All Forum Posts by: Daniel Dietz

Hi,

So far I have been using my IRA to purchase properties so the POF has not been as issue as I have been just using cash from within my IRA. So the whole POF thing is a bit new to me.

With that being said, I am planning on starting to buy some properties OUTSIDE of my IRA with 'traditional methods'.

One thing I am not clear on if the 'Cash Value' of Life Insurance can be used for a POF letter/source? I would prefer to borrow these funds from the account (I have talked in depth with my agent about this - the cost is about 4% interest) instead of withdrawing since part of the benefits of the account (such as interest rate paid) are based on the cash value, and dont change even if that cash value has an outstanding loan against it.

Do any of you have experience with this in regards to the whole POF requirements?

Thanks, Dan Dietz

Hello,

I am not sure if this is the right forum for this, but it seemed like the most logical one.

As I run numbers to see if a property is a 'good investment', I often find myself wondering 'what could my money be doing otherwise'. Of course there are MANY different ways of thinking about this.

The properties we have bought within our SDIRAs and are looking for more of are: buy and hold rentals that are fairly low maintenance, bought at least 30% below assessed value (estates or foreclosures), generate at least a 1 1/2% per month income, and would be leveraged at a maximum of 50% (non-recourse loan inside of IRA), and should have less than 10% vacancy. I see this is a pretty safe investment from a stability and low chance of negative returns standpoint.

In my analysis, I think along the lines of say "what would a semi-conservative
mutual fund that had a similar risk factor return on average"? Maybe 8%?

I am projecting the rental to make from about 9% - 18% depending on leverage, appreciation, repairs (figuring 15% of rent income). Lets say it might average 12-14%. I then think "Is the work worth the extra 4-6% return."?

Within a year hopefully I will be freeing up about 80K-100K in non IRA funds that I also plan to invest in real estate, and the returns look MUCH better with a higher leverage ratio!

Thoughts on 'analyzing investment options' and how you approach this issue?

Thanks, Dan Dietz

The more seasoned folks here can chime in on this too, but we ARE doing a RE investment with prohibited parties. The catch is that we are doing a 3 member LLC to buy and hold rentals, and this LLC will ALWAYS need to stay the EXACT same percentage ownership (1/3 each in our case). So if one member wants out, even if there is enough cash in the LLC to give them a 'buyout', we would still need to liquidator ALL of the LLC, or find a non-disqualifeid buyer to take over that share. Sounds like you might be looking at a shorter term deal. Our cost to set this up was about $1700.

Dan Dietz

Dawn and all,

Great discussion going on here.

I am in the midst of my first property purchase of a buy and hold that I am doing as a 3-way LLC with family members, all using our IRA monies with no borrowing due to not being able to find a non recourse lender for this particular property (age, price, etc)

It has become apparent that to grow our real estate business to 'the next level' we will need to find Private Money to leverage our IRA assets. So even though that is a bit ahead time-wise, I have already started to form a plan of action.

I my case, I am 'somewhat comfortable' dealing with large sums of money, as my day job is in the construction industry, and I am often selling jobs for 10K-100K and dealing with large sums, as in "I need a 30K deposit to get things rolling on this job" etc.... I also have an excellent business reputation and character reputation in my area, and am involved with a lot of civic activities etc...

With that said, it is still a different thing selling someone on the idea of 'buying a return' instead of a hard product.

One of the things I have done is to make a list of about 200 'potential lenders'. This will obviously be different for all of us depending on the stages of our lives and the people we know. My list is made of of; family members far and near, friends, business associates, acquaintances (UPS man who I have chatted with for 10+ years and know he is sick of stocks for his IRA and wants to find something better than CDs) church friends, a LOT of former customers (I have had the advantage of knowing a lot about their finances while working with them....such as "we have our other house paid for, are selling it, going to build this one and still have 300K left over" etc...).

So, I have been working on this list, and my next step is to approach about a half dozen of them, NOT to say 'do you want to do this' but to say "here is my idea, here are my figures, etc.... and I just want a *general thought* of what you think of this; does it sound logical, well planned out, etc..... to find out what possible objections will be.

I am still thinking about *which* people to test the idea on. I want a good mix. So far I am thinking; a retired farmer (money in CDs), retired business man that had lots of real estate in his younger years (familiar with rentals) widow who has a large estate and does not like the volatility of stocks, retired customer who sold business and has large sums and I would assume is looking for diversity etc...

