All Forum Posts by: Daniel Dietz

Hello,

Just a couple of odd questions on Non-recourse loans. On my current property, I realized right away that it did 'qualify' for a NR Loan, so I did not dig into it too deeply (Actually talked to the guy Eric's post above, who was the most helpful of the 3 I spoke to).

As I have been working on seeking Private Lenders instead of NR Loans, I have been considering a scenario where more than one person including me might 'pool our SDIRA funds' to be the 'down payment' portion on a property that we would seek a NR Loan on. I anticipate we would pool those funds into an LLC. This would likely be 2-4 SDIRAs going in together, but maybe more if a larger property.

Have any of you had experience in this aspect of having more than one SDIRA using just one loan?

Also, do any of yo know if NR Loans are ever done on properties that are NOT in a SDIRA? Example would be if say 2-5 people invested funds NOT in IRA accounts (cash) to pool into an LLC for a down payment on a property, but did not each want to do a personal guarantee. I have been told, not sure if properly or not, that this would have less impact on access to future loans or credit since a person would not be 'committed' to the liability of that loan?

Thoughts?

Thanks, Dan Dietz

Hello,

I just received a notice from my SDIRA provider that I need to to do a 'yearly valuation' of my SDIRA Assets. I had never heard of this before. I will copy some of the terminology below.

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

We are sending you this notice that your Roth account is required to provide an annual valuation for the end of 2013. Your account holds assets whose values are not readily obtainable without some sort of fair market valuation or appraisal.

and

Below is a list of the asset(s) that we currently show in your account along with the last known value. Please write in the year end value next to each item. This reporting must be completed by 1/14/2014. Please refer to the attached PDF document for more information on providing asset valuations.

and

If the IRA holds any of these type of assets, then the following steps must be followed in order to insure IRS compliance for establishing fair market value:
a) Obtain fair market valuation of the assets by a qualified independent expert for that asset type or category. For example, if the asset is real estate, then a qualified real estate appraiser must by hired to provide the valuation.
i) Fair market value is generally defined by receiving a formal appraisal of the assets from a qualified, independent appraiser for the type of asset(s) held in the account.
ii) A qualified appraiser is generally someone that is trained and certified in the specific asset class in question.
iii) Appraisals should be timely. This means that the appraisal provided for updating your assets should be completed and delivered within 1-4 weeks of the completion.
NOTE: You, the account holder or your spouse, would not be considered to be independent

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

Have any of you ever heard of this? I have never read about it even here on BP, and I figured if YOU all had not talked about it, then it doesn't exist! ;-).

One of the things I wondered is if

1) the tax appraisal could work? In our area they are close to market value, and actually carry a 'factor' such as 'this appraisal is at 93% of market value' or such.

2)Since we only bought the porperty a few months ago, does not the sale price establish the 'true value'?

Thoughts please!

Thanks, Dan Dietz

As far as lenders counting rental income when figuring things.....

What do you all see as far as lenders counting this after a seasoning period? Or I have often read you need 2 years history to count.

What types of %s, high or low are you seeing? Are some lenders routinely better than others in accounting for this, such as Local Credit Unions vs Commercial Loans vs FHA, etc.....

Is there ever consideration given of the precious owners rental income stream as to the quality/probability of an income stream?

Thanks, Dan Dietz

Good-morning,

I was going to start a similar thread, but thought it might be good to just ask for elaboration here.

IF I am understanding things right, my following idea would likely work. Please give pros or cons if it would.

If I bought a duplex for 70K, using 55K loan from a Private Lender...say on a 3-5 year note amortized over 20 years, and put 15K of my own funds to do updating. Let's say it likely has an appraisal value of 100K at this point. I rent it out for a year or more and have good numbers on it etc....

After that year or more of 'seasoning' I go to get a 'conventional' loan (prefer 20 year+ fixed rate). IF that property appraises for 100K after the seasoning period, and they loan up to 70% LTV, does that mean I could borrow 70K and both pay off the Private Money loan and recoup my cash in it?

In a scenario like this, refinancing out of a private money loan, what are the options for a fixed rate loan other than FHA?

