All Forum Posts by: Daniel Dietz

Hello

I have done a lot of reading on SDIRA's and bought our first duplex with all cash from within our SDIRAs.

I have started looking at larger properties that I would NOT have enough cash in the SDIRA, and am trying to figure out how to leverage the SDIRA.

I know that it IS possible to mix both SDIRA funds and non-IRA funds, but that there are also a lot of rules to it. We went through this with since our SDIRA is between 3 'prohibited parties', but we ARE allowed to do this but we can NEVER change percentage of ownership etc....

What I am wondering for these possible up coming deals is this; Can we mix funds by say using an LLC that is owned by one or more (currently 3) SDIRAs for the down payment of say 25%, lets say 100K. Then, a loan would be taken out for the other 75%, most likely my the same owner(s) of the SDIRA, but this loan would be OUTSIDE of the SDIRA.

If this were possible, would that loan need to be non-recourse? I ask this as thier is a rule in SDIRA land that to paraphrase says "the SDIRA cannot benefit the owner of dis-allowed party in any way" (meaning a parent cannot buy a house and rent to a child etc....) Would the above scenario be construed as "if not for the SDIRA making the down payment, the loan would not be possible" or "if not for the SDIRA owner signing the loan papers even outside of the SDIRA, the deal would not happen?

I hope that makes sense to someone that can give some advice!

Thanks, Dan Dietz

Not sure on your situation, but will make assumptions and explain my situation.

I am just in the midst of getting divorce, filing next month actually but have been separated for about 9 months. I am a community property state, 50-50 more or less.

I have purchased a duplex with my SDIRA since I moved out, and am likely to purchase a SFH for rental before things are finalized too. I did NOT tell her before the duplex, but am likely to tell her about the SFH as we are trying to get the division of assets all figured out ahead of time and keep lawyer cost as low as possible.

The way I assumed from the get go on the duplex is something like this, with the math simplified. Say we had 200K in IRAs, 50-50 so 100K each. I spent 50K on the duplex. When we do the final split, I DONT expect half of the remaining IRA funds....... I expect 50K more, and she will keep the other 100K. No need to split the duplex, and she has no interest in being involved in it.

We split our cash on hand in checking accounts when we moved apart and have kept separate accounts since then and we make the same wage so no maintenance or alimony issues etc... I will use funds from my account for the down on the SFH and the loan will only be in my name. She will in no way be responsible for it.

So the moral is dont try to hide things to 'get more than your share' or the like, and this probably only makes sense when both parties are getting along.

Hope that helps someone out there.

Dan Dietz

Hello,

I have not yet used the bank I am going to paste in below, but have been talking to them to get things in line for a loan I am likely to do for my SDIRA account. Non-recourse are the ONLY kinds of loan you are allowed to do within a Retirement Account and yes, they ARE hard to find. I have not asked this bank specifically if they do them for things other than IRAs etc.... but I dont know why they would not do them. As someone pointed out above, the rates are higher (but reasonable for the long term), LTV not as generous, etc..... BUT, if the NR is important to you, it might be worth a call. This is an email I got recently with updated rate info and contact info to. I am in no way affiliated with them, just passing it along.

Dan Dietz

.....................................................................

Valued NASB Client,

North American Savings Bank has reduced the IRA Non-Recourse loan rates!

The rates have decreased .375-.625% depending on the loan product and apply to rental investment property such as single family homes, condominium units, 2-4 units, and multi-family. This program change does not apply for refinancing of current IRA loans or a loan modification.

The new non-recourse loan rates are listed below:

-4.25% for a 3/1 ARM (amortized over 120-300 months)

-4.625% for a 5/1 ARM (amortized over 120-300 months)

-5.5% for a 10 year ARM (amortized over 240 months)

-5.25% for a 10 year fixed loan

-5.75% for a 15 year fixed loan

-6.25% for a 20 year fixed loan

We currently lend up to 70% loan-to-cost on single family detached homes and 60% on all other residential properties (CA, AZ, FL, IL, MI, OH, NV, NJ, NY have a max 60% loan-to-cost). The loan amount is determined by the property condition, cash flow, recent property history, and retirement reserves in the accounts.

The bank fees for a purchase transaction are 1% of the loan amount (1.5% if cash out that is owned greater than 6 months) plus $695 in processing/underwriting fees

Regards,

JASON ZOOK| IRA Loan Officer (NMLS ID#: 415110)
NORTH AMERICAN SAVINGS BANK, F.S.B.(NMLS ID#: 400039)P: 855.211.3340 F: 816.508.2797
903 E. 104th Street, Suite 400 | Kansas City, MO 64131 |www.nasb.comOnline Application:www.iralending.comRead our new book:www.leverageyourira.com

Bill and others,

I DO understand the 'skin in the game' concept. That is why I mentioned coming in with say 10%.

Let me ask a couple of more 'hypotheticals'........ and please remember these are folks I have had long relationships with, have a lot of trust in me from past dealings etc... and prefer to NOT get all their equity at once.

