Multifamily Building Investments with IRA $$

[Rollin]

I talked with someone yesterday who specializes in commercial and investment properties. We talked of a $50k or higher investment as a down payment (either singly on a smaller property, or in combination with other investors on larger properties) in MF properties using IRA (or my deferred comp 457) monies. If the property became ripe for sale during the investment period they'd sell it and invest in other properties (using the 1031 exchange).

The return sounded very good and there was a five year exit plan that was part of the plan. The rent from the properties gets reinvested and after you exit you receive your $$. He was talking between 10% and 30% returns.

I have $$ in a 457K (deferred comp. plan) that I can take out without penalty even though I'm only 54 (not really relevant to the question though). Regardless of this investment I was thinking of moving some of the 457 $$ and putting it into a standard IRA with Vanguard so I can have better investment options and much lower fees. I really don't need access to all of it now (taking out 4% SWR for example) as I have other income and savings to cover our expenses for a number of years.

I'm just starting to research this but thought by putting a few of the conversation points out there I could stir some interest in some of you providing comments on this idea. I don't even know what to call this type of investments yet, but it seems similar to an REIT.

I do know two local people who have gone this route and have benefitted greatly.

Any initial thoughts? As I learn more I will come back here and let you all know.

EDIT: Reading further it looks like this post may be asking similiar (but not the same) questions:

http://forum.mrmoneymustache.com/investor-alley/crowdfunding-real-estate-realtyshares/

[arebelspy]

If you're investing in alternative investments, you'll want it in a self-directed IRA, not a Vanguard IRA.

[Proud Foot]

I agree with arebelspy, this sounds to me like an alternative investment.  If you decide to pursue this I would suggest talking with an attorney or financial adviser who has experience in dealing with these types of investments.  You mentioned the 10-30% returns, would that be total return or annual return? Also be wary of what the fees are for the investment.  Most of the ones I have seen through my previous job were a 2%/20% for the manager/general partner.  A flat 2% and then 20% of profits.  Not saying you should not do this, but definitely find out as much as you can before committing to it. 

[Rollin]

Thank you both. I haven't dug into it yet, but those are a few of my questions as well. Is that 30% over the 5 year plan period? What are the fees? What are the risks?

Problem at the moment is the DW is quite enamored and she brings it up often. In fact, during the conversation the guy critiqued my recent sale of a rental. He wash't being malicious, but I think he was going a little overboard in trying to let me know how much he knew and how good his "product" was. After he got through his speech and the conversation and enthusiasm died down a bit, after my DW lamented that we weren't selling the house in one fell swoop and giving all our proceeds to this guy (BTW-this was the DAY BEFORE CLOSING, so no way in heck was I going to jump on this proposal), I gave him a few of the details and eventually all, but slowly. His comment (and the look on his face) was pretty priceless.

Me:"I'm getting about $25K more for the house than I could expect on the open market."
Him: "Oh, it won't meet appraisal?"
Me: "...and I have set up the 6% mortgage in such a way as to avoid all long term capital gains (thank you MMM forum!)."
Me: "...and, I'm not paying any real estate commissions."
Him: "oh (and in a downward trailing voice), that's a pretty good deal."

Problem remains that the DW is more emotional than rational, so it will just have to be as it is (and me repeating myself for the next couple of years).

Anyway, I closed on the property yesterday and am looking forward to putting all those little green soldiers to work for us, and add that $$ on top of the deal described above!