All Forum Posts by: Michael B.

Not a dumb question. The reason you may need an LLC in one is to give you control of the cash. In a regular Self Directed IRA the custodian needs to approve any investment you make. So if you buy a house -- a few days to get approval. More painful is if you wish to spend $50 on new screens -- the custodian needs to approve it.

With an LLC in the IRA the custodian just approves the investment in the LLC. Then the managing member (you) approves all investments from the LLC. Much easier.

Brian, be careful of one thing. You get hit with some tax penalties if you're running a business from your IRA, and rehabbing can be seen as that. Research UBIT.

The IRA is supposed to be for fairly hands off investment. Not saying that some rehabbing can't be done, but seek professional advice to keep yourself clear of tax issues.

Most investors use borrowed funds. However that raises risk. Make sure you understand the risks you're taking on before borrowing money for a rental house. Or, as one investor once told me: Don't get into a business where you're picking up nickels in front of a steamroller.

The idea behind the metaphor is that sometimes making small amounts (i.e. rent payments) is easy. But if you're taking big risks to get small returns eventually a certain set of circumstances will come along that will cause catastrophic losses.

I would urge you to research on this sight for something called the 50% rule. The idea there is that over the long term maintenance and vacancy will consume half of the potential rents. Therefore your monthly loan payments can't go over 50% of the scheduled rents. If they do, there may come a time when a certain set of conditions come about and you find yourself under the steamroller.

Careful use of borrowed funds can be really useful in real estate investing. Careless use of borrowed funds can be disastrous. Learn the difference and don't forget it.

It sounds to me like you're in a tough spot.

One basic rule of negotiation is don't negotiate unless you're prepared to walk away. Due to personal feelings for both the other couple and the house it sounds like you're reluctant to walk away. Be careful that you don't pay too much.

Doing deals where you care whether the other party gets their feelings hurt is really bad practice. Almost as bad as overpaying for a house by a few hundred thousand $.

My advice would be to send a nice card and say 'Thanks' but you really don't want to buy the house. Negotiating where the seller's feelings come before your financial goals will not end well.

I wouldn't even think about investing now.

Your financial future is much more closely tied to your earning capacity than to real estate. Don't take your eye off that ball. The last thing you need next year is working 100 hour weeks and taking care of investments on the side. Just don't go there. Be the best doctor you can be and get the best paying job you can get. Real estate is below the radar when compared to the importance of the choices of the next few years.

Get through training and go after the debt. Knocking out the debt (and growing it as little as possible between now and the end of schooling) is the place for any loose cash you come up with now.

You can rethink things in a 5 years or so. But for now start knocking out the debt as soon as possible and keep focused on making the beginning of your career a success. Opportunities to invest will be there when you're ready.

I'm actually in the process of buying a place from an executor- daughter as we speak.

I'm guessing things are different in each state. I doubting that a title company is going to put themselves on the line on an executor's signature. Just too much risk that another heir will get pissed. Mama passing away has too much likelihood of putting kids at each other's throat for a title company to take such a risk.

Here in Florida we had to get a judge to sign off on selling the house. The executor's attorney files a motion to allow the sale and it's usually pretty routine.

Assuming the executor has an attorney, get the attorney to walk her through it. This is a pretty common civil procedure and the attorney will know what to do.

My take is that the issue is a little deeper, and I realize this won't be a popular note. But you asked for advice:

Financial success is about living on less than you make and successfully investing the difference. That rarely involves buying a $40k car on credit. Nor does it involve keeping credit card debt.

I know this will not be popular, but spend some time getting ready to invest. Get on a budget that allows you to save at least 20% of your take home pay on a monthly basis. Spend as long as it takes to knock out the credit cards and the car. I'd also take care of the home equity loan that's been out there a while.

Being an undercapitalized landlord is no fun. They usually come to bad ends when unexpected expenses and vacancies hit. Don't be an undercapitalized landlord. Get your expenses under control. Knock out your consumer debts and don't incur more. Build reserves of at least 6 months for both your home and the rental. Then you'll be ready to invest, but not now.

The most basic financial advice is the best:

Live on less than you make and invest the rest.

Actually pretty bland, but vital.

Be careful guy.

Yes it is possible to make 12% on the money. It's also possible to lose a large chunk of it swimming in waters you don't fully understand. Remember the risk free rate right now is about 2%. Which means you have to take lots of risk to principal to hit 12%.

When you start talking about using the proceeds for parents to live on and to pay for your kid's college -- this ain't risk money. This is quite literally widow's and orphan's funds. Do consider whether commercial real estate in a far off city has the best risk profile for such money.

But real estate gives investors the fever. Caution be damned, the deal must be done.

Be sure to let us know how this turns out.

There are a number of threads that ask this question. Search and you'll find several that address this question pretty well.

Short version -- a majority of the posters don't really care for condo investments. HOA fees are troublesome and the HOA can be a real problem.

A good sized minority -- including myself -- think that condo investments are one of the best real estate investments going right now. The purchase price is lower than a comparable house, the rent is potentially a larger % of the purchase price than a house. Also the economies of scale available for amenities like pools, professional landscaping, and professional building maintenance make them ideal.

But each person has to figure that out for themselves. What some see as HOA petty rule enforcement I see as an effort to address quality of life issues. To each his own.

Sorry, I have no super secret formula for inching up rents. It's just good blocking and tackling that's useful in every business.

Keep good communications with the tenant. Respond quickly to maintenance issues. Keep up on what comparable rentals in the neighborhood are going for. In other words run your rental business professionally. And when the time comes don't be ashamed to ask for an increase in the rent.

I guess the one 'secret' that I do have is that I raise the rent on every tenant every year. No exceptions. It may only be a 1% increase if that's all that's warranted, but don't go for years without upping the rent. It's too hard to play catch up after several years of no increases.