All Forum Posts by: Chris Soignier

i'm in a similar situation, and just haven't been able to make self-directed options work for my needs. To the cons I'd add that if you invest in any entity that borrows money (like an LLC), your investment returns are subject to UBIT. You also can't benefit in any way from the investment, whether it be living in it, drawing off any cash flows from the IRA, etc. When you withdraw Trad. IRA funds, you'll be paying ordinary income tax rates, not cap gains.

I'm using a phased approach to investment funding.    First, I tapped all my available after-tax (i.e. non-retirement) funds.

Next, I obtained a HELOC. It's interest-only for 10 years w/ a 3.48% rate, and the interest expense is tax deductible. I'm in the process of funding 2 MF LLC's w/ source, they should close over the next 2 months.

After that, I'll need to dip into retirement funds. I"m going to initiate a 72T distribution for my wife's and my trad IRA, which will provide ~4% of the balance annually w/ no penalties, just taxes. I've been waiting until Jan. to initiate this so I'll have an extra year to pay the taxes. An alternative approach I've considered is to convert trad IRA funds to Roth up to whatever it would take to max out my tax bracket, then wait 5 years to withdraw the full amount - I'd have to do it on a laddered approach, otherwise the tax bill would kill me.

I"m also going to withdraw the prior contributions (not gains) to our Roth IRA's, which will be tax-free. I'll reinvest distributions and liquidity events, which along w/ 72t distributions should fund at least 1 MF investment per year after 2015, when I expect to add 3 or 4 to my portfolio.

If you purchased the property recently (within the last year or so), you should provide the HUD statement as evidence of it being over-appraised. I've done this before a couple of times, and had the assessment lowered to my purchase price.

@Jacob Davis - welcome to BP!

I looked into creating an LLC, and IMO, it's probably worth looking into buying an umbrella liability policy as an alternative, at least until you reach critical mass in your portfolio. I've done neither, since I invest in MF LLC's and my liability is limited to my initial investment. Also, one year of rent sounds awfully conservative for reserves, but if it helps you sleep at night, it may be worth it.

Here in the DFW area, the market is so competitive we're having to raise funds in advance and show proof of funds to close to even have our LOI's considered.

Also, most Lifestyles leads in the DFW area require a $50K minimum investment.     The SEC only allows 35 sophisticated investors per deal, so they need to make each one count if raising a significant amount of money.    Also, every additional investor means more administrative work and potentially more headaches down the line, so they favor investors who can commit bigger investments.

Per SEC rules, to participate in a private placement you must be either an accredited investor (>$1M net worth ex. value of your home) or a sophisticated investor, which I suspect is open to interpretation.  The PIG program provides the training and mentoring to become a sophisticated investor, though IMO many of them are not based on how little feedback some leads get re: material mistakes I've caught in the PPM's.  You cannot invest in a LIfestyles-sponsored deal w/o being a PIG.   FWIW, Lifestyles recommends starting w/ single family if you're limited on capital.    SF generally returns higher cash on cash yields in the DFW market at the expense of much smaller upside appreciation potential.    They're also more work vs. being a passive MF investor.

W/ just $10K to invest, you're probably better off starting w/ a house anyway, b/c you'll have control.   In a MF deal, you're not going to have liquidity for probably 2-5 years aside from distributions.

I don't have any recs. on self-directed IRA providers, but be sure to read up on UBIT (unrelated business income tax provisions) as they relate to leveraged real estate investments.

I'm not a tax expert, but my understanding is that if your investment (likely an LLC) borrows money to help fund the purchase price, then your returns are subject to UBIT, which IMO defeats the purpose of IRA's.

I've looked @ ways to use my IRA funds efficiently to fund IRA investments, and am going to start taking 72t distributions (SEPP) in early Jan. to augment my MF investment funding. I may take some Roth distributions (from prior contributions, so tax free) if the right opportunities arise down the line as well.

5+ unit MF's are valued based on a multiple of NOI - given an 8% cap rate (about avg. here for Class C), for every $1 improvement you generate in monthly NOI, that will increase the property's value by ~$144. For a quadplex, it won't matter, as it's value will be dictated by neighborhood comps.

Depending on the property, you may also qualify for nonrecourse financing on a 5+ unit MF property.    Disclaimer:   I don't have any actual experience at that end of the market, it's just what I've learned from the Lifestyles' founder's mistakes.   ;)     I have an interest in an 84 unit complex, and am actively looking for 2-3 large MF investment opps in the DFW area.

Just to be clear, I prefer MF, but 5+ unit ones.

I steer clear of duplexes, triplexes, and quadplexes. Vs. SFR, you lack ease of resale, take on tenant vs. tenant issues, and generally get a lower class of tenant. Vs. true MF (>4), you lose out on economies of scale, valuation based on NOI vs. comps, and better financing terms.