All Forum Posts by: Daniel Dietz

Hi,

Duncan asks some good questions above. I recently did a SDIRA and used UDirect IRA Services out of California and highly recommend them. You will likely NOT be able to find a 'local' custodian, and it seems to me to be irrelevant anyway. One thing I like about them is that instead of charging you for every little service like checks written etc.... they give you 'check book control', which work great for me where I pay a monthly water bill etc....

Duncan's questions above, I think, are trying to make the point of doing your homework first and really know all the rules. NO mixing of SDIRA and personal funds, NO sweat equity going in, etc......

Dan Dietz

I hold my properties in a ROTH SDIRA, so it is not an issue to me, but a friend that also has long term properties has used the advice of his CPA for quite a few years which is this: he had been buying REO and Estate Sale properties for about 50-60% of assessed value. Example house assessed value of 100K of which 80K is property and 20K land. He buys it for say 50K. He uses the same *percentage* of what the tax assessment is. NOTE - In my state, our assessment rate is very close to the actual values in almost all cases.

Dan Dietz

Thanks for the fast reply @Jon Holdman .

I assume what you are saying about "the terms of the note are not changed by a death" would also hold true for a Land Contract, as long as their was not a provision written into it otherwise?

Do any of you know enough to answer this; my understanding is that the lender only pays taxes on the INTEREST part of the payments, NOT the principal. Would that also hold true after a passing of that note onto heirs after a death? I understand that the value of the Note passes tax free assuming they are under the exemption, but then with the future payments the heirs received does that also hold true = they only pay taxes on future interest payments?

Thanks again,

Dan Dietz

Hello,

I have been fine tuning my plan to seek Private Investors (all of whom I know personally). I want to make sure I have thorough, accurate, and easy to understand answers to the questions I anticipate they will likely have.

One thing that I have not seen on here and expect will come up is this;

• Say I borrow money from 'Bob' for a loan which may be a traditional loan or a non-recourse loan (if it is for the properties within my SDIRA). Assume it is 75K @ 6% with a 15 year amortization. Assume a mortgage is recorded and all other paper work is done the same as if borrowing from a bank or credit union.
• What happens if 'Bob' passes away while I still owe on this Note? Would it be 'called due', or would the Note just go to whomever he assigns (not sure if that is the right term) to in his Will?
• Is there a different tax consequence to the lender in either of these scenarios?
• Would this be any different if the lender was ALSO the owner of the property......... I am thinking in the case of a Land Contract?
• Thinking of 'older couples'..... say a farm couple both in their early 70s, or in any other case too, is there any pros or cons for THEM (it seems like it would not make a difference to me) whether one or both of them are the lenders to me as far as taxes, estate planning, etc.... goes?

Thanks for all the help you all offer here on BP,

Dan Dietz

Dusty,

You are getting a good variety of responses here. It will be interesting to see how the opinions play out as more members chime in,

I am in 'somewhat' of a similar situation. First let me say my initial reaction to your title of the post was 'that seems like a weird way of doing it'..... but take that with a grain of salt - I am only one property into what I hope is the first of several if not many more properties. It seemed a bit 'impersonal' to me. I like what the others said about calling and just getting together for a chat/coffee etc.... But I may be way off there!

My current property is a Buy & Hold duplex, that I bought in a 3 way LLC within my SDIRA. I plan for future ones to be both within and outside of my SDIRA. Not sure if you are familiar with the lending rules for IRAs, but it is VERY hard to find loans for properties held within them as the loans MUST be 'non-recourse'. Only a handful of lenders do them, or Private Lenders can also. On the ones outside of the SDIRA I assume I will run into the whole issue of showing a 'rental history' of one to two years etc and would be looking for a 'starter loan' until the time I could refinance into conventional products for the long term.

Overall, I would be looking for terms of 3-15 years on these loans. My plan that I am JUST starting on for seeking lenders is this: I made a list of about 150 people who I thought had 'potential' as my type of lender - some are family, friends, neighbors, business associates, civic club colleagues, and a BIG share of them are past customers of my Contracting Business that has a 25+ year excellent reputation and many customers I have become close with over the years.

I am working on putting together some 'sample' packages showing the type of properties I would target, explaining why I am seeking Private Funds, how the loans would be secured, etc.... I have talked to the first couple of people, who know I have one property and am looking for more, VERY casually explaining that I would just like to use them as a 'sounding board' to bounce some ideas off of how I would like to seek these funds. I am asking them for feedback good AND bad of my thoughts, plans etc... ; what is appealing, what would make them nervous etc.....

I know some people on here seek 'active' private lenders who are 'seeking' our borrowers and are obviously very comfortable doing this. My plan is to offer an 'alternative' to 'casual investors'; those who have either large retirement funds with sizable portion of their funds in low yield instruments like CDs etc or other liquid cash in large amounts (sold the farm or business etc..) and might be interested in getting higher yields all while helping to improve their local communities.

I too am from a smaller town....about 10,000, but our school district is about 25,000, country about 70,000. A large part of my previous customer base is from about a 4 hour drive radius from here....Chicago, Minneapolis, Milwaukee, etc who have vacation homes in my area. If they have vacation homes of 300K - 1M, they likely have decent retirement funds too :).

Just a bit of a ramble, but I think the more we all share the better for all of us!

Dan Dietz

Daniel,

You are getting some great advice here.

