All Forum Posts by: Keith Thompson

Thanks Chris.  

Happy to receive your recommendation(s).  I have used several attorneys across MD for my RE endeavors there. I'm trying to do some research before I engage one for this issue.

I've had great success against this HOA as a witness in three cases and as defendant in another. 1 was dismissed at District & withdrawn at Circuit appeal and a tremendous reduction in the amount due in another at Circuit (~$6K reduced to ~$600 - should have been $0 & dismissed as well).

The HOA subsequently withdrew their complaint against me (with prejudice). I think the prior successes and my "Motion for Proof" of each averment spooked them. This HOA is running amok and is illegitimate. It appears to have been illegitimate since about 1985 and yet the "Board" collects dues and sues without authority or consequence.

It's been 10 months since my initial request for access to "Books and Records" with zero movement.  I intend to bring suit but want to research the progression of such cases first.

I'm still searching for some relevant cases, even outside of MD at this point.

Best & Happy New - 

Keith

The HOA has been ignoring virtually all aspects of their CCRs and Maryland Law. I served as witness in two court cases so far regarding the HOA CCRs being "unenforceable" and will do so again as needed. I'm trying to find out just how bad the HOA situation is and the Board President has flat out told me that they will not give me access to the "Books and Records". He claims that the current Board did not receive any documents from prior Boards (I know this is false). Even if that's true, they should at least have their own records then... The community was founded more than 50yrs ago, CCRs and MD Law require documents to be kept and made available. There should be tons of information accumulated over that period.

Relevant references to Books and Records and access in MD Law are:
§ 11-116 for Condo's & 
§ 11B-112 for HOAs

I'm looking for a couple of examples of court filings for Motion and Order to compel the HOA to provide access to Books and Records. I can probably modify examples from any state, I'm just looking for a pattern that has worked elsewhere.

I've read many previous posts on the topic but have seen a few options, SBD and DSTs.

I'm looking for options that approach, match or exceed the advantages I see the Hughes Capital option. Not SOLD on them yet, but I like what I see.

 > Easy to invest

     - High Confidence for closing on the 1031 exchange

     - I failed to complete a 1031 exchange earlier in the year, so I'm skittish

     - I'm expecting another opportunity this year and I ABSOLUTELY want to defer for this one

  > Easy out

     - 90 days notice without penalties or fees (per Investor's Brochure & initial consult)

             I need details here in case I want to exit and take advantage of another opportunity

     - I'll ask about taking the property vs cashing out when I speak to a Senior Advisor (SA) next week

 > Reasonable anticipated rates of return

     - Property titled to me

     - I select from those available

     - I can change to another property if I like

     - Hughes will recommend changing to another property if I'm into a poor performer relative to the Fund.

            I will confirm this with the SA

     - Reinvestment of income or monthly checks (regardless of property status, i.e vacant, squatted, damaged...)

          Unsure how the reinvestment option work with what is anticipated to be about $7%-8%+/- (will ask the SA)

So I see Hughes (or Hughes-like) as a 2nd choice but prior experience forces me to look for a near-certain 2nd option which defers the taxes and positions me in a potential long-term investment with flexibility to exchange out if another better opportunity comes along.

Thoughts?

Options? 


Some BP posts that relate to this topic:

by @jim workman (BP didn't resolve the reference)

by @s david gilbert (BP didn't resolve the reference)

@Dave Foster & @Bill Exeter - Excellent thoughts from both of you. There is a property that is well overpriced and on the market now.  I think the folks that bought it must have watched a House Flipping show and took a plunge INTO THE DEEP END.  The house needs lots of work and the work they've done needs to be torn out.  I'll identify that one because I'd actually like to get it and it will take time for them to realize the market resistance at current price.

I had not heard of the Opportunity Zone Fund and just looked it up - it's an interesting avenue. I did sign up for an account yesterday with Realized 1031 which offers DST opportunities and will look that information over as well.

Thanks to you both for your input.  I'll post what my course of action is and continue watching for other input, but I think you have hit the nail on the head with the information presented.