Thanks, Dan Dietz

Lots of good feedback.

Disclosure..... I am new to this myself, just bought our first duplex. It brings in $1350 month, and we have 78K into it.

As to the '50% Rule' for expenses.... when I run our numbers, it usually comes VERY close to 50%. Of course for us, this is just projections since we are only a few months into it. We have to cover water/sewer, and I budget 15% of income for maintenance (about $2400 in our case). This might be high since ours has a newer roof, windows, furnaces, water heaters and aluminum siding etc... This might, no, likely IS a bit high, but I would much prefer to be pleasantly surprised than disappointed.

Dan Dietz

Bill, you wrote

"""Use an LLC and admit them as a member, use the capital contribution and the operating agreement to use the funds, this will keep deeds off the property that can lead to lending issues. Use an attorney! :)"""

I think I understand what you are saying here. Is there a 'term' or 'phrase' that describes that type of agreement that I could search here to learn the concept more in detail? I like to fully understand concepts when I go and seek the help of Professionals. And, thanks for all the tips!

David,

I am just now working on this concept, so dont really have a lot to send along. I think if you 'connect' and follow' me from my profile, you will see postings I make..... I'm sure I'll be asking and explaining more as I go :).

I guess what I can tell you right now is that I see Private Lending as my best option going forward until I sell a particular property to free up cash which might be a couple of years. I had read somewhere on here to 'make a list' of all the potential lenders you can think of..... start 'big' and 'narrow down'. Even though I have a list of over 150, Im sure I could add more, but hope I dont ever have to go very deeply into my list because there are certain people that I am sure I would be a bit more comfortable working with, so they will be at the 'top of the list' so to speak.

I do have to say I have been extremely blessed in several ways. I have a large family, and many of them might be in a position to participate. I have had a long a excellent business reputation primarily dealing in construction with upper income people with large asset bases. Many of them have become long term friends also. I have also had the privileged of meeting and become well acquainted with a group of pretty wealthy folks through an Investment Group locally who I am quite familiar with from having been investing with them for a decade or more.

So in summary, who do you know that might be a good example of similar people?

Take Care, Dan Dietz

Sherry,

I just used UDIrect IRA and was very happy with service and price. They were also very good at helping me locate non recourse lenders and a legal firm to set up a LLC (we are a three way partnership, all using SDIRAs). their site is www.udirectira.com

Did you know there is also a forum that deals specifically with SDIRAs? It is here

http://www.biggerpockets.com/forums/51-tax-legal-issues-contracts-self-directed-ira

Dan

Thanks for the replies so far guys.

To clarify on a point Bill made about. I AM new to soliciting funds, but have been doing a great deal of research on it also. I fully admit I have a lot to learn :).

I do NOT plan on approaching that many people at once, and maybe I'll never make contact with them all. My list is made up of relatives, people I know from civic activities, past customers, neighbors, people I am involved with in a local Investment Club etc.....

What I DO plan on doing to start is to talk to about 3-5 of them with a dialog not of 'would you like to participate' but more asking them their thoughts on 'here is my plan, I am thinking of seeking people of a similar demographic as you, and would like to know what you think of it: the good, the bad, the questions you would have, etc..." ...........getting feed back if you will to fine tune things.

I may be way off base with the rates and and time frames that think people may be interested in lending at, time will tell.

Just to give a couple examples of the kind of folks I am thinking of;

• An older, retired friend that I recently borrowed the 'fix up funds' (25K) from for a flip I did. I offered 6% for 6 months. He came back with only wanting 3% and I could keep if for up to 3 years if I chose to rent it or it tool a while to sell. I know them well enough to know they have several hundred K in CDs as the 'safe portion' of their portfolio
• A business associate who I dealt with when setting up things for my SDIRA. He had 'heard' of the term SDIRA, but did not know much of anything other than it sounded interesting and he would like to learn more. I had explained how he could do 'loans' from with in a SDIRA, as he has no interest in owning real estate directly, but knows from family experience that it is a good, relatively safe place to invest.
• A former customer that has become a good friend. Middle age couple with high income, no kids to spend it on, and a busy life where they have little interest in pursuing real estate on their own either. Through doing work for them over a number of years and discussing finances for those projects, I know they have a sizable retirement account as well as assets outside of that also.