I am only one duplex into my investing plan, but plan to add more, but I have studied it (probably too much - analysis paralysis) a bunch and have a great mentor.

I think the point made above about your mom maybe not understanding the 'tax brackets' sounds accurate. MANY people do not understand that.

I am currently looking at a place that has a CAP rate of only about 10%, and am coming up with about a 25% (5K) return on my investment (meaning 20K down on a 100K property) AFTER taxes and if I add anticipated appreciation in (never plan on it, but think of it as 'icing on the cake') it is more like a 40% return. In essences, from a tax perspective, it is almost a 'zero tax' after figuring appreciation deductions.

One other thought, depending on your moms timeline would be to try to pay it off in 15 years, which in my case would give essentially a 'breakeven' cash flow, but then at the payoff point in 15 years she would approximately double her return since no more interest payments and have a very nice cash flow. This is my probable plan as I hope to be 'able' to retire about that time.

A couple of questions;

• Could you share your numbers as far as price, taxes, expenses, etc.... so you could get even better feedback and we can all learn too?
• Do you have any properties of your own, and how do you see yourself fitting into this plan, if at all? Would you be helping manage etc....?

Good Luck in your ventures!

Dan Dietz

Hi,

I am sure you will get more feedback from those who are much more experienced than I (I too am just now making a plan to seek Private Lenders) but my one thought is it might be good to think about options if you do not sell within a year and 'permanent financing' does not materialize within that time frame. One other forum post I read a while back had something like 'each additional month will be an additional 1% (12% annual) meaning at a 'premium' to both reward the lender for being flexible and give you incentive to make sure it gets sold in a timely manner.

Just a thought. One thing I see over and over on these forums is us newbies, me included, not always considering the 'what ifs' that can go wrong.

Just an FWI, I am going to be hoping to pay around 6% roughly for 3-10 year money for buy and hold properties, and maybe in the 8-10% range for flips. I am going to be targeting mostly people I know who are likely to have large retirement accounts (a few liquid cash) who would be looking for a replacement for their 'lower risk' (relatively) portion of their portfolio. I know all of them personally, either as relatives, friends, business collegues, or prior customers.

Dan Dietz

Dion,

Thanks for the reply. I think I didn't explain well enough as it appears you are understanding it 'backwards'.

The partner in our 3 way LLC is actually OWED (he lent it out) the 100K, by someone who is NOT involved in our LLC in any way. It has a balloon in a couple of years, so it not 'due' at this point, but possibly the borrower would consider refinancing ahead of time if they could find a favorable loan.

The 'Note' is secured by a Mortgage that was drawn up by a Real Estate Attorney. I assume whatever is customary as far as deed etc... was also done.

So the questions was this; IF the borrower (remember, NOT a member of our LLC) does NOT chose to refinance early (the 1ooK he owes TO a member of the LLC) what options are there to leverage the Note (the lender IS a member of the LLC) as down-payment(s) on other properties?

Would a bank/credit union who we might borrow from just 'put a lien' (or whatever the proper term is) on the note? Meaning could we use that 'lien' on as the 25% down on a conventional loan? Or might it work more like a HELOC where it would actually be a 'loan' (cash) against the Note, and that cash could be used as the 25% down on a conventional loan?

Hope that clarifies things a bit.

Thanks, Dan Dietz

Hello All,

I recently went into a 3 way partnership with my brother and uncle where we are all using our SDIRAs (merged into an LLC) to buy 'Buy and Hold' properties. We have one so far, and likely will be adding more soon.

One of those partners holds a Private Note to a relative for 100K, interest only @ 5%. It used to be 7%, but they recently renegotiated with the lower interest rate environment. The borrower used the money for a duplex they bought and intend to keep for the long haul.

My partners and I are looking at buying OUTside of the SDIRA/LLC also. There is a chance that the borrower would willing to refinance out of the Note. If the Note is retained (I believe there is about 3 years left on the balloon) what are the option of how that Note can be leveraged to generate capital for more Buy & Hold purchases?

Specifically, within conventional financing routes is there any way the Note could be leveraged for 'down payment' portion of a purchase? By using a 'portfolio lender' (we do seem to have lenders locally that are willing to be creative compared to conventional rules) would there be an more of a likelihood of working some kind of deal like that?

What other options am I not thinking of that would be possible?

Hope that all makes sense!

Dan Dietz

Hello All,

I recently went into a 3 way partnership with my brother and uncle where we are all using our SDIRAs (merged into an LLC) to buy 'Buy and Hold' properties. We have one so far, and likely will be adding more soon.

One of those partners holds a Private Note to a relative for 100K, interest only @ 5%. It used to be 7%, but they recently renegotiated with the lower interest rate environment. The borrower used the money for a duplex they bought and intend to keep for the long haul.

My partners and I are looking at buying OUTside of the SDIRA/LLC also. There is a chance that the borrower would willing to refinance out of the Note. If the Note is retained (I believe there is about 3 years left on the balloon) what are the option of how that Note can be leveraged to generate capital for more Buy & Hold purchases?

Specifically, within conventional financing routes is there any way the Note could be leveraged for 'down payment' portion of a purchase? By using a 'portfolio lender' (we do seem to have lenders locally that are willing to be creative compared to conventional rules) would there be an more of a likelihood of working some kind of deal like that?

What other options am I not thinking of that would be possible?

Hope that all makes sense!

Dan Dietz