Did you know there are several different ways to raise the cash for the down payment on your self storage facility? One of which I will caution: I DO NOT recommend or approve of 100% financing or the “No Money Down” deals that you have seen on TV or heard of by other authors and speakers.
In the early stages of my real estate career, most of my single family houses and apartment complexes were purchased with no money down and my entire portfolio was approached a 95% Loan to Value ratio at one point. As a result, my cash flow was very tight, and when the rental market went sour after the events of 9/11, I came dangerously close to losing it all, and thought at one point that I may be heading for bankruptcy.
Fortunately, by the Grace of God, and by employing the techniques I have learned and outlined in my Self Storage Study System, I was able to turn things around and I was given another chance to learn from my mistakes. This is probably the biggest reason I have a passion for teaching others how to invest wisely, and how to avoid the mistakes that I, and so many others in this industry have made when it comes to over-leveraging their portfolio.
That being said, I have done several deals that have proven to be very successful projects which were purchased with no money down. The difference was that the deals were SO good, and the upside SO incredible, that I felt safe in leveraging them higher than my usual 80% threshold.
In addition, I have structured the financing of my down payment on several deals in various ways to avoid a large drag on the cash flow of the property after acquisition. Furthermore, I do not recommend that your portfolio ever rise above a level of 80% Loan to Value, especially if you are making regular payments on any down payment capital that has been borrowed.
Self-Directed IRA Funding
As you are already aware, there are several ways to raise cash for the down payment on your self storage deals. One of my favorites, Self-Directed IRA's, are a great vehicle for allowing me to invest the money in my IRA, tax free, in the business I love; Real Estate.
In addition, I can set the terms surrounding how the funds are to be borrowed from my IRA, allowing me the utmost flexibility. I purposely structure the loan from my self directed IRA so that the interest accrues, and there are no monthly payments made until I sell a property, and ultimately pay back my IRA.
There are several companies that can act as the custodian of your self-directed IRA. I suggest you talk to several before choosing one that meets your needs. In addition, there are several transactions that are prohibited, so be sure to ask your custodian about the current laws regarding the use of your Self-Directed IRA for the purpose of investing in your own properties.
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