All Forum Posts by: Alfred Bell

I exchanged 3 SFR rentals into part ownership in a luxury apartment. I've decided to exchange out of that back into SFR rentals again. (Long story, but just so you have the necessary data... my general plan is to acquire numerous, small 1/1 or 2/1 homes to rent out to retirees. Not all in one location. Will diversify into different regions of country.) Currently have 300k in equity and 400k in debt that I will need to exchange out with (700k must be my minimum purchase when I exchange to avoid any tax event).

I want to acquire somewhere around 8-10 properties. Will add more money if need to. Exchanging from 1 to 10 seems very daunting (and expensive transaction wise re: an Exchangor's or Accomdator's fees).

Any advice or tips anyone?

Thanx in advance.

I'm planning to create a Living Trust in the near future and get all assets, etc. into it. I know that with properties that have been and will continue to be in a tax deferred state due to 1031 rules, one is not supposed to change the name on title, it must stay as it was on all properties from the first exchange. Is there a legal way to deal with this or not? (Probably not, since the IRS wouldn't be too concerned about their rules inhibiting this issue, since they wouldn't be very supportive of probate avoidance entities anyway.)

If not, my idea is to just make the title change to the trust anyway and the heck with the IRS. I think it is a pretty insignificant point, would go under the radar, and no one would ever know the difference anyway, unless maybe a detailed audit was done.

Any feedback?

Thanks Jon.
Another option... could do one rehab and a portion of the profit would pay the taxes on busting out of the IRA. I've paid Uncle Sam... my 120k remains in tact (plus, I also have whatever other after tax profits are left from the rehab project). Example: officially pull the 120k out of IRA... make 75k on the rehab... pay 35k(?) in taxes on the IRA... pay 20k(?) on the 75k profit from rehab... 20k left + 120k = 140k is the net I realize from this action and down the road I go. How's that?

Bob Hines: thank you very much for your concern and time in writing back. You make very good and logical points. To give you some more info... I've had this IRA for over a year and it is invested in a real estate development project paying me 10%. It will soon be over and the 120k + cap gain will be going back into my SDI. One thing I've decided (since the economy has been unraveling) is that I don't want my investment capital out of my control any more... or I can lose it. I won't do another development project like I did with this IRA $. And I also have about 300k that I 1031 exchanged into a TIC (an interest in a luxury apartment). I want out of that as well. I'd rather own my own multi-unit building or some SFRs and be back in full control and able to preserve my capital. (The development project had some trouble with their lender and the TIC is in Phoenix and they are being hit by the crashing market there. Makes me nervous and there is nothing I can do about it.) So I learned a lesson: never let your investment capital out of your control.
There is no business that I want to buy at this time. My 120k/50k example was purely hypothetical (basically I was making the point that if there was a business that a would give such a good return... it would be worth taking a hit on the withdrawal of the IRA monies).
I've just realized that RE or any other investment will never give me the returns that a successful business that I own would. But I don't want a job. It would be a business system, run by a manager that I allow to profit share and I would just be involved in solid oversight, marketing & expansion programs, etc. My plan is to begin a deep study of how to start, buy and analyze businesses before I do anything. I'm planning for the future. When the $ comes back into my SDI I could do something like create a 10% short term note/1st TD with it for decent income. Then, down the road when there really is a business opportunity that would make busting the IRA worthwhile... I could then do so. But you may be right... it might be best to just keep the IRA and invest it well and use financing or other sources for the $ to buy or start a business when I'm ready.

One idea: I could put the IRA $ into a Checkbook LLC IRA and then be in full control to use that money to buy, rehab and flip foreclosures (really building up the profits tax deferred). Plus I could take out whatever I needed from that as a downpayment on a new business (like you suggested). Having the Ckbook IRA doing that, and then 1031 exchanging out of that TIC into let's say a multi-unit income property that I own completely would probably put me on a very strong foundation and give me great passive income. The cash flow from both the multi-unit and from doing foreclosure flips with the IRA would probably give me all the capital I'd need to start or buy small business systems in the future.

Thanx for the input Bob and Will. The more I look into this the less desireable having real estate in an IRA is to me.

