August 9, 2021

Investing in Life Sciences Real Estate With a Self Directed IRA

As you explore investing your Self Directed IRA in real estate, you will see the same kind of assets pop up again and again. These include rental units, rehabs, and small commercial properties. However, real estate is in no way limited to these types. There is great variety in the real estate world, and with some careful asset planning, you can invest in a specialized property that is perfect for your retirement account. An ideal retirement property should be profitable, consistent in its income, and preferably low maintenance. This is important because most Self Directed IRA investors don’t have the bandwidth to give a lot of time to their investments. One of the newer property sectors that fits the bill is Life Science. 

What is a Life Science property? 

Life Science is a general category that includes a wide swath of industries: 

  • Biotechnology 
  • Pharmaceuticals 
  • Life system technologies 
  • Medical devices 
  • Nutraceuticals 
  • Diagnostics 

A piece of real estate that is custom developed to cater to these industries is known as a Life Science property.  

How does Life Science differ from other real estate sectors? 

Life Science real estate differs from its more traditional counterparts in a number of specific ways. Many of these distinctions make it an amenable choice for a Self Directed IRA investment. 

  • Custom development – Life Science companies have specific needs, both from a scientific perspective and a business perspective. Obviously, the labs themselves need to be able to provide the functionality that a scientific enterprise requires. Additionally, the labs have to meet government safety standards. Further, many Life Science start-ups want their labs and office space to be adjacent to each other. This requires customizing a space to include both laboratory facilities and standard business offices. 
  • Symbiotic neighborhoods – Life Science properties are often located in areas that cater to the employment needs of the venture. Many are in proximity to established university research areas or near medical hubs.  
  • Employee amenities – Industry opinion tends to swing regarding providing employee amenities. However, most startups (which comprise a large part of the lower end of the Life Science spectrum,) feel the need to offer amenities to drive employment. Immediate amenities include elaborate coffee/dining areas, landscaped park like surroundings, and recreational spaces like gyms or game rooms. The immediate neighborhood is also a factor insofar as it can provide transportation, shopping, restaurants, and leisure opportunities.  

Is Life Science real estate a good fit for a Self Directed IRA? 

As an investment asset, it is impossible to predict the profitability of any given piece of real estate. However, the Life Sciences sector is becoming increasingly popular amongst professional real estate investors. That means Self Directed IRAs should also give it serious consideration. Here are some of the factors propelling the industry’s growth: 

  • “Sticky” tenants – Life Science properties exceed the industry average for tenant retention and occupancy. This is due in large part to the specific needs of these companies as outlined above. Their needs are so specific, that it is hard for a Life Sciences company to just rent a property anywhere. To a large degree they are locked-in to those properties which can fulfill their requirements. This is a great pitch to investors in general, but even more so to those investing with a Self Directed IRA. Retirement accounts look to assets that can provide solid and consistent results, and currently Life Science is delivering. 
  • Industry growth – The Life Sciences industry is continuing to expand and many of the engines pushing that expansion do not show any signs of abatement.
    • The United States has an aging population which will continue to fuel the medical industry for years to come. Technological advancement is moving faster than ever which is enabling a growing list of novel or transformed treatments. 
    • Life Sciences possesses a consistent wow factor which drives investor participation. 
    • The ubiquity of healthcare makes any industry associated with it a potential goldmine for investors. 
    • The newly aroused fear of mass medical emergencies like Covid has investors willing to push funds towards diagnostics and treatments. 
  • Recession proof – This is obviously not a given, but so far the industry has not been as significantly affected by recessions as other industries. This could be due to the essential nature of its product which is not subject to the whims of discretionary spending.  
  • Vertical integration – Considering the complete ecosystem of the Life Sciences employee, it’s possible for a canny investor to optimize every element of the employee lifecycle. This includes the business lease itself, servicing in-house amenities, and providing for off-grounds ventures like shopping and restaurants. By building a complete ecosystem, efficiencies can be introduced to maximize profits. This system also provides a credible investment space for multiple Self Directed IRA account holders, where each can purchase and manage the element they know best.  

Why would a Self Directed IRA not want to invest in Life Sciences real estate? 

There are no guaranteed investments. Although Life Sciences is currently performing strongly (and has every indication of continuing that trend,) it doesn’t mean that this sector will always be profitable. Any number of factors can disrupt the health industry. The success of the industry itself can be one of the factors leading to its own demise. If a cheap simple cure for cancer was discovered, it could put many companies and institutions out of business. We would gladly welcome such a development, but it may not be the best news for your Self Directed IRA.  

Another factor to consider is local expertise. The standard Self Directed IRA account holder may have a decent knowledge about what it would take to buy a private rental home, but that doesn’t necessarily translate into the commercial realm. Commercial real estate investing has its own set of rules and knowledge points, and that’s even more true for a specialized sector like Life Sciences. There will be an education curve in the beginning, and not every Self Directed IRA investor is willing to put in that time. 

Getting started with Life Sciences and a Self Directed IRA 

Most investors are first interested in a specific asset class and then learn about the financial tools they can use to make the investment a reality. If you have a property you’re interested in, or you just want to get educated to see if your retirement account can even hold the property, the first step is to speak with a Madison specialist. They will be able to answer your questions and give you the guidelines you need to move forward productively. You can schedule a call here

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