Thanks again -

Keith

Well, I guess I'm not surprised since this is my first one and the market is HOT.

My 45 day period expires tomorrow and I doubt I'll ID a suitable replacement on the open market.  Options anybody?

@Dave Foster - others?

Thanks,

Keith

Ph.D. Level Scenario?

I’m about to close on the sale of a property as a 1031 Relinquished (RLN) property (several are on the market - i.e. RLN1, RLN2, ..3, ..4…, all are free & clear) and am actively searching for Replacement (RPL) property/ies already.

The problem is of course timing and funding mechanism(s).

I am confident I can identify RPL1 within 45 days but RPL1 will be more costly than RLN1 net + rehab$, so I will have to find a way to make up the difference. I hope to combine proceeds from another RLN(2 or 3) prior to expiration of 180days, but can’t rely on this and so, I need some options*.

My preference would be to get a 1st Mtg loan on RPL1 for balance of purchase plus remodeling expenses, then to pay that loan off/down with proceeds from RLN2... I can easily get a loan and have liquidity, or could do something else that accomplishes the goal.

Example of timing & funds:

RLN1 Settlement Sells @ $150K, Net @ $125K & Clock Starts

Identify RPL1 <45days @ $200K, with settlement pushed 30-45+days out, plus $30K rehab

EMD with personal funds with "Return of earnest money" @ settlement

    (Thanks @Dave Foster for 1031 Exchange reimbursement of previously paid EMD/DD)

If RLN2 sells within 45days, then ID the same RPL1, otherwise get a Loan or other strategy*

When RLN2, 3… settles, use the proceeds to pay off RPL1 loan.

Other timing considerations?

* Another, perhaps far-out option, & borrowing from the “Using a 1031 exchange to fund a buyout” thread:

Take title for RPL1 (potentially & RPL2…) possibly using a Land Trust along with non-prohibited entity and with proportional ownership, then acquire pro rata interest as RLNs liquidate.

Thoughts?  

There is a lot of brain-power and experience here, can we flesh out some strategies?

@Bill Brandt

@Bill Exeter

@Alex Olson

@Justin Summers

@LeAnn Riley

@Chelsea Anderson

@Mathew Owens

Best to all,

Keith

@David C.

re - this point:

1) Real Estate - So far all real estate investing that I have done has involved SF long term rentals/vacation rentals under my own LLCs with my own funding. So should something go wrong, I have only myself to blame. Thankfully, I am very diligent, so things have gone well for me. Obviously, I cannot do this in my SDIRA.

You are asking EXACTLY the right questions. You can search for, rent, do minor repairs  and manage the property but you cannot take a fee for any of those activities. You can do some work on the property, such as routine minor maintenance, but not value improving maintenance.  You can paint a wall, but not the whole house.  I use KKOS for counsel when I have such questions, they set up my LLCs and continue to advise whenever I have "grey zone" questions. When I pressed for information on limitations it became clear that the guidance was thin.  Guidance on SD comes from three federal entities (at least), they are IRS, GAO and DOL.  In addition to law, they produce more minor, explanatory publications regarding case results, field guidance documents and such.  When I last looked closely into these, there was nearly zero specific guidance on  how much and what kind of work is allowable by the SD owner on their investment. I'm find working about the edges of the grey areas, but only at the white-ish margins.

I'm sure I'm oversimplifying this, but in my conversations with atty @Mat Sorensen of KKOS and the compliance folks at Specialized Trust Company, the results boiled down this - I can do work, but if the level of work requires me to wear a tool belt, I've probably reached the limit. I literally implement based on that.

I manage the properties but hire "tool belt" level repairs.

I have been onsite for projects in order to provide guidance to the workers and answer questions about how I'd like the repair done.

I have held the stupid end of a tape measure.

I have held the end of a board, but not used the power tools.

This interpretation was reinforced by a (former?)BP contributor:

@Steven Hamilton II Accountant from Grayslake, IL
..."you are allowed to do repairs on the property; however, you are not allowed to upgrade or increase the value of the property. So you can fix the light switch or fixture; you can't remodel the kitchen."