If I was going to keep the money in the IRA, I like Will's idea of using the 120k as a note on a 1st trust deed. No complications, just a steady income stream. Altho, with mortgage rates so low you wouldn't be able to command a very high interest rate, and would need to be careful of usury. The worst thing that could happen would be having to foreclose on a default. Which might be a bit tricky in an IRA, especially if the debtor declared bankruptcy.

I still want to get this money out of the IRA with the least loss possible. Talking to as many tax specialists as I can on this subject should help me come up with the best strategy.

As a hypothetical example (from an uneducated viewpoint)... if I could buy a viable little business for 120k that made me 50k per year I think I would be way ahead of the game no matter how much tax I had to pay due to pulling out of IRA. 5 years of that business would mean 250k gross. If I could make 30-50% return on that 120k via a business I think pulling out of the IRA would be the smart thing to do. Don't you?

Will:
Ah ha. Good idea. Going the route of the Roth IRA might be the best and least costly way to get my money OUT from under governmt rules and FULLY into my control. Altho, having approximately 20 months to use the IRA money to generate a lot of money, deferring paying the tax for as long as possible via extensions, and then finally paying the taxes out of the profits I've made (and will continue to make), may put me further ahead.

Let's face it. There ain't no investment vehicle inside of an IRA that 120k can buy that is going to give you the return
that you'll get from a little business that is a good little money maker. And... you have full control and don't have to deal with IRA, 401k, 401a, etc. etc. rules.

Yes, but if I have to pay taxes on the $ before it goes into a Roth... I might as well take it out in full as planned.
Don't think I can switch my inher IRA to a Roth IRA without having to pay the taxes.
I'm not that concerned about earning income on a tax deferred basis (IRA, 401k, etc.) would rather earn income and pay the taxes as I go. they'll be lower now then they will in 3,5, or 10 years. Plus I can use all the tax advantages, strats and legal tax avoidance actions to minimize my income tax. I'm still thinking bail out of IRA.

Thanks for the info and advice. Much appreciated. I won't have a 10% penalty on IRA because it is an inheritance IRA. But I'll pay the marginal income tax rate for sure. If I pulled it out of IRA I'd have 120k on top of any other earned income for that year (this would actually be a good time to do it because I'm not earning much $... I'm working on a start up business and living off of passive income from my real estate investments). Let's say I bought a business with that 120k that nets 50k per annum. The business could probably pay off the taxes on the 120k and from that point I'd be free.

The only prob with a solo 401k is that I can't roll the inheritance IRA into it. So, because it is an inher IRA I have to stick with an SDI or Chkbook LLC IRA or just take the money out and run.

Other key data, I don't believe in retirement and will never retire. Plus with the IRA , taxes will be much higher when I withdraw that money in the future and the government is gonna get its due anyway. I'd rather have the money now to build businesses and buy assets with without any restrictions. I can maximize that 120k and make a lot more money with it outside than I can inside of the IRA (even if I'm paying taxes). When I reach old age I'll have businesses and income properties to take care of me or sell. Screw the government, social security and their stupid retirement accounts. I'd rather be free and take care of myself. That is my viewpoint and I think I'm right about it. Altho, my CPA rolled his eyes when I suggested it to him. I'm either outside the box and able to prosper on a higher level with this strategy... or, I'm out to lunch.

I'm not too hot on retirement or tax deferred vehicles. This IRA is an inheritance from my dad, known as a stretch or inheritance IRA. I transferred it into a SDI and invested in a construction project at 10%. The project is almost over and the capital will be coming back to the IRA shortly.

I really don't like not having full control of and access to my money and all of the rules and regulations connected to this.

The amount is 120k. I'm actually thinking that the most optimum thing to do is... 1) set up a good money making activity ahead of time... 2) just pull the money out of the IRA on Jan 1st 2010... 3) put it into action (example: buy a little business with decent income)... 4) I won't have to pay taxes on IRA until April 15 of 2011, so get an extension until Oct of 2011 and I've just deferred taxes on the IRA money for close to 20 months... 5) I will have made money from the business I bought and can use some of that to pay off the taxes owed on having pulled the IRA... 6) Now taxes have been paid on the IRA money I took out and that money is now mine to do with as I see fit.

I know this may seem wild or unconventional to some. I'd like any feedback you might have on this above strategy I just laid out.

Matt Matthews:
Thanks Matt.
I've got questions about this.
Do you know someone expert in this? Can you give their contact data if so?