All Forum Posts by: Daniel Dietz

Thanks for all the responses. LOTS to comprehend fully.

The properties I am talking about would be mostly 1-2 units, and when I am referring to 'acquisition costs' that would be the 'all in costs' after any needed repairs etc....

@Chris Adams, I am coming up with a bit different numbers than you show. I will look things through in more depth and see where the differences are.

@Jon Holdman , if I follow you correctly, you are saying that I would add the rental income and expenses INTO my personal ones, not look at them as a 'stand alone' unit? Meaning if 'Income * .75 was $13,500 - PITI of $9000 that would NOT be a DTI of 66% (as far as how they look at it) but I would add that to my current non-rental figure of about 36K income and 12K debt (house cost with PITI) that is at a 33% DTI and it would then be 36K + 13.5K income = 49.5K and 12k + 9K =21K debt for a 'new ratio' of 42%? Hope that made sense ;-)

One other thing I was wondering is how much my personal net worth makes a difference when a lender evaluates these things? I have about 150K equity in my home, 150 K in an Insurance Policy (paying 5% and triple A rated) and about 120 K in my IRAs. Does this give lenders any 'peace of mind' as the evaluate the rest.

Thanks again for all the replies!

Dan Dietz

So far I have only bought property within my SDIRA on a cash basis, so have not needed to work with lenders. Soon I will be buying one or more rentals outside of my SDIRA, using 'conventional financing'.

The question I have in regards to DTI Ratio's is this; say I have 1 or 2 rentals that I have held for a year or more with a good rental history etc.... and I would like to look into buying additional properties. I DO understand the 'personal side' of my regular income vs debt..... but not the rental business side.

Let's say I had a building worth 100K, with a 75K loan, 16.5K of income, 8,25K of Operating Expenses, 5K of Debt Service for a Cash Flow of about 3.25K a year.

How does a lender look at that? Is it as simple as 5K Debt Service / 16.5K of Income for a 30% Ratio? If so, is that a 'favorable ratio' as far as getting more loans that could create the same numbers, assuming I had 25% down for them?

Just trying to plan ahead :).

Thanks, Dan Dietz

Hi,

I was wondering if anyone, @Steve Hamilton , has a definitive answer on what is allowable for expenses within a SDIRA, as far as 'misc personal expenses' goes.

It is my understanding that even though you can not contribute 'sweat equity' into a SDIRA property, you CAN do the book keeping and tenant screening etc..... So could things like the PRO Membership here to help locate properties, evaluate properties, etc.... or other software for book keeping etc... be funded through my SDIRA?

I know some of you will say I should keep those funds to 'invest more' from my SDIRA, but I am of the personal opinion that I like keep things 'separated' from retirement and personal funds, and also I have much more 'liquid cash' in my IRA than in my personal non-IRA accounts.

Thoughts?

Thanks, Dan Dietz

Hi,

I am not familiar with the ones you mentioned, but I recently set mine up with UDirect IRA Services out of California. I believe they work in all states. They also put us in touch with lawyers who could do the legal work at very reasonable fees. I have been VERY happy with their service.

Dan Dietz

Matt,

Thanks for the quick reply. I will re-read it later tonight and digest it all and likely have some more questions for you and others. I think you response will really help me clarify things in my thought process. Thanks!

Dan Dietz

Nov 15, 01:03 PM

Vote

Hello,

Looking for some feedback as I am working on how to structure a deal(s) for buying and holding long term rentals while working together with a Private Lender.

I think I have found at least one private lender, and a trying to figure out how to best use that resource. They would be willing to lend funds at good rates for 3-10 years.

Here is my situation. I have a decent sized IRA in which I have bought one property, and likely a second one within the next couple of weeks. These were/will be cash deals from funds within the SDIRAs and will essentially use up most of my IRA funds that I want to put towards RE. These properties don't qualify for the Non-recourse loans I have found.... too old, too cheap, etc.. I would prefer not to use my liquid cash outside of my IRA if possible. I DO have sizable assets that are in my Life Insurance Policy that I would prefer not to use for various reasons (inheritance moeny, funds a nice policy, etc...) but could take a loan from it if needed. I also have large equity in my primary residence of a couple 100K.

I am weighing the possibilities of :

1) Using a loan from the PM Lender against say 50% (maybe more) of price of the properties I hold in the SDIRA, in order to further leverage my own SDIRA funds into other properties, which the PM lender would likely help fund also.

OR

2) Using the PM Lender's funds to buy properties OUTSIDE of the SDIRA. One of the thoughts would be to use the PM Lenders funds in the 'second position'. In this type of scenario, how could we (me & PM Lender) use the PM funds as a 'down payment'? Example, if the PM Lender has say 25K to put down on a 100K property and I was seeking a loan for 75K.

What would be the hurtles on #2 above. The PM Lender would prefer to just be a lender, not a partner. They would prefer to have nothing to do with the borrowing in #2 above.

What I envision is using the PM funds for the 'down payment' to secure further lending.

Is there a way this deal could be structured from the start to avoid the 'seasoning' needed for down payment money?

Could it work to for me to take funds from my Life Insurance, so that *I* would be funding the down payment, and then at a point in the future (1 year?) have the PM take a second position on the property so I could 'replenish' the LI Policy?

Is there a time frame for which I could simply borrow those funds from the PM Lender 'ahead of time' so that they would be 'seasoned' in my account and I could just use them as a 'normal' down payment? IF that is possible, could those funds be secured by a second position note on the property?

Hope this all makes sense.