You get the idea. If you want specific guidance on appropriate level of involvement, consult a specialized atty or the Custodian's compliance folks. It is not possible for me to overemphasize the need for good advisors as you navigate the SD rules and regs (refer back to my comments on looking for Services before Fees). My bible for quick reference is: "The Self Directed Handbook; An Authoritative Guide for Self Directed Retirement Plan Investors and Their Advisors", by Mat Sorenson.  I usually keep extra copies on my bookshelf and have given away several copies of this book to friends that have expressed interest and demonstrated intent to use the SD strategies. 

If you want to do some research on your own from the Lawmakers, start here:

IRS - Retirement Plans Published Guidance   (Code, Notices, Advisories, etc.) 

DOL - Too many links to list, but start here: Field Assistance Bulletins, Private Letter Rulings, Interpretive Bulletins, Advisory Opinions and Retirement Publications

DOL has even issued some Exemptions relating to "Prohibited Transactions", see PTE 80-26 for exemption on Interest Free Loans to Plans experiencing short-term liquidity problems.

GAO - Opinions from IRS Code (IRC) violation cases, IRS Pubs, FSAs, TCMs and Reports GAO-20-210 - IRS Could Better Inform Taxpayers about and Detect Noncompliance Related to Unconventional Assets

The list could go on, but most of you are probably way bored by now.  Me, I love this stuff.  These things define the game boundaries and help us play with the border and close to an edge ot two.

@Chris C. - Sort of, my xSD accounts each have an asset, the LLC, where the account is the sole member and the Custodian appointed me the Manager of the LLCs. The Custodian then executed a letter that defined my responsibilities which covers everything I need to do, including opening a bank account, buying, selling, renting, holding paper and pretty much anything else that an LLC can lawfully do, so long as those actions comply with ERISA. KKOS prepared the letter, I added bits and pieces and STC executed them.

Yes, the profits remain in the LLCs as long as I want them there. I keep enough to operate and invest and move $ as needed. Including transferring funds from the TradSD to the RothSD, which is a taxable event, but the tax implications are still advantageous (for now). Eventually the LLC assets will have to go back to the Custodian if I want them distributed from the account to me, personally. That's how you get a house that you get a $XXX,XXX house that you paid $XXX for without paying the profit taxes. Or sell in within the RSD/LLC and take the profit as distribution, again without taxes.

Inviting @Jared Friedman & @Michael K Gallagher back for the follow-on info.

The xSDIRA strategy is absolutely the BEST investment strategy I've come across in decades of investing.  Unfortunately I only learned about it six years ago, but boy, am I making up for lost time.

Friends help friends invest wisely. BP is the single best source for wise investing that I've found - BAR NONE.

Best of luck to all,

Keith

@David C.,

Longer post than I anticipated when I began the response, but there are nuggets throughout.

RESTRICTIONS

The restrictions you have cited have not been a problem for me.  At first I looked for a way around the Self-Dealing, Disqualified Person and Prohibited Transaction rules so that I could move current assets into the SDIRAs but failed to find the seams in those rules, resigned myself to only new and conforming activity and moved on.  The decision was a good one and I continue to use the SDIRAs for profitable investing.

I will take issue with the "outside your own control" point since everything that I have done in the SDIRAs has been fully within my control; albeit within the IRS rules, but isn't it that way with every other investment? Like it or not, the IRS is a partner in every transaction we do, regardless of the mechanics of the investment. The point of the SD part of the IRA is that we get to control those activities and it has been golden for me.

Does the "unscrupulous" reference refer to partnerships or syndications and such options which limit your control of the investment?  If so, don't be worried, be cautious, informed and meticulous. This situation exists whether the funds are personal or SD related and fall under the caveat emptor rule.

