All Forum Posts by: Jesse T.

Where is the property located?  How much are the lien totals vs. the property value - percentages are fine if you don't want to provide actual numbers.

I would forget about 1075, since it is a slow time of year.  With an asking rent under 1000, i would counter with 925/900 - although I might just reject an 800 offer.  I would probably do a 3-6 month or 15-18 month lease to end up with a vacancy in a better season.

I think the "labor cost" for Brent would cover those.  I think interest for the money for the project should be paid before profits are split.  Where it could be a problem is if the deal takes a long time and does not have much profit - it might be a case where the interest expense would wipe out the profits for the OP.  I think it would be better for both sides to get a tiny bit of profits.  

I do agree if there was a case where they needed to take a loss, the interest costs should be the first place to take a hit.

@Brian Eastman  If the principal is used somewhere it is replacing something you would have had to normally use post-tax dollars.  So it doesn't really matter that the payments are coming from a post-tax paycheck or other income source.

It is probably clearest if you return the actual principal to the plan. Let's say you take out a 25K loan at 6%. You take out the loan and you have 25K that has never been taxed sitting in your bank account. For the first payment you need to come-up with 125 in interest. We both agree the 125 would be post-tax dollars. However if you just redeposit your 25K to payoff the loan at that point, it never was taxed, and will not get taxed until you withdraw it from the IRA.

 The interest would be the interest that you pay which is an expense.  I think the objections were to you taking additional interest on your money.  Your money is invested for capital gains.  You are getting money cheap, so I would want the first couple deals done correctly rather than quickly.  This is another way that the interest charge could backfire.

I agree with the others saying to try to get the purchase price reduced.

@Brian Eastman  I agree that a 401K loan is not a long term solution.  A Solo 401K doesn't have the biggest risk of you separating from the employer, which calls loans due.  Only the interest is that gets taxed twice, since you get the principal without paying taxes on it.  If you accumulated 3K in interest on your 25K loan, the 28K would actual be 28.84K account for the interest being taxed twice.

Hopefully the earnings outside the account make up for anything lost in terms of return from the account.

I think REITs or other "ordinary" income producing investments are the best options for a 401K/IRA. The tax advantages are a significant factor in real estate investment and you lose that when you invest inside a tax-deferred account.

Can you take a loan against a Solo 401K?  Having the interest payments go back to you, rather than a bank seems like a good option - even if you at some point get hit with double taxation.

I assume you are the buyer?

Couldn't the seller reduce the price 2000 to make up for the amount you are out of pocket?  Is the seller providing other closing assistance?  Is your loan a low down payment loan?  Those usually are the situations where underwriters get nervous about payments from sellers to buyers.

The concern is that the payments are being done to inflate the selling price.  If they reduce the selling price, that means you pay less and the concerns should be alleviated?

There are a lot of ways you can structure it.

I probably would have these goals:

1. return of principal and payment of interest

2. Reasonable return of labor for Brent

3. A profit split that encourages future business

I would give Brent a fixed amount(pre-negotiated) for labor and the 50% of the profits

After the a couple successful deals Brent should be able to invest enough that the money(and I would give credit for his labor rate) should be enough to be 50/50.  If Brent is getting 10K in labor credit in the 60K expenses/100K sale price example.  He would add 25K in cash and you would add 35K.  You each would end up getting 15K in the profit and Brent would get 25K total 15K profit and 10K labor.  While that may not seem like a great profit split for you, he is doing a lot of the work and has his time and money at risk also.  I would do the labor credit on a per flip basis, since some will be easy and many won't.  Also Brent using his money in addition to yours means you will have the ability to do more and to do bigger projects.