All Forum Posts by: Daniel Dietz

Hello,
I am talking with a couple that might be interested in selling a property on LC. It is actually her fathers property, and he is in assisted living home, and she has Power of Consent or however that is stated. Father still has quite a bit of cash to pay his expenses so there is not an issue of Assited Living home wanting the money.Father curently has most of his assets in CD = low rate of return.

The property consisting of a very nice 3/2 brick home, and a separate 'office' (the size of a 2 car garage) that is used as a Beauty Salon with a renter that has been there (salon) for 20+ years and would like to stay. The house has never been rented before. There

They are looking to get rid of it as it is obvious that 'dad' wont be returning home, and they have no interest in being landlords. I have an existing relationship with them from my 'day job' of contracting and we have hit it off really well.The property had been listed for 6 months, starting at about 150K, and they dropped down to 100K over 6 months. No offers, some lookers. It is 'assessed' at 135K. Needs minor painting on outside trim, a few other minor things.

My thoughts on a proposal are to buy it with either $0 or a couple thousand down on a land contract, offer an 'attractive' interest rate, and maybe do a balloon in 3-5 years and get conventional financing at that point. I would like obviously make this a good deal for me, but them too. I think being in a small town, and them knowing a lot of simialr aged people, they could be a good reference for me on future deals.

So, what is 'fair to both parties? 4-5% interest? how many years to the balloon? What other factors? How could the fathers health care cost affect a LC pro or con?

If we did 95K @ 4.5% amt. for 30 years the payments, taxes, and ins. would run about $660 a month. The salon brings in $400, and I think the home could get $750 - $850. Lets call it $1200 total.

Is this a good deal for each of us? I know it doesn't fit the 50% rule, but it also seems like a way to get into a property for next to none of my own money, and a fairly low maintenance home.

What other things would I need to be aware of with a LC?

Thanks, Dan

Hi,
Thanks for all the great help I have gotten here so far. It has helped tremendously as I move towards my first dive into the RE Investing World,

My question for today is about the 'flexibility' of SDIRAs.

Example 1 would be if I buy a 'buy and hold' property with 100% funding from my SDIRA, and at a future date decide to sell a portion of my SDIRAs interest in that property (say 50%), is that legal? Could I sell it to person either within their SDIRA, or in just a deal that is not in a SDIRA? I assume I could not sell it to myself outside of my SDIRA at that point, even though it seems I could have bought it 50% in my SDIRA and 50% out of my SDIRA originally since that would have been from a 'dis-interested party'?

Second example would be if I chose to use leverage within my SDIRA at first and say use 50% SDIRA funds and 50% leveraged funds. Could I pay off or pay down this loan (leverage) at any time by either making a yearly contribution into the SDIRA or rolling over other IRA funds into that SDIRA?

Hope that makes sense.

Thanks, Dan

Thanks for the advice Mitch. It is slowly getting clearer to me :lol: I also came across this great video here through Bigger Pockets chat boards http://www.youtube.com/watch?v=z15aanCJ4sA&feature=youtu.be

I think this is the same lady you mentioned above. It explains a LOT about the SDIRA, including some ideas I had not even thought of even with all the research I have done. I would HIGHLY recommed that anyone thinking of doing a SDIRA to watch this.

I will be giving her a call next week to move forward on things.

Thanks,

Dan

Mitch,
Thanks for the reply. I took a look at their website, lots of good info. They were not open by the time I saw this for more questions.

One thing I am still a bit confused on is the whole Administrator vs Custodian issue. Currently, my stocks and mutual funds are at Fidelity. Is Fidelity acting as both the Admin & Custodian?

It look like from Udirectira's site that I would do a 'roll over' to them of my existing plans funds (maybe I am misunderstanding this though too). Would they then not be BOTH the admin and custodian too?

So you, or any others out there too, do the 'LLC with checkbook control' that they talk about? It looks like (looks can be deceiving at times though) that there is no real downside to doing this if I am understanding it properly.

Lots to learn. Thanks again.

Dan

Hello,
I am leaning very heavily towards doing my RE investing in a SDIRA. I have looked at several online that I have heard mentioned here and elsewhere. This would be a relatively simple type of investments; single owner (me) with possible leverage of borrowing with-in the SDIRA. It would be a ROTH, and I would like to set up and LLC inside of it to do the 'checkbook control' I hear refereed to here.

What type of initial and yearly fees are you all seeing when using a SDIRA? My roll-over would be up to 100K, which IF I leveraged it further, might be up to 200K. This would be for long-term holding of rental property. Is there any soecific companies that you have had good or bad luck with? (if we are allowed to pass that info here). And finally, how long approximately does it take to set one up, to the point you could make an offer and or close a property with it?

Thanks for all the help so far!

