All Forum Posts by: Daniel Dietz

Mark,

One other thought as to which loan to do, points paid, etc.... is to run the numbers through a calculator such as this to see what the results are.

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

To me, I am mostly investing for a retirement plan as opposed to current income, so I mostly look at long term ROI.

Dan Dietz

Mark,

I can't answer your question about 'if these loans exist', but I am in a very similar situation as to the low cash but healthy IRAs, so am interested in hearing what others have to say.

On another note, have you considered using your IRA assets through doing a SDIRA (Self Directed IRA) in which you can invest your IRA funds directly instead of withdrawing them?

I ask this because that is how I recently got my start..... I, along with my brother and father, converted part of our IRAs to SDIRAs (about 1/3 of it in my case), and went into a three way partnership and bought our first duplex with all cash from that partnership. We were hoping to do a 'non-recourse loan' (the only kind typically allowed within a SDIRA - and a max of 50% LTV), but our property did not 'qualify' as it is next to impossible to get a Non-recourse Loan from a traditional lender as they do not like to do them on properties older than 1940, less than 100K purchase price, or those that are 'stacked' - meaning converted houses. Are flunked on all three criteria. The only other options for borrowing in SDIRAs in finding 'Private Lenders' which I am currently working on.

In my own case, I would like to buy at least one more property within my SDIRA (more if I can find the right lending) and also buy some with non IRA funds. In my case, I currently have very little liquid cash, but have a property that is for sale which eventually will generate hopefully about 80K+ of cash when all said and done.

If the SDIRA interest you at all, there is a specific forum on here to discuss that in more detail.

Dan Dietz

Daniel,

One other thing as far as costs go...... there is a yearly maintenance fee for each SDIRA (3 in our case since 3 partners) of about $250 or so with UDIrect if I remember right. I have no problem with this since we are essentially paying them almost no fees for services as we have the 'checkbook control'.

Dan Dietz

Daniel,

I think (I dont have the checkbook here) it was about $1500 for the '3 member' version that we did. I believe their fee for a one member was about $500-$700 or so. I get the feeling they do a LOT of SDIRA work. I checked with the lawyer I use for my 'day job' (I have a contracting business) and he HIGHLY recommend that I use someone that had experience in SDIRAs, and said even if he tried, he couldn't touch it for 'several times that price', due to his unfamiliarity with SDIRAs. I think it was a man named Jarom is who I worked with. He was great about answering a lot of questions before I committed to them. If you search Mark Kohler and SDIRA on youtube you will get a feel for thier knowledge.

Dan

I have used UDirect recently, as have the other 2 partners in our 3 way LLC. They were great to work with, reasonable fees, and we have checkbook control, which I think is essential with rentals. We all also used one of the lawyers they recommended at Mark Kohlers firm and were happy with that service as well.

Dan Dietz

Kris,

One other thing that a previous poster mentioned too is to think of using leverage. If you run the numbers through the calculator I posted above using 25% down and 75% loan, the returns are MUCH different, even after figuring payments.

It might look like this;

• 121K Investment
• 108K Income (90% Return)
• - 50% Expenses
• = 54K Operating Income (45% Return)
• - 5K Return on Father's Investment (@4%)
• - 29K Payments (@5%/20Years)
• = 20K Net Income (16%)

Just food for thought. Also keep in mind you could buy 4 times as many properties for the same cash. As far as 'appreciation', I think of that as icing on the cake ( I plan to hold mine at least 15-20 years)

Dan Dietz

Kris,

You are getting some great feedback here. Some may seem a bit critical, but I think that is mostly others speaking from experieince. I am VERY much a newbie to this game having just bought my first duplex a few months ago. BUT, I have been reading here and other places too for a couple of years AND I have an employee who has 10+ rentals and does a GREAT job screening and dealing with tenants.....it is like having a built in mentor :). I also put a LOT of stock into what those more experienced than me on here have to say.

What I see that you HAVE done right is getting some properties that have a good rate of return on the purchase price: in my own case I bought a 78K duplex that bring in $1350 month. First glance would say I am making a 20.75% return, or that I am getting 1.73% a month income (close to the 2% Rule you will see on here). We both bought well priced properties I feel.

The first thing it sounds like you are NOT taking into account is all of the expenses. You will see others here mention the 50% Rule for expenses, which seems high until you start penciling it out. I use this calculator at dinkytown.net

http://www.dinkytown.net/java/InvestmentProperty.html

to help evaluate properties I am looking at. For expenses, I use these figures; Taxes $2800, Utilities (water, sewer, and vacancy heat) $770, Insurance $900, Maintenance Fund $2400 (15% of income) Advertising $100, Accounting $100, Supplies $100, Misc $100. That ads up to 48.96% of income, pretty darn close to the 50% Rule. The only one that is really a 'estimate' is the maintainence, but I would rather be high than low in my estimates.