Sample one; current owner owns 8 unit free and clear but wants to back out of day to day etc.... Unit appraises for 500K. He is willing to look at ways to make this work as I am willing to pay at or close to his asking price. Could him and I form a LLC, JV, or other partnership that would borrow say 60% from a lender and as a partnership come in with 40% equity?

Sample two; I same owner as above would carry the Note say for 500K himself for 3-5 years with nothing down, and I go to refinance after that 3-5 years, IF the building appraises high enough (550K?) could I do a loan at that time for say 412K (75%) and use the equity of 90K (50K appreciation + 40K in principal pay down) ? If the equity was not that much by then, could I AT THAT TIME (seasoning, experience, etc...) have the owner carry a second? Example, if it appraised at 530K, a 75% LTV would be about 400K. If there had been 25K principal pay down, I would still need 75K. Could the owner carry the Second in this case, and I come in with the equity accrued?

Hope that makes sense,

Dan Dietz

Daniel,

I do not know much about the Note Business, other than some members here do really well with it. I am jumping back in in regards to buying properties in a SDIRA.

I can understand how the whole SDIRA thing can seem a bit overwhelming at times. I probably read up here and other places for a year before I jumped into it. It was a steady progress of slowly asking questions, reading and learning. There a TONS of info here, and on the websites of the different SDIRA custodians you see mentioned here.

My question for you is you seem to think Notes might be a better return than Buy & Holds if I read one of your posts right. My calculations, in our market (they all vary, I am basing this on 1.5% rent per month of purchase price) based on a 60% LTV Non-recourse loan, shows we should make an annual rate of return of 15% without or 22% with appreciation (based on our 40 year average).

I just thought I would mention this as I was not sure what figures you were coming up with as you try to decide how best to go about things.

Dan Dietz

One other thing that is appealing to the current owners is getting a decent rate on the notes they would carry, compared to the fixed rate products that they would be likely to put their money in such as CDs.

Hello,

I am in the very early stages of talking to a couple of different property owners about the possibility of buying their existing rental properties and them carrying part of the total purchase price as a 'second note' (assuming other lenders would only want to lend in the first position.

These properties range from 6 to 8 units owned free and clear, a 6 unit with about a 40% LTV loan on it, and some single families that range from free and clear to 80% LTV loans.

These could be done in a SDIRA, or not, depending on the benefits to each way. I am wondering if the non-recourse loans in SDIRA might be for flexible.

An example I am wondering if work might be as follows; on the free and clear propensities, could I get a loan for say 70%, have the owner carry 20-30%, and me come in with 0-10%.

On a single family, with say a loan to at 70% LTV, could I get a loan at that same 70% and have the owner carry the other 20-30% with me coming in with 0-10%?

The reason I think the owners might be interested are that they would like to get out of the day to day of it due to age, and they find the possible tax benefits of carrying part of the loans appealing instead of getting all the cash at once. I also have long term business and friendship connections with them, so there is a strong level of trust.

Thoughts? Thanks, Dan Dietz

Hi,

I dont have any real answers for you and will let others give some direction, but I do have a question.

Why does your accountant favor the S-corp over the LLC? I used to be part of an S-corp in a previous business (primarily because LLCs either weren't around or not popular back then) and when setting up both my current 'day job' business and my buy and hold real estate partnership, my accountant favored the LLC over the S-corp.

I think his main reasoning was the increased paperwork, more stringent requirements, and inflexibility of equity or profit splits in the S-corp.

I think, but an not sure, what you will hear from others is to form a different Joint Venture for each property of each 'partnership' you form that could own more than one property.

Dan Dietz

Your Welcome!

And just one more note for you or others reading this tread with borrowing within a SDIRA in mind......

The one property I own already and many of the others I have been looking at do not 'qualify' for lending from the above company or other similar ones due to 'conditions'. If I remember right, they do NOT like making loans on; 'over/under' duplexes - meaning converted houses which my market is FULL of, they do not like to make loans in pre 1940 properties which my market is full of, and they do not like to make loans under 50K. This means duplexes need to be about 85K purchase price or SFHs about 75K.

For the reasons mentioned above, I am starting to look at 4-8 units to leverage my SDIRA, and also finding Private Lenders so I can finance the 50K duplexes I find.

Good Luck, Dan Dietz

Daniel,

I'm not sure where you are seeing those kind of rates at, but they seem WAY high. This is a recent email I got from a Non-recourse lender. My understanding is that a SDIRA loan MUST be non-recourse, which I think will be vary hard to find through a commercial or traditional bank. I am working with a lender that is a small, private funder of residential mortgages, both owner occupied and rentals to see if some of their investors might be interested in doing these. It will be months before I know anything.

As far as loans for a SDIRAs, this is one of the lenders I see mentioned often here, and have heard good things from those who have used them. this is a recent email I received showing the rates recently.....Dan Dietz