All Forum Posts by: Scott Jensen

Its hard to get a securities based line of credit with a $100k portfolio. The smallest one I have set up was around $200k on a portfolio around $500k.  Really, where I seem to use these most is with a client that has several million in stock market investments and wants access to funds without selling the stocks and paying the capital gains taxes.

I probably wouldn't advise this...but you could look around for a custodian that has really cheap margin rates...and open an account there...and then take margin out of the account...That's what I do personally.  You could really screw yourself over with a margin call though, so proceed with LOTS of caution.

Self promotion is lame... but what you described is how I work with higher net worth clients. Most advisors don't go near it. 

@KC Pake

Interesting. Are you bringing this up because you sell Unsecured Term Loans?

Regarding point 4, how would unsecured term loans lead to higher returns than a typical mortgage?

What are the fees, terms, and rates for these types of products?

@Daniel Durbin Generally in Minnesota, if you are managing a 1 unit rental (SFR) then the tenant is responsible for lawncare and snow removal. This should be in your lease. If you are using the Minnesota Standard Residential Lease (which you probably should be) then you attach an addendum that explains snow removal and lawncare. If it is a multi-unit property it is common for the landlord to pay for this to be done professionally.

I agree with all of the posts on here so far. as @Jeff Nash mentioned, it really it just depends on his goals. There are a lot of options, especially if he is charitable. I would probably look at a mix of 1031 and charitable options. For instance, he could look to 1031 into 2 or 3 DSTs and then gift one of the DSTs to charity and time the gift with other taxable events.

@John McKee

Hi John, I can give a brief high level overview.

A Delaware Statutory Trust (DST) is a passive investment vehicle that is generally used for real estate investing. The major advantage DSTs have over many other types of passive real estate investments is that they qualify as replacement property in a 1031 exchange. Because of this, 1031 exchanges make up the majority of all DST transactions. Large sponsors have multiple offerings open at a time so investors can choose a property type that fits their goals. Apartments, Student Housing, Self Storage, Commercial, etc.

The SEC classifies a DST as a security so they must be purchased from a financial advisor.

The costs very A LOT by financial advisor and DST Sponsor. In general, financial advisors that work for a Broker-Dealer charge 6.5% on the front end. In my experience, financial advisors that work for a Registered Investment Advisor charge about half of that. The DST sponsor takes about 2% on the front end as well.

The hold period is generally 2-7 years. At that point it can an investor can pay the taxes, 1031 to another DST or 1031 into any other type of property that can qualify as a 1031.

The rates vary from sponsor to sponsor and differ over different periods of time. A very large DST sponsor I talked to recently told me their average return after all fees and commissions has been 9% overall and 12% for multi-family and student housing. Cash flows are generally paid out monthly to investors and right now I am seeing distributions around 3-5%. (So, if you've got a million of equity you're exchanging into a DST, you would expect $30k to $50k per year). The rest of the return would be from price appreciation when the property sells.

The main tax benefit is that they qualify as 1031 replacement property. Second, they are tax advantaged just like normal real estate with annual depreciation. It just shows up on your schedule e like a regular property.

Other benefits are: limited liability/asset protection, reasonable minimum investment ($100k usually).

Note that these do have risks just like any real estate and they are only available to accredited investors.

@Eric Noble

A pool and guest house make me think this house may be a good short term rental. Is that assumption correct? If so, you can potentially turn it into a short term rental, run it for a year so you have rental history, and then sell to an investor that is building their STR portfolio. As long as you have good rental numbers and positive reviews, STR investors likely won't mind that there are not good comps for this property.

Have you looked at Delaware Statutory Trusts?  They can qualify as 1031 replacement property so you could continue to defer taxes.  If your properties are highly appreciated I would be cautious about selling them without doing any tax planning. It's pretty east to get into the 20% long term capital gains rate and 3.8% Net Investment Income Tax. 

If you've got quite a bit to work with I would recommend trying multiple things and seeing which one you like best. Syndications (but be careful here...I've seen syndications go bad as well), DSTs, Private Lending, etc. Heck, fixed annuities and agency debt are paying over 5% fixed, so if you really want to sleep well at night that is an option as well.

Also, I have found that the landlord/tenant relationship is generally better with short term rentals than long term rentals. Have you given that any thought?

@Brandon De La Pena If you started a new business of any sort I would recommend you NOT focus on acquiring real estate. Focus on your new business. Once your new business is successful real estate can be a great place to put your excess cash.

@Taylor L.  Was the trouble with UBIT the actual amount of taxes paid or the complications with figuring out UBIT and reporting it correctly?

@Anna D. You can certainly do it and there's a lot of different custodians that can be helpful. BP is a good spot to look. Just make sure you know what you are getting into before diving in. There can be complicated issues with financing, UBIT/UDFI, IRS Reporting, RMDs, prohibited transactions, etc.