The other thing that is does NOT seem like you are figuring is a 'Return on Capital'. I assume that your Dad needs or wants to get SOME kind of return on his equity Even if you only figure 4%, that can really change things. I know some people say "I dont really need to count that" but to me, I could put my dollar in a guaranteed investment at 4% that takes NO work. I am only 'making money' in my mind when I earn over and above that rate.

Taking into account those figures, and looking at the LONG term profit potential, I would say plan on this formula

• 487K Investment
• 108K Income (22% Return)
• - 50% Expenses
• = 54K Operating Income (11% Return)
• - 20K Return on Investment (@4%)
• = 34K Net Income (7%)

I know those do not look as good, but I think a bit more realistic too.

Dan Dietz

@Dawn Anastasi I wonder if you can look back under my name in the SDIRA forum? I have written a lot about this topic there.

In short, I am 'cash poor' and 'IRA rich', relatively speaking. Meaning that my IRA value is around 20 times my cash on hand right now. I also have equity in my own home of around the same amount as my IRA, but I have not wanted to tap into that as it is for sale currently due to family issues, so do not want to muddy the waters on that right now.

My brother and father who are the other 2 partners in the LLC, both also using their SDIRAs. My understanding is that the different partners within an LLC can be any mix of IRAs, non IRA funds, even other LLCs, but the 'ratio' of the shares essentially must ALWAYS stay the same. In our case that is 33.33% each.

My SDIRA is a ROTH, mainly because I had converted my traditional the first year I could, and the others are Traditionals. This complicates things only slightly as depreciation needs to be kept track of for the Traditionals since there is tax implications when withdrawals happen some day, and there are not with the ROTH SDIRA since no taxes are due upon withdrawal.

One of the main reasons we did a 3 way partnership is that we all knew we wanted to have more than one rental as opportunities presented themselves, and felt our joint funds could better accomplish this. One issue in our area is that to get a good return (close to the '2% rule'), almost all of the units are 2-3 unit older (pre 1940) converted houses (meaning over/under units) and well under 100K. Unfortunately, when we looked into getting Non-recourse Loans, the rules seem to be; at least 1ooK purchase, no pre 1940 units, and no over/unders :(. For those reasons, we assumed for starters at least that we should pool funds.

One thing to keep in mind is that since in our case, we are 'prohibited parties' we CAN go into and LLC together, but can NOT ever sell our shares to one another, or any other prohibited party, such as our kids, etc.....

One other thought of doing a SDIRA LLC vs non-IRA LLC with family members is this: in a SDIRA LLC all income, expense, and profit must be split EXACTLY in the same ratio as ownership (33..33% each in our case). In a non-IRA LLC, things can be shared however in ANY ratio desired for the most part. Example is a friend of mine who is in a partnership with his father, his investment in 10% and dads is 90%, but the profit is split 50-50, partially because dad does not need the income, and I think partially as an 'estate planning' tool.

If you or anyone knows how to move this part of the tread over to the SDIRA forum, feel free.

Dan Dietz

Great to see another Wisconsinite doing so well!

I too an a relative newbie at this in Reedsburg, near the Wisconsin Dells area.... a city of 10K in a county of 7ok people, so we have a bit fewer opportunities ;(.

We did just get our second renter into our first duplex that we bought through our LLC that is made up of 3 SDIRAs of myself, my brother and father.

It is not as smoking a deal as yours from a cash flow stand point, but good non the less. We paid 77K all in, put under $1000 into it for mostly cosmetics, and it is bringing in $1350 month with tenants paying for electrical and gas, and taking care of snow and lawn. It has tow new furnaces, newer water heaters, newer roof, and mostly new windows and aluminum siding....so pretty low maintenance :) We got 6 months rent up front from one of the tenants, but that is a story for a different thread ;-).

I have a big list of our next potential prospects, and am meeting with a potential private lender this week also to see about financing further deals.

Here's to more sucess for all of us!

Dan Dietz

Bill or others,

Bill, you obviously make a lot of great points, some of which I understand and some is way over my head! I am interested in learning more on this subject as I have a couple of potential owners interested in considering similar sales. I will be doing some searching here to learn more about the points you make.

I am also wondering if there is a good, comprehensive, easily understandable book that covers these topics at least to a point of understanding them enough to convey to a lawyer what you are trying to accomplish?

One of the property owners I am talking to is possibly interested in a 'long term' land contract of 10 -20 years. Would any of the point made above change in that scenario?

Thanks, Dan Dietz