All Forum Posts by: Dan Brewer

Trip -

I am working with several other developers, helping them with their business plans, raise capital, etc. Some developers are very experienced in the AL field, others are relatively new. I very much am focused on protecting the investor's capital, managing risk etc. I feel the best way for you to acquire the capital you need would be to do the same - minimize the investors risk. Therefore, I recommend teaming with experienced operators to help usher you into the field. Sacrifice whatever you need to sacrifice to them to help you get over the hump. The first deal or two will then help you establish credibility in the field, and then capital will start coming your way.

Joe -

Virtually every real estate investment company and lending company utilizes private funds to provide the capital for their investments and for their clients. So rather than looking for funds, I suggest you look for real estate investment companies that focus in the areas that you would be most interested. Then once you find them, research each company for their history, experience and track record. Once you are satified with that research, concentrate on their particular fund offerings and select those that meet your particular criteria the best. I think you will find there are may very reputable investment companies who will provide you high-quality investment fund options.

Daniel -

Great question, and to clarify I am not an accountant. But I am very familiar with financing real estate purchases via non-recourse loans using SDIRAs. Essentially the only way I am aware of to avoid this tax is to flip the house in less than one year. But it sounds like you are looking at a long-term hold. If so, I feel the depreciation you will be able to claim in the first several years will likely offset the consequnces of the tax. BTW, for those not aware, UDFI stands for Unrelated Debt Financed Income, and relates to the portion of the income to the IRA that is derived from debt financing. So if your IRA invests 50% of the purchase price, and your IRA borrows the other 50%, then 50% of your SDIRA income could be subject to this tax.

I'd love to hear the opinion of a real estate tax accountant (and I 'm sure you would too!).

Hyuma -

I agree with Duncan. The real estate investment verticle is very vast and wide - I have been in it for 21 years now, 13 full-time. I feel I am more active than a great majority of the investors. Yet I still think I have been exposed to a fraction of the oportunities in this vertical. For many years, I did invest in more traditional invetment vehicles - stocks and bonds. However, I paid very little attention to them, and ended up under-performing on those investments. Yet my real estate investments performed very well, becuase I was actively engaged in that market. So today, that is all that I invest in. I am also a firm believer that investors should guage their ability and interest in actively managing real estate investments. Often, such investments are not well-suited for the investor, and they should really consider passive real estate investments, such as real estate investment funds, similar to a mutual stock fund, where you rely on the fund manager's expertise. Hope that helps!

Dan -

There are programs available trough private lenders that can provide non-recourse loans using traditional funds.

I think your approach makes sense. The general rule of thumb in the private lending industry – where you're using OPM – other people's money, is around 8%. In other words if you can get your capital for 8% or less, that's really pretty good. There are plenty of people out there just as you said – with substantial assets who would be willing to provide you capital at an attractive rate, as long as you can convince them that your business plan is sound, the asset is of appropriate value, and that you know what you're doing. Good luck!

An easy way to understand cap rate is to consider it as the rate of return an investor wants on his money. For example, If a property has an NOI of $100,000, and the investor wants a 10% return on his money, then the property would be worth $1 million to him (100,000/.10). If a second investor is looking for a return on his investment of 5%, then a property providing a $100,000 NOI would be worth $2 million to him (100,000/.05). So in summary, a lower buyer target cap rate is always better for the seller - it will generate a higher purchase price. Hope that helps understand it a bit better.

Diane -

To respond to your question specifically, if you buy another home, and then ultimately walk away from your condo, it will likely affect your credit,but should not affect your ability to stay in your home. By walking away fro the condo, it very well could affect your credit. But you will already be in the home and have a mortgage on that home. So unless the two loans are cross-collateralized, there should not be any problems that affect your house.

Based on what you have stated, I recommend you purchase the home, try to sell the condo aggressively, and if you ultimately have issues with the condo, work with the lender on a short sale. If you can show the lender that you have made diligent efforts to sell the condo at an adequate price to cover the debt, but ultimately had to keep lowering the price, their is a good chance they will work with you and you can protect your credit. I would only walk away if you have no other options.

Andy -

I would focus on diversification. you already own cash-flowing properties, so that is great. You discuss potentially a flip or two, not a bad idea. But since you don't have the experience, you just need to ensure that you deal with someone reputable and that can do the dirty work for you.

There are also a number of very solid real estate investment funds that pay double-digit returns with very low risk. Go with a proven manager with a proven fund. That will supply you some additional cash in case the properties start having problems (and eventually they all do!).

Michael -

Overall, I would say you are a pretty fast study. It all depends on your strategy and risk tolerance. It's tough when you get caught between a long-term hold and a short term flip. Often, that decision is dictated by available financing, But it sounds like you could go either way. A 2nd consideration is if you wish to be more active in the real estate investment market. If so, I would not recommend you utilize all the funds in your SDIRA, only the funds that you need to close the loan (embrace leverage). You would make this choice if you felt there were other opportunities that you wanted to take advantage of with available, liquid cash. The opportunity cost will be more than offset by the profit on the 2nd deal. Now If you really think there is a good chance you will get that 140K offer and sell it, and you don't think you will be purchasing any other properties during that period, then I recommend you maximize cash invested and take your least-costly route. But if you are like many investors, once they get bitten by the real estate bug, then they are very likely to make other real estate investments.

I do know of some other potential private non-recourse lending options that make work for you. I'm curious about the market in which the property is located. Please let me know, and I will respond again.