I guess my thought is: come up with a plan, get over the hesitation how ever you need to do it (I hate the 'selling side' of busienss, I want to 'create') work that plan one step at a time, and educate yourself as much as possible.

Dan Dietz

Steven,

I'm 47 years old, and just starting on real estate investing other than my own personal properties. At this time, I am planning on first investing in properties with my own SDIRA investing in a 3 way partnership with my brother and father (both also using SDIRAs). We are primarily interested in buy and hold rentals, but would take a look at almost anything. We do have a great mentor who has about a dozen rentals with great results.

Other things we are taking a look at are finding private lenders and possibly partnering with others on larger projects. We have an excellent business reputation (we are in the construction industry) and a large list of friends and past customers that have a high net worth and might potenially be a good lending source.

I'd be interested to hear your thoughts on how age affects strategies. I guess a summary of our goals is within our SDIRAs is to grow our assets at the highest percent return possible over a 15-20 year time frame (may hold for income then or have them paid for and sell at that time).

I will soon also have approximately 70-85K of NON IRA money available when I sell one of my personal properties that I intend to invest most likely in real estate also. Any thoughts on how that might differ than IRA funds? Although I certainly would not mind current income, I would also be looking mostly to invest that in a fashion that could provide a high cash flow in about 10 years from now.

Thanks for all the advice so far, I great appreciate you and others here who share their valuable advice!

Dan Dietz

I too have been finding a non-recourse lender that is interested in the types of properties I have started to buy and are plentiful in my area. I am drown to them simply due to them paying the best returns on a percentage basis, and their abundance.

What I was hearing is they do NOT like properties that are pre 1940, of a 'stacked nature' (converted houses) or under 100K purchase price.

I too am starting to look at seeking private lenders or equity partners. Also looking at more expensive, newer places that do not have restrictions above, but might still be a good buy given that I could easily leverage them at a 50%+ rate to magnify the returns.

Micheal, any update on whether you have had any takers on the rates and terms you mentioned?

I came up with a list of about 200 potential lenders/partners and am thinking of 'running the idea by them', as in not asking them (initially) to invest, but saying here is what I am thinking of doing, and what are your thoughts/reactions to it etc..... just to get a feel.

Dan Dietz

I have been reading up on the whole 'Private Money' side of RE Investing and seem to get conflicting information. I am thinking in terms of future deals, not my current one, and want to have the homework done ahead of time.

My first question is if there are any good books or other resources out there any of you would recommend that give a thorough overview compared to the more brief coverage here?

My understanding so far is that I can NOT do 'general advertising' of "Do you want to invest for great returns' etc......

I am thinking along the lines of either talking to people I know, or sending letters to some of them explaining things. What I am wondering is what can I show these people in print to explain what I am doing and why they might want to be involved and what's in it for them.

A few I might talk to about "Partnering" but most I would be talking about them "Lending" to either myself, or the LLC that my SDIRA is in.

Thanks for any advice,

Dan Dietz

It is a list of 'non-recourse' lenders. NASB was one of the bigger ones on their that might be a place to start. I did not ask for a list of SDIRA customers of theirs...... I am not sure if that is a service or not. Interesting idea though. They are at Udirectira.com if you want to make contact.

Dan

I think I likely know the answer to this one, but thought I would check here too.

I am getting a good grip on the rules within a SDIRA for the most part as far as Prohibited Transactions & Self Dealing and the fact that you can manage screening showing etc... but NOT be compensated for it.

Does that mean there is no way within a SDIRA to pay for things such as a "Pro" membership here at BP, educational seminars, etc.....?

I am not even really concerned with 'writing them off' per say, but just paying for them. My IRA account is good sized but personal cash flow it a bit tight. Not sure if I should be happy for the first one or sad for the second one ;-)

Thanks, Dan Dietz

Dan,

I am in the process of setting up my SDIRA through UDirect IRA Services and they sent me a list of potential lenders. Not sure if they forward that if you are not a potential client of theirs or not. Incidentally, I am VERY satisfied with my experience so far with them, and the legal firm they recommended to do our Multi-Member LLC if you are looking for those services.

Dan Dietz