Mathew Owens udirect ira services llc


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 by Guest Contributor Mathew Owens, CPA

Getting started investing in real estate can be overwhelming and many investors are not sure where to start.  There are shiny pennies everywhere that you could follow and an array of different asset classes that you could specialize in.


  • Multifamily investment properties
  • Fixing and Flipping
  • Commercial Property – shopping centers, industrial, office
  • Self-Storage Facilities
  • Mobile Home parks
  • Single Family Home Rentals
  • Notes
  • Land


What I find is that many real estate investors try to invest in way too many asset classes actively. This creates major inefficiencies and a lack of focus.  What I recommend to my clients is to focus on a few asset classes that you can become a specialist in.  Become really efficient and an expert in that asset class and invest passively in outside asset classes with an outside specialist being the operator on those investments.  Do you have to understand those outside investments?  Of course you do!  You should know the ins and outs of any investment you invest in so it is really important to continue your education and gain an understanding of multiple investment types.

I teach many investors some of the due diligence that can be done when investing in outside real estate investments run by professional operators.  Here is a quick list (not all inclusive by any means) of some of the education you should be giving yourself before investing in any investment with someone else.


Hunt for references.  You are literally making an educated bet that your operator will do the job they say they are going to do so it’s imperative to do your homework on them.  Understand their track record.  Do a criminal and financial background check.  Call previous investors that have invested with them.  Meet with them face to face.  Get to know them and how they think and are you comfortable with the way they think.


Go take a look.  Just because an investment is run by a professional operator does not mean you shouldn’t go see the investment.  Walk the property and gain a good understanding of what you are buying, focusing on the risks, area, inefficiencies and systems that are in place.  Many investors never go see the property and are missing out on a huge learning experience by doing so.


Raise your hand if you have ever signed a document without really reading it in detail.  We all know everyone has at some point.  With many outside investments like syndications there are huge private placement memorandums, subscription agreements, tons of confusing legal wording and much more.  It is imperative that you read the entire document and understand it.  If you don’t, hire an attorney to do it for you and outline the major points for you.  In many of these documents there are pages and pages of risks outlined and protections in place for the operator that may or may not be in your best interest.  Operator’s change these documents multiple times so do not think you do not have the power to bring up any incorrect or confusing wording.


What are the assumptions that go into the return on investment projections you are being sold?  Do you agree with those assumptions?  For example, is the operator assuming that the property will automatically appreciate by 10% year on year or are they being conservative and showing no appreciation?  What are the rental increases they are assuming and why?  What about expense projections? Can they back up why they chose specific expenses?  All of these factors play a major role in not only your return on investment but the risk of the overall investment as well so understanding the assumptions are key to the investments success.


Who’s getting paid first?  Is it you or is the operator?  Normally there is what is called a preferred return on an investment where you get paid a set percent before the operator starts making money.  This helps to align the operator and investors interests.  It also helps insure that the operator is being conservative in their assumptions because if they are not and the investment doesn’t make as much as projected then they are the ones losing out before the investors do.  A preferred return is a key risk reduction strategy that should be put in place on any investment you do.

I hope this helps give you a general understanding of the different items to pay attention to on a high level when investing with other professional operators and investing in different asset classes. You can get started self-directing with uDirect IRA Services.  Their helpful staff will guide you through the process.

Mathew Owens, CPA

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