All Forum Posts by: Gabe C.

Welcome @Jasmine Patel. I found your other post first and mentioned there that I'm also investing in Raleigh from SF. Glad to have someone like minded around!

@Jasmine Patel I am also investing in Raleigh from SF. I have 3 properties and working on a 4th. Feel free to reach out if you want to compare experiences.

@Matt Homsy I am going through this as we speak and have a similar situation. I would definitely seek legal counsel, as you will get a ton of opinions (like this one!) on BP, and this is probably not an area where you can afford to make a mistake if something goes wrong. San Francisco has prohibitively expensive fees for LLCs and every state's protection laws are different. My attorney interviewed me for an hour to get my specific situation before recommending anything, and the recommendation was VERY specific to my situation. Nothing I ever would have deduced on my own or through forums. He's expensive as hell (the consult was free), but I don't sweat it because my mind is now at peace, and it's a one time fee. Just my $.02.

@Shawn Holsapple How did you double it?

Crazy. Although I'm in medium pink land and I just got a Zillow alert that my house value went down for the first time ever. First sign of the apocalypse?

@Bradley Shive Those are the ones. FWIW, NASB gave me the better numbers.

Also, I ran a quick calc on what moving my SDIRA to this Safeharbor option would do for me if I applied payments to one of my rentals. I would take a $10k hit on a $100k investment for the 10% penalty, but even using minimum payments, I would end up saving $70k in mortgage interest and shorten the loan term by 15 years. That remaining 5 years of no more mortgage/interest on the paid off property would be an additional $50k. There's still the 4-5% growth on the lump and rent inflation which would bump up the $50k number. There's also more equity there to tap into for additional properties...

@Bradley Shive @Claire Fenton I just had a 2 hour phone call with Alberto Uranga, who basically authored the "outside" method. He customizes a solution using a few different methods, but basically he's using a Safeharbor IRA to store your funds. This is either with a big bank like BofA or an Insurance company. The latter is the better choice because you will avoid a setup fee that way (both charge 4% setup fee, but you pay the bank. the insurance company will pay it for you and recover it over the life of the setup without touching your funds). That money makes about 4-5% while it's there as it is backed by index fund investments. Your money is not invested directly, but you'll benefit as if it were. When the market is down, you won't lose money, you just won't gain interest.

Each month, that IRA transfers an amount of money to an REI checking account that you set up for the purposes of paying a mortgage. The payment amounts are based in part on your age. In my case I have 20 years to retirement, so my payments out for a mortgage would need to stretch over 20 years as stipulated by the IRS. So if I had $200k, I could take $830 a month (200/20/12). Further, if I want to pay the 10% penalty, I can take more. The penalty is only on that payment, so if I took $2k a month, I'd pay $200 a month in penalty. The lump in the IRA is not penalized. And you can control this by adjusting the amount. This 10% penalty is offset somewhat by the reduction in amortization, since you'll be paying much less in interest over the life of the mortgage. You'd have to calculate that on a case by case basis to figure out if it's worth it. Not to mention, you're now cashflowing monthly now instead of in 20 years and you can use the freed up money to invest further in real estate. This flow can also be used to help get loans since underwriters count it as guaranteed income. 

It seems to be very useful if you have large enough sums to invest, are of a certain age and have the right situation. It allows you to access the money while you're younger, and benefit from tax advantages and cash flow with your investments instead of having them locked into the IRA.

@Claire Fenton Definitely intriguing. Whenever I part from my current job, I'll have another big 401k to play with. Would be nice to have it pay off my primary residence for me. Thanks for the info! 

@Bradley Shive NASB and First Western seem to be the most widely used, so I started with them.

@Claire Fenton Can't believe this is the first I've heard of the outside method. I've been researching this stuff non-stop since January. A quick google brought this up...

"Those who sell annuities market primarily the 72(t) distribution concept. The IRA is actually investing in an annuity that guarantees a series of payments, which are taken as distributions. This is how it is used for real estate purchases:

• Sellers of annuity contracts will have the individual transfer their IRA into an IRA account, which in turn will purchase an annuity contract that guarantees a fixed payment in order to meet the required payment agreed to with the IRS
• The individual will find a piece of real estate and buy it using a mortgage guaranteed by their personal assets, with payments from the annuity used to pay the mortgage on the property."

Does that sound like what you set up?

@Bradley Shive I just set up a SDIRA and am looking at non-recourse lenders. The loan terms are definitely different... I'm seeing 60-70% LTV, 20 year max for fixed rate, some require you to have 20% of loan value in reserves (which is a good idea anyway), 5.75-6.25% for the fixed loans. Also, since it is non-recourse, they really want to look at the property. There are other stipulations like no more than $10k rehab to get it rentable or must have at least 1.25 debt service coverage ratio. None of it is really off-putting, it's just more hoops.