All Forum Posts by: Charles LeMaire

Put the TAX QUESTION to rest! Assuming it is an inherited non-spousal traditional IRA, a non-minor must distribute the contents with in 10 years. It is taxable at your earned income rates. There is an exception for spouses, minors, person less that 10 years younger than the originator, and for disabled persons. Roths are distributed tax free. The basis reset does not apply.
https://www.nerdwallet.com/blog/investing/inherited-ira-options/

If you have heard of Dave Ramsey, even listened to him, where did you come up with "Day Trader".  For persons that are unskilled with money, follow Dave Ramsey's rules!  Another good info source if you have some money skills is The Money Guys; they follow the FOO (Financial Order of Operations).
https://www.moneyguy.com/

The big difference I find is emotion based vs math based, for example, some folks should not have a credit card, some folks know to pay it off each month...

None of us out here in BP land have a clue about your situation, except you seem to thing Day Trading is a reasonable path.  

Use the Ramsey site to find an "advisor with the heart of a teacher" or maybe hit up the Money Guys.  Your concern about education help is real.  Let the advisor coach you on the numbers.  I am not hearing that you are currently up to the task by yourself.

C.

@Lenny Smith - I noticed that you joined BP today.  Welcome.  I'm curious why you're asking about this on two fronts.  First, you realize this is an RE site, not a Wall St. investing site, right?  You've confused podiatrist with dentist.   Second, it seems by your comments that you're relatively sure it can be done and that you can do it.  GO FOR IT!!!  Unless you are Peter Lynch reincarnated, someone out there can use that $150K+ you inherited.  I recall a fellow telling me that most people win in a casino; as I recall he had to borrow rent money after that experiment.  

I don't believe you mentioned what you do.  No idea how bad it could be; change!  You said you're off at present.  I hope you've taken some time to attempt to learn about some jobs you might like.  Or perhaps taken time to watch Mike Rowe's Dirty Jobs.  Seriously, there are a lot of great RE pod-casts. 

Clearly, this is a RE site and yes, I play in RE.  RE can be very lucrative, but there are often bumps in the road. Some avenues of RE requires a fair amount of capital, some don't. But the folks that WIN have very positive attitudes and a lot of drive.  

Given you are asking on the Wall St side of the fence, I would find an advisor that you can trust. I assume you are referring to an non-spousal inherited IRA (they now have a 10 year RMD clock). I would pull most/all of it now while the market is down, pay the tax, and get it reinvested to allow it to ride the market back up. Pay the tax now when it is smaller and taxes are lower (Trump's taxes are lowest in my lifetime!). Once you have allowed it to climb, you have studied and learned about something (Wall St or RE or something) then work you way into that when you have a clue.

Get a job you can stand and keep it while you figure out what you want to do.  If you can work close to your target area, do it.  Figure out how to FLY before you step off the cliff.

Regards from a Grumpy Old Man,

Charles LeMaire

@Brian Burke - I've seen too many great answers and explanations from you to ignore this.  Ordering book!

Regards,

Charles LeMaire

I believe you will find Reg D 506(b) is up to 35 sophisticated investors with a preexisting substantive relationship with the General Partner.  If one of your "Friends" is not really sophisticated and gets their nose out of joint, your deal could be in for a ride through the legal world.  I suggest you are sure each understands what they are getting into.

Regards,

Charles LeMaire 

@Yuuj V.   I often refer to my list of passive investments in MF RE (syndications) as a ladder of MF.  I am old enough to recall older retired folks who had a safety deposit box that had their bearer bonds and a pair of scissors.  Each month they would clip their coupons and visit the teller.  

I think of my list of MFs the same way.  Most pay me monthly or quarterly (some do a bit better and some a bit worse) and one or two seem to sell every year.  I put part back in the bucket and seem to have plenty to live on.  One of these days I may actually a have to pull funds from the "retirement funds".  OK, those RMD will force that in a few years.

Yes, I toss them into the really good Bond buck!  

Regards,

Charles LeMaire

And on the opposite side of this discussion, I am a Sumrok mentee and it has been very valuable to me.  The Best Ever folks have a very good reputation and the book is pretty much the bible.  I have no personal relationship with them.  That said Sumrok has an on-line week-end event (Would have been live, but pushed on-line and discounted because ...) on May 2 & 3.  

Yes, I think a person can find all the info in books and on-line as to how to syndicate and a mentor is not required.  Personally, I rather liked the idea of being able to ask specific questions of the mentor and other students.  I rather like hearing the stories from the other students. And I like the collective knowledge in the network.   But it does come at a cost, that one has to decide if it's worth it.   

I should mention that I am speaking of the MF syndicator typically doing 100+ unit deals, not the fellow doing 2s, 4s,or 6s.  We often are getting agency loans and we always get professional management.

Say, I have the choice of investing with one of two neophytes, one with a mentor and one without.  I really like the idea that my newbie syndicator has folks he can talk to and get help from. And that often includes the large network of folks in the group.  Bless BiggerPockets as a source of information, but having a mentor and raft of seasoned investors makes me feel a lot better.  BTW, I have been in about 24 persons first deal.  The fellow doing it from a book rather scares me. 

For credibility: started in 2010, gotten into 50 deals as a passive, 16 have sold, so holding 34.  I am currently involved in about 5200 doors (a small percentage of each door, maybe the doorknobs).  And NO, I do not work for Brad Sumrok, just a happy student.

