All Forum Posts by: Greg Kimura

@Brian Eastman

Thanks for the clarification.

I see how using certain terms such as dividends, interest of certain other investment income can be interpreted in a way which the IRS doesn't agree.  Since we're talking about the IRS (taxes), using their definitions is the only thing that matters.

It's good to know that the UBIT rule applies to flipping houses (as a regular or repeated basis).  As you posted, one can do an accurate analysis of the profit based on UBIT.

Thank you for sharing.

Greg

@Brian Eastman

I just pulled this from the IRS site:

The Internal Revenue Code contains a number of modifications, exclusions, and exceptions to unrelated business income. For example, dividends, interest, certain other investment income, royalties, certain rental income, certain income from research activities, and gains or losses from the disposition of property are excluded when computing unrelated business income.

According to the above, the investment would be considered income from dividends, interest or certain other investment income, which would exclude it from UBIT?  The SIDRA would still have the UDFI problem, but a Solo 401k would be okay.

He still can't do it because of #1, but he wasn't involved with the flip (ownership), then he could use a Solo 401k.

I may be missing something, but I think I'm correct.

@Brian Eastman

As a thought, would a Solo 401k have the same problems regarding UBIT tax or UDFI?  

I know that a Solo 401k cannot co-mingle personal and retirement funds (can't be used for a personal or direct family benefit), so the OP #1 applies, just like a SIDRA.

We have a septic tank at our house (first time for us) and we were concerned about it when we bought the house.  We've been here for 4 1/2 years and we haven't had any problems.  Here are things I recommend that you check to make sure the tank is functioning.

1.  Check for strange odors either outside near the tank or inside the house.

2.  Make sure the septic system is working and the leach lines are draining properly.  You also want to make sure the water is percolating down in the leach field - very important.

3.  If you have a sewer system, the county may require you to tie into it (change of ownership).  This can be very pricey, so make sure it's not a requirement.

4.  I've been told that a septic tank should be pumped prior to the sale.  Make that a requirement the seller is responsible for.

5.  Pay an expert to check the system - it's a special field and your home inspector most likely won't know how to do it properly.

6.  The old systems were made out of concrete or steel.  The steel can rust and leak and concrete cracks.  Also, the leach lines can get blocked too.

After much thought and family discussion, we have decided to lend my sister money on her home.  I was in the banking industry for about 8 years and I know a bit about writing the loan contract.  The part I need help with is making sure I am second behind the her first mortgage.  I've heard that I need to file with the state/county, but I'm not sure what I need to do.  Has anyone here done this and if so, what is the process.

I appreciate your help.

Thank you.

Greg

Here's what I see.  $35/bundle x 4 bundles per square.  600 sq foot house + shed + overhangs, I'd overestimate the sq foot of roof at 800.  Shingles = $1,120.  2 boxes of roof caps at $100.  4 rolls of #30 tar paper at $100.  Looks like one valley + five stacks/vents to flash = materials about $80.  130 ft of drip edge flashing at $50.  2 coils of nails at $60.  Roofing tar/caulk = $70.  Let's say $1,600 for supplies.  Dumpster $150ish.  So total less labor is $1,750.  Looks like a 2 day job with 2 men.  32 hours labor at $20/hr = $640.  $2,390 all in + $1000 profit = $3,390.  Give a 20% buffer and that leaves $4,068.  That's what I think a fair price is.

It does depend on how far it is to the roofing supply store, how far it is for the workers to travel, if there's any rotting wood that needs to be replaced and how busy they are (busier = higher profit).

You could buy a couple ladders, a compressor, a 100ft extension cord (14/3), 50 ft of rubber air hose, a roofing nail gun, a caulk tube a couple shingle removers and pick up some day laborers who know how to roof.  Get the trash company to send a dumpster, rent a truck to get the supplies (or pay to have them delivered) and you're set.  Just make sure you have enough insurance, just in case someone gets hurt.

And your existing roof looks pretty good, so I'm assuming you're replacing the roof due to leaks.  If that's the case, you should be able to repair it, without replacing the entire roof.  I also don't see three layers of roof on the house, but I'm going by the photos and it could be there.