All of these people are NOT the kind that would like to go out looking for investment opportunities themselves, but I believe might be interested and have just never been presented with such opportunities. I would say they all know that they should be 'diversified' within their portfolios and have enough that if they invested with me it would only be a small portion of their assets. So they might be what you would say are NOT the typical 'Private Investors' that are out their seeking to find something to invest in.

Hope that all makes sense,

Dan Dietz

Hi,

A short background; I have purchased my first duplex within my SDIRA for all cash and have it rented. Could not get non-recourse lending due to an 'ineligible property class' that most of the other duplex or triplexes will also fall into. Too old, not expensive enough etc... I have what I would consider an exemplary business reputation of over 20 years in my town in the construction industry working on projects from 10K to 100K+. I also have a 'mentor' in the form of an employee/relative (who happens to work for me) that has 10+ years of experience with owning/managing about 10 units of his own with an excellent reputation both within our business community and as a Real Estate Investor/Landlord.

I have started to put together a list of potential private lenders after doing a lot of reading here. I have roughly 150 names, of which I am ready to do a 'test sample' with a couple of them that I am very comfortable with, and I think they with me also. My approach for this 'sample' is going to be "Here is what I have been investing in, what returns I expect, how I have been financing it etc..." and "this is how I see an opportunity for those interested becoming Private Lenders to participate and receive a pretty good return on their funds" (I am working on better wording for this).

I envision these potential investors falling into 2 groups primarily. Those individuals with a high nets worth who are not really interested in doing things like real estate investing themselves, but would like to diversify, and understand that it can be a great avenue but want to let someone else do the day to day of it. The others would be people a bit more like myself who have most of their assets tied up in either their own houses/farms or their retirement accounts. I envision them diversifying those IRAs etc...by putting their 'lower risk portion' (think usually CDs etc...) into Private Lender loans for anywhere from 3year to preferably 15+ years.

MY QUESTION; Is there a 'minimum' rate as a 'general rule of thumb'? Of course Im sure people see all kinds of scenarios out there. As a VERY rough idea what I am thinking is this; If 3 year CD rates are at 3%, offering to borrow at say 5%. If 15 year rates are at 4%, offering to borrow at 5.5 to 6%.

I know this probably seems low to some of you, but I know a couple of these people well enough to have an idea of how much they have invested in what kind of items.

Thoughts?

Thanks, Dan Dietz

Austin,

You are getting some good solid advice above. I currently (just a few months ago) bought my rental property, a duplex. We bought it at steep discount at an estate auction..... about 66% of assessed value, which is pretty accurate in our area as to selling price. We paid 77K, did less than 1K in upgrades, and have it rented bringing in $1350 month. It IS an older buiding, but has newer roof, windows, furnaces, water heaters, etc.....

I am looking at other properties right now too. There is only one triplex that just came for sale in our town. It is a foreclosure and needs some work but is just 26K. Probably needs at least 30K in work (siding, roof, flooring, paint, etc..). I am running numbers at an 'all in' of 72K, and anticipated income of $1400 month when fully rented. At 25% down, this gives a 25% plus return on equity, which is what I mainly look at being a long term investor looking to at returns over 15+ years.

I use this simple, free calculator from here

http://dinkytown.com/java/InvestmentProperty.html

to run my numbers. I agree 100% with the 'guide' of expenses running 50%, at least for analysis purposes. This particular property came in at 45%, partially as it will have new siding, roof, some mechanicals etc....

I also agree with the general feeling of many hear that you are going to have a bit higher turn over in a typical unit like this than a SFH. I figure 1 month a year, and if less, icing on the cake. My 'mentor', who works for me in our 'day jobs' has about a dozen units and just had one turn over where the tenant was there for about 7 years! BUT, on average, it seems he has a tenant stay about 1 1/2 - 2 years.

Good Luck,

Dan Dietz