Dan

PS. Interesting side note; I was talking to our accountant from my 'day job' today about business matters, and asked him about SDIRAs. He has been aware of them for 10 years or more, but just now has his first client using one. He has around 4000 clients he (and his staff) does work for. Interesting how little they are used.

I am wondering how/if to best use the Cash Value of my Universal Life Policy to assist in getting into RE Investing.

Although my net worth is fairly high, it is mostly tied up in ROTHs and my personal residence, which I would prefer not to leverage. The policy in question is holding about 150K that was gifted to my wife as her parents were doing estate planning. Her mother is still alive, but elderly and handicapped, therefore, she would prefer not to 'use up' (lower the net value) of the funds in case her mother needs assistence back from us.

The policy is with a A+++ company, I have had it for 20+ years. It is currently paying 5.5% AFTER insurance cost, and carries 500K on myself. I can borrow from it and get the funds in 48 hours. The 'stated'rate to borrow is 8%, but the policy still pays the 5.5 even when the money is borrowed out, meaning a 'NET' rate of 2.5%. Although, this spread can change over time, so I am not thinking of using it long term for RE.

I am leaning towards buy and hold for rentals as my dive into RE Investing. I have a great mentor, good buys, etc... The properties I have looked at are somewhat like this; REOs assessed at 100K, can get for maybe 40K, 20K rehab, good cash flows. I would like to use the Insurance funds to either do a down payment, or possibly buy for cash, and then refinance at as high of a leveraged ratio as possible.

Would I be better off buying them for cash, doing the work, and then refi for 80% of the ARV, or doing 20% down on them and then refi? I guess I am looking for what is easiest to refi more than the interest rate differences.

Hope that make sense.

Dan

Thanks for all the quick responses.

A few clarifications;

I am going to be talking to a few of the SDIRA places mentions on here before I do anything, as well as my financial, and tax people.

The properties I am looking at would all be new purchases from neither myself, or any prohibited parties. Possibly one would be from an uncle, which my understanding is that he is NOT a prohibited party.

The 'balance', the part other than the 'down payment' portion that would come from SDIRA, would NOT be tied to or using the SDIRA in any way, for collateral or otherwise.

The % of returns to the SDIRA would be equal to the % that the SDIRA put into the deal. So, the %'outside' of the SDIRA would equal to that portions contributions - The SDIRA would NOT be making me the other returns, the loan OUTSIDE of the SDIRA would be earning those returns. Confusing, huh?

A couple of the properties might be exactly as mentioned above, where the owner would carry the balance at a very competition rate. The others, I have been talking to a local credit union that is seeing how we could make the balance (outside of the SDIRA) work by either a personal guarantee, or assigning some of my other assets as collateral for that portion. We have JUST started talking, so I have a ways to go here.

I would also see this scenario as beneficial because it would allow for some 'current' income, tax advantages, etc... (on the portion outside of the SDIRA) and also earn a nice return on the portion inside of the SDIRA.

Thanks again, Dan

Hello,

I am looking to clarify what I am reading here and otherwise.

Can my own SDIRA 'partner' with myself?

What I mean is this; Could I use my SDIRA to put in say 30% of a purchase price, and then OUTSIDE of my IRA, use financing to come up with the other 70%? So it would be a 'partnership' between myself, and my own SDIRA.

I realize that all inputs and out-goes would need to be at that same percentages as the original structure.

My reason for wondering about this is for the possibility of working with a local lender that I have a history with, instead of using a big national type of outfit that usually does the non-recourse loans.

Maybe I'm way off base, but just wondering.

Thanks, Dan

Hello,
Last SDIRA question for a while :lol:

I read this on another website;

Due to conflicts of interest, neither you nor a close relative can live in the home now, as this would be considered a prohibited transaction with a disqualified person (IRC §4975(c)(1)(a)). However, you can hold onto the property, lease it out to "arms-length" renters, build your retirement account with the rental payments, then take the real estate as a distributed IRA asset when you can take distributions penalty free (after age 59 and a half). After that, you can move in and enjoy the home you've waited so long to occupy!

Does this sound right to those of you how are knowledgeable in SDIRAs?

IF this is the case, are there guidelines as to how long it would need to be held first, before you took it as a distribution? And additionally, could it be bought after age 59 1/2 and held for however long needed, and then be withdrawn as a distribution?

Thanks, Dan

Hello,
More SDIRA questions - I am putting them under separate heading to hopefully make them more useful to others too.

I understand that I can not 'do the work on the property to make a profit'. As might be the case in a Flip that needs work or similar.

I am assuming that it would be OK for me to do normal maintenance on a rental that I would be holding long term - such as mowing, small fix-it projects, etc.. I would NOT be taking ANY pay for these, just doing them. I am assuming since I would not be doing the prohibited 'benefiting from' (as in making income off of) that this would be OK. Is that correct?

Thanks, Dan