Sorry, one more thing.  I read the advice regarding negotiating the price/terms of the purchase and I think it's great advice.  If you're buying the house for well below market value, the tenant may be the reason for the low price and you may not be able to get any concessions, but it's always worth a try.

And make sure you look over the lease and make sure that there are no limits on raising rent or there is no rent control where the house is at.  Raising rent won't help in this case.  If there are no limits, them maybe you can raise the rent to market value and if they want to stay, what's the harm?

One thing I've learned is that the faster you start working on getting them out, the better.  I'm not sure about your state, but here in So Cal, I've had tenants in my house for up to six months while the court system dragged their feet.

Since their lease ends at the end of Feb, I think you should sit down with the tenants and give them a three day notice.  Since they've been there for 20+ years, they don't have an eviction on their record and even though they don't want to move, they may be forced to.  Your job is to convince them that they should accept your offer, because if they don't, they will have a tremendous amount of trouble finding another place to live and the reality is that they will have to move.  Be firm with them, but also show your concern for their well being.  

It may take more than one meeting with them and you may not get them out until the end of February, but at least you won't be sitting there at the end of February with tenants that haven't even started their moving process. You do want to get them out as soon as you can and starting the eviction process as early as possible will be your best bet.

I'm not sure if your state is like ours, but we're allowed to evict if the tenant does not follow the rules of the lease agreement.  There should be a clause in the lease that says the tenant must not bother neighbors and must follow the law. 

If this was our tenant and they are not following these rules of the lease, we would file a 3 day notice to clean the yard, clean the house, get rid of the dumpsters, etc.  If they didn't do what you requested, then we would start the eviction process by filing an unlawful detainer with the Superior Court nearest to the house.  At the court hearing (two months out), we would show proof that they are not following the rules of the lease.  Typically, the judge would ask them if they could abide and most likely they would agree.  He would give them a reasonable time to do so and if they didn't, he would give us the judgement - the Sheriff would kick them out in a week or so.

Since it's mid November, you won't close escrow until mid December.  Depending on the time it takes to get the eviction, you most likely won't have them out before mid February.  At first, it doesn't sound good, but here's the kicker - If your tenant has a reasonable amount of intelligence, he will know that an eviction on his record means that he's going to have trouble finding another place to live.  That being the case, when you give them the three day notice, you can also sit down with them and give them an option.  Tell them that the eviction will look bad when they're trying to find another place to rent.  Tell them that you don't want to harm them, so you're willing to give them an option.  Give them $1,000 to move out by January 1st.  Tell them that the $1,000 will be given to them only if the house and yard are cleaned up.  If they agree, take 10 $100 bills and tear them nearly in half (you keep at least 51% of the bill) and give them the smaller part.  Tell them the other half of the bills will be given to them when they move out.  You can't ask for a better incentive than that!

Hi Sandy,

I've read the responses and there are some really good posts here.  I am not a financial planner, however I have set up my (our) retirement account, so I have a good grasp of what you should be considering.  I'm also in your age group, so I made plans for working another 15 years or so.

1. I am in a high tax bracket right now. I am pretty sure that I'll be in a much lower tax bracket when I retire. If I convert to a Roth IRA, then the amount I transfer is taxed at today's tax rate (high). If I leave it in a regular IRA, then when I start taking distributions, they are taxed at the tax rate when I take the money out (low tax rate).

2.  I did not do a SIDRA for the following reason: I wanted to use the money for investing in rental property or doing loans.  I chose a Solo 401k plan and I was able to purchase a rental house with my retirement money.  I also bought some high return D credit loans (with a lot of equity).  In about three years, I should be able to close out the loans (they'll be paid off) and use the money to buy another property.  I couldn't do this with a SIDRA.

3. I read Steve Hamilton's posts and he has some great advice about converting to a Roth IRA and not being able to move it to a Solo 401k plan. If you change to a Roth IRA, then you lose the flexibility to convert to a Solo 401k.

Make sure you have a good plan set up, but also keep in mind that the landscape will change in the next 10-15 years.  Make sure you keep up with the changes in retirement taxes and keep things as flexible as possible.