Regards,

Charles LeMaire

I turned 67 earlier this month, so am way passed the 10% withdrawal penalty. I amassed quite a bit of money during my working days with 401Ks, which was created about the time I got out of school and started working. So in that way I am a big fan. But during my early 50s, I learned of RMDs, did a few calculations, and decided to decrease my contributions to match only. Today, I have a lot of traditional IRA money that is a result of those 401K contributions.

A few years later, the company added a Roth 401K and I moved my contribution to that.  Stupidly, I did miss the early easy conversion window to Roth.  And I missed the Dot Com and Bank Crash opportunities to convert -- take a hint, convert when it's down to get more bang for your buck.

Now to the topic above: to take the $100K or not?   The Beer Virus allows you to take $100K out, hold it for 3 years and return it for NO TAX or keep it for and pay the tax, no 10% penalty. There are several types of persons, some can save and invest for tomorrow and some waste on today.  If you're an investor, can pay the tax, you are at a reasonable tax rate, take the money, pay the tax, and invest it wisely.  But if you plan to vacation, buy a car, a TV or whatever, leave the money alone!  

Realize that non-Roth Qualified plans (traditional plans) only win if you put money in at a higher tax rate than when you take it out.  If you plan to be near broke (SS and low RMDs only) when you retire, you can take the money out at very low rates, so you win.  The cat-food retirement plan.  Do you think that tax rate will decrease from now, from the lowest it has been in since before WWII?  Or do you think it will increase?  My bet is that the rates will climb to at least the pre-Trump rates after Trump. So contributing to traditions today makes very little sense - Roth good!  Maybe at very high incomes it's beneficial.  With normal income, converting to Roth and the above withdrawal can make sense.  DO THE MATH.

Does a Roth win?  Often it does.  But as this is BP, consider the RE investing folks.  If you make about 45% of your returns from Cap Gains, keeping fund in hand rather than in a traditional or Roth wins.  IRAs do not enjoy the advantage of Cap Gain rates, it all comes back to you at income rates.  Will your income put you above 15% or 20% tax rate in retirement?  So first guess where rates will be, then guess your income.  Do some Roth, but consider doing your RE outside IRAs.  

I promise my opinion is worth what you paid for it.  Remember, Grain of Salt!

Regards,

Charles LeMaire

Note I am a fairly active (50 syndications) LP and not an RE pro.  I am not an accountant, CPA or tax attorney! 

First, it is not GP vs LP that makes the difference.  It is RE Pro vs non-RE pro.  So lets assume you are asking about the non-RE pro.

Good tax avoidance is paying taxes later and/or paying taxes at a lower rate.  Remember avoidance OK, evasion is illegal.

In my opinion, syndication sponsors over sell the benefit of Bonus Depreciation and Cost Seg to beginners. Also oversell IRA investing, but that's another topic.

Say you invest $100K in your first syndication and you get about $50K of depreciation in year one.  You will likely continue to get about $2K more each year.

I minimal amount, about $3K, can be used against W-2 if your W-2 is not too large.  The rest will sit there until you sell something with a passive gain.  Perhaps you sold your Apple or Amazon stock to get the initial $100K; that passive gain would be offset (no tax).  Or perhaps it will sit around until you sell this property and will just keep you basis where it was, so that you will only owe a Cap Gain on the increase.

Or perhaps you will invest in a new syndication and get another bundle of depreciation which can be used to offset the Cap Gain in the property you just sold.  

Realize each time you delay the tax on a Cap Gain, you just pushed the tax to be paid until later - good tax planning!  If you happen to be able to control your total income and move your Cap Gain rate down from 23.8% to 20% or perhaps 15%, you lowered the rate -- again good tax planning!

You do have the risk of becoming a serial syndicator as you join this 'Merry Go Round of Real Estate'.  Buy, Sell & Buy to cover gain, Sell & Buy to cover gain, wash rinse repeat.  The potential tax will just keep moving out and someday you will pay it or your estate will pass on a reset basis on the remaining properties.

The possible fly in the ointment is that if the rates go up (currently they are low) and you push your gain off to the future.  Say the GMVT removes the benefit of Cap Gain.  You will not be happy, but the economy will tank anyway, so what the heck! 

Regards,

Charles LeMaire

@Nelson Lin  Read the above, but don't think anyone pointed out that the funds that the sponsor contributes to the raise is part of the 80% (I see this termed A Shares) as they are also investors, not the 20% sponsor portion (which I see termed B Shares).  Deals vary but typically sponsors get 20% of the profits for their risk and efforts.  They will receive their share of the 80% relative to what they contribute; in your example 10% of the 80%.  Note this is on NET or profits.

The "should not kick in until 100% of investor's original capital contribution has been returned" comment, in my experience, needs clarification. Nothing is in concrete, but I see them get 20% of distributions, then at sale, the rest of the investor'c capital is returned, and then the 20% restarts.

This is not the only fee, so look at the entirety of the deal.  Note the Asset Management fee, this is based on GROSS.  1% of gross is a lot bigger than 1% of net!  Consider the Acquisition and Disposition (and Refi) fees, they are based on the total value; sort of like loaded mutual funds.

BTW: 80%/20% is good in the open, but on the high end in my network.

Regards,

Charles LeMaire

@Hud Floyd  Congratulations!  Assuming this is a syndication, what returns did you predict for your investors over what period?  Total Return, C-o-C, & number of years.   With that many units, I'm sure you're using a Mgt Comp, do you mind saying which one?   The way I usually see property taxes specified in a prospective/proforma is proportion of purchase price that you expected the taxing district to use; what percentage did you use?  Tarrant County is known to be a bit tough with property tax.

Regards,

Charles LeMaire