You are correct that the whole point of these mechanisms is to serve us later in life, and they do that very well.  The restrictions on taking distributions of funds or investments from the SDIRA are age and/or length of time related, but these are easily dealt with through strategy diversification and phase planning.  As soon as we learned that disbursements from Roth required that the account be set up for at least 5yrs, we immediately set those up with a bank and xfered only $1K each from Traditional into the Roth accounts.  That started the Roth clock before we even added the SD component. I make that same recommendation to anyone that asks me about how I do my business - even the young folks.

Are you aware that you can move a beach rental investment to personal ownership? Simply take it as a distribution when the timing is right - strategy and planning. 

FEES

The fees for service do vary and selecting the Custodian is crucial, not just on the fees structure. It's far more important to find the best fit for your Service needs, then look at fees. When I set up my xSDIRAs (x=Trad or Roth), there were few Custodial options that met my needs. My primary need was instant reaction time which necessitated "checkbook control." I received a lot of "No's" before I found a group that said "Yes" to that element. This service is more widely available now and my rationale for having that element remains primarily to speed my ability to respond to opportunity since I go to a lot of auctions. It also relieves me of many of the myriad Custodian transaction fees. I handle (most of) each of the individual transactions myself and just pay from the annual Custodian fees for holding my accounts. To be clear, when I use refer to "checkbook control" I am not referring to a Custodian account that I write checks against, I set up LLC's, that I manage, which are each 100% owned as assets within my xSDIRA accounts. So I have LLC accounts fully managed by me with full right to act in the interest of the LLCs. I write checks on those accounts.

If 1-ish% fees seems excessive for the expected profit, then then you are correct to wonder if the juice is worth the squeeze. It absolutely has been worth the squeeze for me. There are profit options in SD that FAR outweigh what could be done with a personal track. But SD may not be the route otherwise, we're back to a personal juice/squeeze analysis. My returns have definitely been worth the squeeze - especially when I have leveraged the opportunity to converting Trad assets into Roth prior to realizing the gains.

FAITH

Selecting the right Custodian is a crucial piece of SD strategy. As with all investments, due diligence is up to each of us. I started by figuring out what I needed from them and then worked with my selection at a low-level prior to putting larger chunks into play.  My checkbook control accounts hold the vast majority of my SD funds in bank accounts that the Custodian only adds funds to (at my direction) and cannot withdraw.  Periodically I send funds back to the Custodian account(s) as it makes sense or as needed.  BP used to have and probably still has a list of Custodians which serves as a great starting point.

@Josh Caldwell uses Equity Trust - a fine firm and I looked at them.  At the time I was looking they charged higher fees and did not offer checkbook control.  Josh is also right about the xSRIRA being what you make of it. That part is CRUCIAL!  Have you ever put $xK into an online trading platform only then to allow it to sit fallow?  I have, actually still do to some degree, but I work the xSDs because they offer even greater potential for building tax deferred, and more importantly - Tax Free profits.  I suspect that Josh does some potion of his hard-money lending in an xSDIRA - a stellar strategy.  I hold property, paper and rentals in mine.

@Justin Windham makes excellent points as well.  Structure is critical.  I really like the Solo401K option for these primary reasons:

Higher contribution limits.

Reduced exposure if you inadvertently do a prohibited transaction.

Advantages in supporting the business with the Solo401K itself.

(Justin, correct me if I have erred here.)

I don't have a Solo401K yet, but I expect to set one (or more) up in the not too distant future.

Best of luck in your endeavors David -

Keith

Regarding NoteWorld.com, which became Meracord LLC:

BE CAREFUL - I found this thread because I'm looking for a Note Service and came across this RICO action against them:

https://www.hbsslaw.com/cases/noteworldmeracord

 05/15/15: $1.45B Default Judgment Issued

United States District Court Judge Benjamin Settle issued a $1.45 billion default judgment. Judge Settle granted plaintiffs’ motion for class certification and default final judgment against the Tacoma, WA company after Meracord ceased defending itself from plaintiffs’ claims.

@Chris Bingham - yup, looks like you have covered the options pretty well.  I particularly like the option of offering to sell the certificate to any adjacent owners.

Notice should be given (at least) when the property gets posted for foreclosure action.

Please update on your direction and outcome - I have a couple just like that.

Best-