All Forum Posts by: Daniel Dietz

Gunnar,

Would you mind sharing a bit more about what type of partnership or entity you used for the second deal?

I am assuming since you did not mention it that you didn't go the '''syndication route".

With all the talk of 'private money' and the rules surrounding it, it is always good to learn how others deal with those issues.

I am JUST starting to talk to potential lenders about doing private lending, and I the feeling I get is there might be a strong possibility that a few of them would be open to the partnering together on a larger project, which in all honesty was NOT even on my radar. I was looking for lending on SFH and duplexes.

Look forward to your reply!

Thanks, Dan Dietz

Randy,

I will be interested to see what other responses you get.

I guess the basics would be as a 'con' is that you would then need to worry about 'cash flow' compared to having it free and clear.

The 'pro' would be that you could leverage those funds more progressively.

I am currently working on finding Private Funding for a free and clear property I own in my SDIRA (harder than a non IRA property). One of the main advantages I see would be that I could have say 4 properties if I could find 75% financing and achieve a higher return (I am looking a long term wealth compared to current cash flow) AND I would have quadruple the appreciation.

From a legal perspective, I will let others chime in. I am sure there are LOTS of different ways to look at that angle of things.

Dan Dietz

I am using a SDIRA and all the legal advice I got sounds like you are on safe standing, assuming the 401K falls under the same rules. Although we feel we CAN do the management if we so chose according to the rules.

As to the comment above of 'dont do it' , I would not put a lot of wight into that. My tax guy is checking into the depreciation thing, (it is my first year, and his first SDIRA, but he has a good source for info on it).

BUT, even if you can not use the depreciation, I say 'so what'. In my case, not even figuring any Appreciation (which has historically been about 3-4% over 50 years here) we project about a 15%-18% return. Part of our goal was too diversify out of 100% stocks AND get better returns in the long run.

One reason we chose to do it within a SDIRA vs the 'normal' way is that we probably have 20 times as much funds in IRAs as we do liquid cash. The downside is that it is hard to borrow within a SDIRA (or 401K) so it is also harder to get the advantage of leveraging things.

Dan Dietz

Floyd,

Is this LLC going to be using SDIRA (Self Directed IRA) funds or just be a 'regular LLC' outside of IRA (or other retirement) funds?

Dan Dietz

Bruce,

I recently dealt with a somewhat similar situation. We bought a duplex that was empty due to it being an Estate Auction sale so needed to find a couple of renters.

I have a good mentor who gave me what I think are good guide lines of; 600+ credit score, clean back-round check, job for a least a year, etc....

Got probably 20 lookers and maybe 8 apps. Did not run all the apps right away due to gut feel on some of them. Then we got a call from the eventual tenant. She was very upfront with us. Had a serious accident about a year ago which caused her to need to file bankruptcy and get foreclosed on (layed up for almost 9 months). However, she had a great reputation in her self employeed field on our town, and her previous landlord before she bought was a friend of mine. Called him up and he raved about what a great renter she was. The clincher for us was that a family member of hers was willing to co-sign also, and give us 6 months rent up front while the tenant got her business going again (which is going well so far). Her co-signer also had a 900 credit score, which or screening service said that 'had not seen in a while' :).

I would see what the co-signers credit looks like, tell them they need to let the spouse know, and maybe seek 3-6 months rent up front....... if they are that good of friends, let them figure out how and when she'll pay him back.

Good Luck,

Dan Dietz

@Pete T. I might not have been clear..... I personally used it to FIND property, not rent what I own. For that it was great. This is the place we stayed if anyone is looking for a place on the California Coast near SF.

http://www.vrbo.com/120219

What I know from friend who have used it to rent what they own out is you need to do good screening just like a regular rental. They probably turn down 25% of those who inquire when they do a backround check,

Dan Dietz

Gene,

I thought I would bump this and see if others would jump in with some good advice.

Take what I have to offer with a grain of salt, as I have just started investing with my SDIRA in a three way partnership with my brother and dad. My dad is 69 and used a traditional IRA, so the withdrawals might soon be an issue.

The basic advice he got was this;

1) He ALSO has traditional IRA funds outside of his SDIRA. So say if he needs to draw 10K out the first year, that can be from ANY of his IRAs, so he could simply draw it out of his non SDIRA funds by selling some mutual funds etc....

2) In our case, we have our 'reserve funds' in our SDIRA as well as the rents that go into there (we paid cash, so no mortgage payments etc). So the point is, does he not have some funds from rents and such that he could take out without having to sell etc......

Just a couple of thoughts........

Dan Dietz

For those reading and thinking about this, make sure to check your local zoning first.

On our nearest lake, rentals for anything less than a month is NOT allowed by code. 2 property owners bought specifically with weekly rentals in mind without checking and have been in a years long legal battle that they are not winning.

Just food for thought.

As far as VRBO, I have used it from the consumer end and LOVED it. I know a few poeple that have listed 'family cabins' on it and have learned FAST to do back round checks and have a very specific contract for charges for damages.

Dan Dietz

You guys covered it pretty well why it is not a prohibited transaction. It needs to be 'set in stone' going in and for eternity. ;-).

As far as easier ways.... maybe, depending on each person's circumstances.

In our/my case, I have about 20 times as much in my IRA accounts as I have liquid cash, at least until I get my primary residence sold (im downsizing even though I have it paid off) which will free up some cash. So to me, the IRA was a logical place to go, and also offers some nice diversification to the stock side of things too.

So yes, there is a LOT to know abouut SDIRA, but I think they can be a great tool. One other thing is I have mine in a ROTH (partners are traditional) . With the small amount you are talking about, now might be a good time to consider converting over to a ROTH and have tax FREE income down the road.

For those interested, UDirect IRA put me in touch with (I am working from memory here) I believe the lawyer was Mark Kohler Law Offices. If you google them they have some good youtube videos about SDIRAs (as does UDirect/ Karran Hall). They are the ones that set up the 3-way LLC for us, and for a good price too, I think abouut $1500.

Dan Dietz

Ben,

It sounds like you have been doing a lot of research which is good.

I did not mention above, but I use my SDIRA in a 3-way LLC partnership with my dad and brother (also SDIRAs). One thing we had to do some hard thinking on was the percentage split. We are doing buy & holds. Within THIS LLC (we can form as many llc as we want) the ratio ALWAYS has to stay the same. Something to think about. There may be ways around that by doing JV or something similar.

Dan Dietz