Pensco SDIRA vs. the competition

[Mark Yuschak]

I did some searching for topics about Pensco specifically and didn't find much. That being said, has anyone dealt with them? I looking to roll a portion of my IRA to Pensco and fund HMLs from it. They came recommend to me vs. using Entrust or Equity Trust and I was just curious if others here have used them?

[Jeff S.]

I’ve not worked with these companies specifically to lend hard money but I can give you some advice on how to choose.

As you probably already know, most people who need hard money loans need the money fast. I typically lend to flippers who, to remain competitive, agree to close in 10 to 14 days when they buy a property from a bank. This doesn’t leave much time considering it could take a day or two to open escrow, receive escrow instructions, receive a preliminary title, generate the note, deed of trust, perhaps an assignment agreement, have them signed, notarized as appropriate, reviewed by the IRA company, and then wire the funds. To make matter worse, some escrow companies require the money 2 days in advance of closing. Though much of this is done in parallel, the time adds up fast and there’s always the potential to lose an earnest money deposit if you’re late. Aside from losing your reputation, a borrower will absolutely kill you if this happens.

All SDIRA companies say they like to work with real estate investors but some are more bureaucratic than others. You’ll find some feel it’s more important to protect you (really themselves) by making sure every “i†is dotted and “t†crossed, even to the detriment of the deal. I recommend you describe a typical deal to your potential trustee and ask how long it would take to fund once they get the required paperwork. What paperwork do they require? Must everything be notarized before they approve it? Do they want the original note before they wire money (yikes)? How long does it take to reach their decision maker (not the necessarily the person who initially answered the phone)? You’ll get a sense if this is a deal they’re comfortable with and understand, or if you can even get timely answers from someone knowledgeable? Accept no more than 48 hours for funding as an answer. Then confirm this by asking other HML’s what they’re specific experience has been with this company. I wouldn’t sign up without independent confirmation from someone who does the same type of deals as you do.

As you can see there are a lot of moving parts and little time for error. In my view, the best way to fund hard money loans is to cut the IRA trustee company out of the specifics of the deal using checkbook access through an LLC. Here, you have a lot more control and it’s generally cheaper since you’ll only have to fund one investment; the LLC. I suspect all the big guys you mentioned above allow checkbook control, but this is something to ask about as well. Once you have checkbook access, there’s little value-added on the part of the trustee so I’d base my decision at this point on their fees.