Thanks, Dan Dietz

Hello,

Looking for some feedback as I am working on how to structure a deal(s) for buying and holding long term rentals while working together with a Private Lender.

I think I have found at least one private lender, and a trying to figure out how to best use that resource. They would be willing to lend funds at good rates for 3-10 years.

Here is my situation. I have a decent sized IRA in which I have bought one property, and likely a second one within the next couple of weeks. These were/will be cash deals from funds within the SDIRAs and will essentially use up most of my IRA funds that I want to put towards RE. These properties don't qualify for the Non-recourse loans I have found.... too old, too cheap, etc.. I would prefer not to use my liquid cash outside of my IRA if possible. I DO have sizable assets that are in my Life Insurance Policy that I would prefer not to use for various reasons (inheritance moeny, funds a nice policy, etc...) but could take a loan from it if needed. I also have large equity in my primary residence of a couple 100K.

I am weighing the possibilities of :

1) Using a loan from the PM Lender against say 50% (maybe more) of price of the properties I hold in the SDIRA, in order to further leverage my own SDIRA funds into other properties, which the PM lender would likely help fund also.

OR

2) Using the PM Lender's funds to buy properties OUTSIDE of the SDIRA. One of the thoughts would be to use the PM Lenders funds in the 'second position'. In this type of scenario, how could we (me & PM Lender) use the PM funds as a 'down payment'? Example, if the PM Lender has say 25K to put down on a 100K property and I was seeking a loan for 75K.

What would be the hurtles on #2 above. The PM Lender would prefer to just be a lender, not a partner. They would prefer to have nothing to do with the borrowing in #2 above.

What I envision is using the PM funds for the 'down payment' to secure further lending.

Is there a way this deal could be structured from the start to avoid the 'seasoning' needed for down payment money?

Could it work to for me to take funds from my Life Insurance, so that *I* would be funding the down payment, and then at a point in the future (1 year?) have the PM take a second position on the property so I could 'replenish' the LI Policy?

Is there a time frame for which I could simply borrow those funds from the PM Lender 'ahead of time' so that they would be 'seasoned' in my account and I could just use them as a 'normal' down payment? IF that is possible, could those funds be secured by a second position note on the property?

Hope this all makes sense.

Thanks, Dan Dietz

Jason,

Lots of good feedback so far. I have only bought one rental property so far, so take what I say for what it is worth .With that said, my 'mentor' who happens to work for me in our 'day job' has had 10+ properties for about 10 years, so I have lots of wisdom and experience to tap into.

As far as the age old question of leverage or not....... I definitely lean towards the leverage side, but it can be done in a cautious way also. Many spouses run into having different feeling about this, which is probably a good thing to keep things in check.

*** an example this would be the break down on the one is just bought (duplex) a few months ago, with numbers rounded just a touch for simplicity,

• 80,000 purchase all in. (33% less than original asking price and assesed value)
• 20,000 cash down, 60,000 loan @ 5%, 30 years
• 1350 month income
• "Hard Cost" 3900 Payment, 2800 Taxes, 1400 Water & Insurance for a total of 8100 yearly or 675 monthly

With income normally being 1350 month, that means even if it stayed only 50% full, we could 'make ends meet'

If on the other hand we paid 120K, and only took in 1200 month, and leveraged at 90% (if we could even find that) our "Hard Cost" would be 933 month, and if it were 50% empty, we would need to come up with 333 each month or 4000 year. A VERY different scenario in my mind.

So a lot of it come down to what your comfort is with the numbers you are dealing with, and how much 'out of pocket' you are able to handle IF need be.

Good Luck,

Dan Dietz

Robert,

I am just now forming my business plan for seeking Private Investors. (If you search my posts you will see some detailed ones about who and how I am targeting them).

An EXTREMELY simplified answer to your question, and one that considered a LOT during this is this;

• I am targeting people in mid to later working years or retired professionals and small business owners who likely have either large cash reserves or retirement portfolios.
• They have the funds to invest, but likely have never been approached in a Professional way. Their investment (that is NOT how I word it to them) with us would likely be a smallish (less than 25%) of their portfolios. In some cases MUCH less of a percent.
• For the most part they would have almost NO interest in doing Real Estate or Land Lording themselves, but would be familiar with the fact that it can be a good solid investment IF done right.
• In essence, do they want to get say a 1-3% return on the 'safe portion' of their portfolio', or would a say a 5-8% return suit them better?

This IS a very different scenario of approaching a Private Lender that is out actively seeking a higher return on their funds. It is more of an opportunity for those less or unfamiliar with the concept. Also, out of my list of about 150 names right now (who I only plan to talk to about a half dozen to ten initially) I know ALL of them personally, and have a comfortable relationship with them in which they have a least some feel for how I have done with my own investments as I have a VERY visible business in my town for the last 20+ years.

Good Luck, Dan Dietz

Thanks for the replies.

Phil, I am well aware of the need for the 'extra funds' that should be held in reserve, and that is an excellent point for others reading here and considering SDIRAs/LLCs. In my current property, which is held as a 3 way LLC, all members being SDIRAs, we used 10% over the purchase price plus improvements (all cash in this case).

One question about the purchase you assisted with..... Could you (or others) elaborate on what the benefit(s) to doing a 'tenants in common' over a 'multi-member LLC' would be? It seems like I read a lot more about the multi-member scenario here.

One scenario in particular might be one 'long term managing' partner (me) and others that might be more 'short term'.... say a 5-10 year loan.

Thanks, Dan Dietz