Painting the Town Green
By Jennifer D. Meacham
Thirty-somethings Scott and Angie Patterson pooled their paint contracting and business development experience to become full-time property investors in 2002. Their co-owned firm, Greenlight Development Inc., has now flipped around $15 million in real estate near their Charlotte, North Carolina, home base. Their secret for surviving in a downturn market, they say, is being able to turn to retirement accountholders for financing.
“Generally everyone is tightening up with real estate investing,” Scott Patterson says. “But there’s been an added interest over the past few months especially in IRA investing with us. Maybe because people are thinking right, that the housing market is down so now is the time to start investing with tax-sheltered IRA funds.”
IRA investments are made as second mortgages, funding a continuous stream of rehabbed homes picked up from estate sales, foreclosures, burned-out landlords and distressed sellers. “IRA investors tend to be a little more comfortable with second mortgages, because we’re willing to pay a little bit more for loans we don’t have to pay back until the house sells,” Angie Patterson says. “Even now, real estate is a tough industry-asset rich, cash poor.
If we can reduce the amount of monthly expenses by not having a mortgage payment, that’s a good thing.”
Indeed, 77% of the couple’s financing now comes from local IRA accountholders, each designating re-investable portions of their self-directed IRAs to Greenlight flips.
“Our typical investment is generally on completed houses or houses that have investments already,” Scott Patterson says. “We generally have about $30,000 of our own money in a house, so when the house is 80% complete we get someone-whether a private investor or IRA accountholder-to put a mortgage of $20,000 to $50,000 on the property, and we’re able to get our money back.”
Thanks to this cash flow, in the past five years the duo has rehabbed more than 50 homes, at a clip of eight to 12 per year. “Since we work a very tight area where 90 percent of our work is within a 3-mile radius,” Angie Patterson explains, “The very best way to find homes to flip is by sending postcards to area homeowners and placing roadside signs.”
Next, they shop for IRA investors, offering 10 -15% interest plus a portion of the property as collateral. They find most of their IRA investors at meetings for the Metrolina Real Estate Investor’s Association (metrolinarea.org), where Scott once served as president.
“What makes investing with people’s IRAs a little bit different, is that the cash isn’t quite so much of an issue,” Angie Patterson reports. “People who have money in their IRA aren’t looking for cash flow; they’re looking for long-term returns. For us, that’s an easy sell.
“If they can get 15 percent in their IRA year after year and it compounds, that’s great for them,” Angie says. “It’s also good for us, since with an IRA loan we don’t have to make monthly payments. We just settle out when the home sells. That makes it so much easier for us. ”
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