All Forum Posts by: Michael B.

I guess my thought would be that to be successful over the long term you must understand risk.

Risk isn't necessarily bad if you understand the risks of a certain move and compensated for taking the risk. But not understanding the risks involved will eventually present problems.

For example, if you don't thoroughly screen a tenant there's a good chance that it won't be a problem. It may work out well. But but doing a few simple checks you can reduce (though not eliminate) the probability that the tenant will trash your house and skip without paying.

Investing involves risk no matter if it's real estate or anything else. Successful investors understand the risks they are taking and find ways to reduce risks while also making sure they are well compensated for taking the risk.

I'll try to respond this since most people have enough of a life to not be on boards on Christmas Eve (actually my kids all arrive tomorrow). Let me start at the end and do the questions.

1. Does what I'm trying to do make sense or have I got all this wrong? No, you're right, or pretty close. An IRA can be used to buy rental properties.

2. I saw in some posts that folks say using SDIRA for rental properties is not really worth it -- ...? One constant about investors is that you can ask any 2 and probably get 3 opinions about any given subject. Yes, some say it's not worth it. Others use it. Diff'rent Strokes for Diff'rent Folks.

3. Can I buy properties with putting a partial payment down and getting the remainder financed -- ...? In theory, yes. In reality, maybe. It requires a 'non recourse' lender. In other words you can't use your credit to stand behind the loan. There just aren't that many lenders interested in this area. I wouldn't count on it. One other point -- financing within the IRA opens you to an extra tax called Unrelated Business Income Tax (UBIT). It's one of the reasons that figuring out how to make money with leverage in an IRA is tough.

4. I've seen some heart burn regarding Managing Property bought through a SDIRA ...? This is a gray area, and one that's fraught with uncertainty, even among professionals. Some say you should hire a property management company. Some say managing it yourself is fine, just don't allow 'sweat equity' to disqualify your whole deal. A rule of thumb that my adviser gave me was to never do anything that you've seen in a MLS listing. You see 'Freshly Painted' in the MLS so you don't do that. You never see 'Carpets Freshly Shampooed' so that's OK. This is murky to say the least.

5. Let's suppose I've used up all my money to buy a property and there is an emergency repair ...? Major issue. You have no recourse except to wait until you can get some cash legally into the IRA. Make sure you have sufficient reserves if you do this. Reserves are your friend in a SDIRA.

6. A variation of the idea ...? Technically, this may work. But it will never happen. Getting financing in an IRA is pretty difficult, and then you're going to get hit with UBIT to pretty much take the profit out of it.

My opinion is that it's not a bad way to do things, but don't expect to be able to get borrowed money in play. It may happen, but there are few lenders, it's expensive, and it must be accounted for correctly.

One more thought: If you have $130k to put into a SDIRA now and can toss in an average of $6,000 / year over a 20 year horizon then you can probably get to the 5 properties level without leverage (depending on assumptions of growth). Especially if you can throw off $1,000 monthly from the rental and add $500 from your pocket. Playing with a spreadsheet may be in order. Just a thought ...

I'm not sure 'fair' has a place in negotiations on who pays what. It's a business arrangement. And you've brought a lot in here between watering grass, cutting it, and hurricane shutters.

Call your landlord and meet him for lunch at McDonalds. Talk through the issues of who pays what, then get it in writing.

But for now it comes down to the lease -- are these items covered in the lease (do you have a lease?). If they're not covered then they're the landlord's problem. But you may have to be willing to leave if he's doesn't agree.

But a negotiating meeting over lunch would be best for both of you

Since you're getting lots of advice, I'll add mine.

Spend the next year getting your income up. At least in the near future you're not going to live on your real estate investments. Go to college (in a field that will pay) or get a trade. And pay off any consumer debt you've accumulated (credit card, student loans). That's more important to your financial future than what you do with $15k.

After you have a job, are finished with your school and have paid off any debt then you can look at investments. But create a stable financial platform of a job and good credit first. With an outside source of income you're better able to absorb the unexpected shocks of real estate. And there will be some.

It takes 7-10 days to fix a clogged line? That sounds excessive.

I can usually get a plumber out in a couple of hours if I'm willing to pay off hour rates. Is there a part that needs to be ordered? The 'depending on the problem' part of your post worries me. You don't know yet?

I think I agree with the renter. If a landlord told me it would take 7-10 days to get a plumber out I'd call BS and make a list of demands also.

I feel like there's something I'm not seeing in the narrative.

The problem is you live in the perfect storm of investment hell known as California with low interest rates. Lots of people made $ millions in a 4 decade real estate investment paradise. People are used to investing with the assumption that 10% annual appreciation will bail out even the worst decisions. And lots of money made in various frenzies is still sitting around.

With interest rates negligibly low there's no value in waiting for the next boom. It's going to be hard to find what the rest of us think of as good deals there for some time.

Pay off your debt before going further into real estate investing. Investing with consumer debt still alive adds a layer of risk.

But also I'd add don't invest in real estate while in the Army. Long distance landlording can be really difficult. Wait until you're going to be in one place for at least 5 years before buying real estate

I'm guessing it's a matter of international vs US data collection.

Note that the numbers are worldwide. Most real estate investors aren't in the US. The biggest chunk are in China, and various places have large numbers.

Here's my guess. In large parts of Europe people are worrying about joining the 3rd world. Deflation is upon them, and the last thing people want is to own hard assets. A CD yielding -.02% in Germany or Britain are really good places for your cash right now.

In China 2 things have happened. One is that the frothiness of the real estate market has diminished somewhat. Possibly more important is that the Chinese language portion of the internet has gotten much richer over the years. No longer any need to go to Google Translate to find the English words for what they want to find on the internet.

Remove the frame from the idea of searches being US only makes it easier to understand.

How so? Place of employment isn't any type of protected class under any federal discrimination laws. I'm guessing there's nothing in any state either. There's no legal reason that I can't say cops (or doctors or real estate professionals or ...) need not apply.

On the other hand I'd say it's a very bad business practice to start eliminating people based on place of employment. Indeed government work tends to be pretty steady. I'd say put him to the front of the line. But if you don't want him I wouldn't give a second thought to passing him by because of the badge.

Your job as an engineer gives you both advantages and disadvantages when investing in property. One disadvantage you mention: time. But there's also a big advantage you have: You have a good income stream that's not tied to real estate prices.

But really in one way time is on your side also. You don't need to do a deal this month or even in the next year. An income stream from full time work gives you the ability to wait until you find the deal you want. Guys whose main income depends on doing the next deal can be pulled into doing deals that they shouldn't, and deals that they regret later.

Let time and a good income be your friend. Wait until you find the deal you want and then act. And not before. That's your advantage.