Frequently Asked Questions
Can I invest with my self directed IRA or solo 401k?
Yes! Many of our investors already do.
I’m considering selling a rental property. What should I consider when deciding to do a 1031 or reinvesting the profits into NDF’s depreciation shares?
First, the SEC regulations disallow using a 1031 exchange with any fund like ours. You can only use a 1031 exchange into a “like kind” asset. Unfortunately, if you are looking to get out of being an ‘active’ investor, this still leaves you managing properties.
However, you can reinvest the profits from the sale into NDF’s depreciation shares with close to the same end result as a 1031, but moving from active to passive investing.
- NDF offers a share class with a lower preferred return (5% vs 8%) but gets all depreciation.
- A $100K investment might generate $50K or more of passive losses in the first year.
- This may not be enough to offset all your capital gain from your sold property, but we can usually defer a very large percentage of your taxes.
- In essence, it’s the same end result of a 1031 exchange with a lot less work (since you are not a passive vs. active investor).
You’ll want to talk to your CPA to see if this might be right for you.
Do I have to be an accredited investor? How do I know if I am accredited?
Yes, we are only able to take investments from accredited investors. You qualify as an accredited investor if you meet one of three criteria:
- Investable assets of $1M or more, excluding primary residence equity (individually or with spouse or partner)
- Individual income of $200k or more in the last two years
- Household income of $300k or more over (with spouse or partner) in the prior two years and reasonably expects the same for the current year
Learn more details on the SEC Website.
What is the Fund of Funds investing model?
IC uses a fund of funds model for diversified investing to help active investors become passive Investors.
The fund-of-funds (FoF) model is an investment strategy where a fund invests in a portfolio of other investment funds rather than directly investing in individual securities, such as stocks or bonds. In other words, a fund of funds is a collective investment strategy that pools capital from investors and allocates that capital across a diversified range of underlying funds.
This model is often used in the asset management industry, where the primary fund, known as the “fund of funds,” doesn’t directly invest in stocks, bonds, or other assets. Instead, it allocates its assets to other funds that specialize in different asset classes, strategies, or geographic regions.
The goal of the fund-of-funds approach is to achieve diversification and risk reduction by spreading investments across various funds with different investment styles and focuses. It can be a convenient way for investors to gain exposure to a broader range of assets without the need to manage individual funds themselves.
However, it’s important to note that fund-of-funds may come with additional fees, as investors are paying fees both at the fund-of-funds level and the underlying funds level. Additionally, the overall performance of a fund of funds is influenced by the performance of its underlying funds.
Ironton Capital offers investors three main investment opportunities:
- National Diversified Funds (growth fund)
- Short Term Income Fund (income fund)
- MTI (income fund)
- Individual Deal-by-deal investing
When you invest in a fund or syndication you’re investing as a Limited Partner (LP). You become a direct owner in the LLC that owns the projects and properties.
What are the tax treatments of the funds?
NDF profits are treated as long-term capital gains.
STI income receives privileged REIT (Real Estate Investment Trust) handling. For most investors, you’ll be taxed at the 20% federal tax rate instead of your marginal income rate. For most investors, this results in significant tax savings. Check with your CPA for specifics.
MTI is treated as ordinary income tax.
Will I receive Depreciation Benefits?
Our National Diversified Funds have two class shares with:
- Higher depreciation
- No depreciation, but a higher preferred return
You pick the class share that is best for your situation and investing goals!
What is your due diligence process when evaluating a deal and the sponsor involved?
There’s a lot of steps. We’ll evaluate from 10 to 100+ sponsors to find one we like. A few of the steps include:
- First, does the product the sponsor is developing have a clear market need?
- Is the location have high population growth and a good tax advantages? If not, can we generate enough extra return to offset these disadvantages?
- Next, do we believe the assumptions in their economic model match our assessment of the economy?
- What if we have a big recession and a slow recovery? Will we have acceptable results?
- What would have to go wrong for our investors to not get their initial investment back?
- How many times has the Sponsor done a project like this? Have they done these projects in different phases of the economy?
- Does the Sponsor have strong bank relationships? Lending is a particular challenge at the moment.
There’s more on the checklist, but that illustrates the point.
What’s your track record?
NDF1 launched in 2019. We made eight investments. Four are complete, and we have good visibility for where the other four are likely to end up. That fund is tracking to a 17% IRR. It’s too soon to know for NDF2 – NDF6, but all have pro-forma IRR of 16-20%.
The investment committee (IC) is comprised of three veteran real estate investors, each with over 20 years of experience. Each with a history of generating an average of over 20% IRR per year.
- Lon used to own 140 long term rentals. That’s been trimmed down to about 20 doors. The proceeds were deployed to about 20 short term rentals, some office buildings, and a lot of passive real estate investments. He’s also done several development projects.
- Vital has focused on managing small rentals. He currently owns over 80 properties. He’s renovated most of the units and has a keen understanding of the payback for each type of improvement.
- Brent owns a few dozens long term rentals. He also has very extensive experience in real estate development.
Do you have third party auditing?
Yes, we have an independent, outside CPA firm audit our results. In addition, we have a robust set of financial, operational and IT internal controls. We have an external accountant with Big-4 experience that reviews our operations and financials monthly to ensure compliance with our internal control policies.
How does Ironton Capital’s National Diversified Funds (NDF) approach address the need for diversification in real estate investments, and what factors are considered in structuring this diversification?
Our National Diversified Funds, is the cornerstone of our approach at Ironton Capital, providing an effective solution for diversifying real estate investments. We diversify across various dimensions, including product types such as high-end single-family homes, build-for-rent properties, duplexes, hotel conversions, and more, ensuring we don’t over-concentrate in one area. Geographical diversification further spreads risk, safeguarding against regional challenges. Within NDF, we maintain a diverse range of projects to balance risk profiles, returns, and timelines. This strategy enables us to offer a spectrum of investment options, from steady singles and doubles to potential home runs, while ensuring our investors benefit from the power of diversification at the individual level.
Fund Vs. Syndication-What’s the Difference?
Syndications are typically a single asset or project investment. It’s similar to buying stock in one company.
Funds have multiple assets or projects. A fund is similar to buying a mutual fund made up of multiple stocks.
Ironton Capital primarily focuses on offering real estate funds for diversification to lower risk.