment strategy has emerged over the past few years that involves the business of caring for seniors and residential real estate investment. Residential assisted living provides investors the opportunity to make significant cash flow, while owning an in-demand business that serves seniors. When done right, many investors enjoy a hands-off approach to the business, without having to get involved in the day-to-day management.

For investors looking for cash flow in an expensive market, residential assisted living might be the investment that many have been waiting for. Visit us to learn how this strategy is performing for investors.

Author Bio:

Isabelle is a graduate from Arizona State University, a former flight attendant, Disney employee and now works as the COO of the company and our lead educator. She has taken over the educational aspects form our late Founder, Gene Guarino and leads the company in our pursuit to Do Good and Do Well.

Isabelle Guarino Smith

SDIRA End of Year Checklist

SDIRA End of Year
Estimated reading time: 4 minutes

As the weather gets cooler and we inch closer to the holidays, many people are preparing for the end of the year to get a head start on 2023. For IRA holders, a lot happens at the end of every year, and it’s important to stay on top of all requirements and deadlines that might pertain to your account.  This is your one-stop checklist that provides some helpful resources and updates for IRA holders as they move into the new year. This is a very busy time of the year – not only for the holidays – but for future financial planning, and we hope these resources can offer help to you as the year ends!

 

Roth Conversions 

Are you thinking of doing a Roth Conversion for the tax year 2022? To convert for this tax year, the deadline is December 31, 2022. Please note the last business day of the year is December 30th.  If you’ve been considering a Roth Conversion, this might be your last chance. To learn more about Roth Conversion, you can watch a helpful video.

Solo 401k Establishment Deadlines 

Since the creation of the Solo 401(k) in 2002, self-employed individuals and small business owners have been able to invest and work towards a secure retirement. If you’re looking to establish a Solo 401(k), you must have opened your Solo 401(k) by December 31st, 2022, in order to make contributions for the 2022 tax year. The Individual or Solo 401(k) must be established by December 31st of the year you wish to contribute. You can contribute up to $61,000 for 2022.

2022 Contributions

While we’re on the subject of contributions, have you made your contribution for 2022 yet? Finish your year off right by making contributions to your IRA today. And here is some news to look forward to – contribution limits for 2023 are increasing!  Read more about the 2023 contribution limits for all accounts .

Required Minimum Distribution (RMD) Deadline 

Your required minimum distribution (RMD) is the minimum amount you must withdraw from your SDIRA account each year. Generally, you must start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, and other types of retirement plans when you reach age 72 (or after inheriting any IRA). The amount of the required minimum distribution is calculated annually, based on the previous year’s fair market value as of December 31st and the age (and life expectancy) of the account holder (if you inherited an IRA, it may be measured by your life expectancy). You are always free to withdraw more than the required amount, but failure to satisfy your RMD may trigger tax penalties. Your first RMD must be taken no later than April 1st of the year following the calendar year in which you turn age 72. Subsequent RMDs must be taken by December 31st of each year.

Qualified Charitable Distributions (QCD) 

If you would like to make a qualified charitable distribution (QCD), you have until the end of the year.  A QCD is an otherwise taxable distribution from an IRA owned by an individual who is age 70 ½ or over that is paid directly from the IRA to a qualified charity.  If you would like to make a QCD, your distribution follows the same rules as other accounts and must be satisfied by December 31st.  Here are some helpful Qualified Charitable Distribution takeaways you should know:

  • QCDs may satisfy all or part of a taxpayers RMD.
  • QCD requires a direct transfer to the qualifying charity.
  • QCDs can be done after 70.5, RMDS begin at 72.
  • QCDs are reported in the year they are made.
  • QCDs are not reflected as tax-free on the IRS form 1099-R. It will appear as a normal distribution. It is up to the client to notify tax preparer that some or all of that distribution was a QCD. It is recommended that individuals receive acknowledgement of the donation to claim a deduction.
  • The charity must be a 501(c ) (3) organization. Some charities that do not qualify or private foundations, donor-advised funds, or supporting organizations.

Fair Market Valuations (FMVs)

We are in Fair Market Valuation (FMV) season! An FMV for any open investment in your account is due to Quest Trust Company, no later than January 15th, 2023, for 2022. Submitting an FMV is essential to comply with the Internal Revenue Service reporting requirements. It allows us to properly report the value of non-cash assets in your account. This is an annual requirement and is based on the value of each investment as of 12/31 of the reporting year. Please keep in mind that custodians, like Quest Trust Company, are required to obtain the most current FMV available for the investments in your account at least once a year.

 

We hope these resources are helpful! As always, Quest Trust Company IRA Specialists are always available to answer any end-of-year or IRA questions you may have. Speak to an IRA Specialist for free at 855.386.4727 or email at IRASpecialists@QuestTrust.com*Please note the Quest office will be closing early Friday, December 23rd at 1pm CT and will be closed Monday, December 26th, 2022, in observance of the holidays.*

 

 

Quest Wins NoteInvestor.com’s “Best SDIRA Custodian of 2022”

Quest Wins best SDIRA
Estimated reading time: 2 minutes

Quest Trust Company has done it again! The world-famous financial customer service and investment systems at Quest have helped us proudly take the title for Best Self-Directed IRA Company of 2022, for the third year in a row from NoteInvestor.com!

We know there are a lot of amazing companies involved in the note business, and there are just as many great self-directed IRA companies that note investors can use. But at the end of the day, only one company can be crowned the best, and we are very grateful to have earned this award again.

To judge this competition, independent surveys are sent out to investors every year who have experience with various custodians and other companies in the industry. Some of the factors taken into consideration when casting votes are length of time in business, client testimonials, professional peer opinions, and overall reputation.

Quest may be one of the nation’s fastest growing self-directed IRA custodians, but we’ve never forgotten our most important goal – to always provide the highest level of customer service, alternative investing education and self-directed IRA services. Here are just a few things that set us apart.

  • EXCEPTIONAL CUSTOMER SERVICE – When it comes to your retirement, we understand the importance of a personalized experience. When you call Quest Trust Company, not only will you never have to deal with an automated service, you will always speak to an educated staff member, highly-trained in the field, and ready to answer whatever questions you may have!
  • LATEST ONLINE FEATURES – Having an account at Quest means that you have access to a wide variety of brand new online features that make managing your SDIRA a breeze! From our new and improved deposit system and live chat program, to our easy-to-use online portal and electronic forms, we’re always perfecting our technology to provide the best experience for you.
  • EXPERT STAFF – When you have a difficult question that you need answered, you won’t have to worry at Quest! With over 35 board-certified IRA services professionals on staff and an executive team that have been in the business for many years, you can rest assured that when you call a Quest Trust representative, you’ll be getting the best education around.

If you’d like to experience the Quest difference for yourself or get more information about Quest, see what sets us apart by giving us a call at 855-FUN-IRAS. At Quest, consultations are always free and live representatives are always available to share options about transferring to a self-directed IRA! To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist.

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.