All Forum Posts by: Ken M.

@Ken M. That's not how it works. UBIT is generated two ways. Income from leveraged real estate or active business income. It's a sliding scale but at about $12,500 of income for the year it scales up to 37%. But that is calculated after expenses and depreciation is factored in. 

Retirement accounts are designed to be invested passively so when the IRS sees you running an active business in it, to level the playing field between retirement accounts and other business the retirement account incurs UBIT. 

When the IRA invests in real estate using debt not only does it have to be non-recourse but the IRS says, you can use leverage but since you aren't only using IRA money for this investment the retirement account is going to pay UBIT on the income generated because of the debt.

There's more nuance to to it for sure but this is a good overview. Make sense? 

What do people think about Kingman Arizona. For context its mainly retirement communities around 2 hours either way from Las Vegas and Phoenix. I'd never heard of it myself but my friend and his family have at least a dozen rental properties out there. You can buy a property there for around 200-300 thousand and rent for around 2000. So seems like a decent play for cash flow but not much for appreciation. Has anyone heard about Kingman?

OP to your original question.

Take LA and SF out of California.  California is great.  I have only lived there for 4 months.  I have visited SF, SD, LA.  Driven the coastal highway from SD to SF.  

LA I didn't like because it's just a huge metro area. The only thing I didn't really like is the traffic in LA. But you learn to live near your work or work around the traffic.

But then again, I liked along Calabasas parkway, Venice beach.  It's been a while; I didn't like the smog.  You have to get within a mile of the beach before you saw all of the sunshine people talked about.  That might be gone by now.  

SF I loved.  Yep, the street people aren't inviting.  But the whole town was a lot of fun.

Since BP is a Real Estate forum, yes, the rental laws/issues are terrible.

As a REI strategy, you will always have a combination of either Appreciation or Cash flow. California is more of an Appreciation market. Along with that comes the taxes and people issues. We do Self Storage. We will always make more money where the taxes are higher. Would love to do Self Storage in California. I have analyzed the market before and found sites or business models both in LA and SF for other people.

As far as the political or social environment.  People deserve what they get when they vote.  So, for them, they like the situation there.  The rest of us can choose to live and invest elsewhere.

We live in Iowa. I grew up in Louisiana. Worked in Texas, Missouri and Michigan. I doubt many people would love to live in Iowa or Louisiana, but I do. REI we have been doing great in Iowa/Nebraska. Helped my brother in Texas. It's a better market down there, but we will always do better in our 40 mile radius we stick to.

You're in the Ohio area.  I wouldn't want to invest there.  Main reason is those towns aren't in our 40-mile radius.  Our Team (bankers, contractors, excavators, attorneys, surveyors, electricians) aren't there.  We will always make more money and with less risk in our home territory, whether it is good or bad per other people's views.

Sidenote on the LA fires.  Talked with my brother this morning.  He was in charge one year for the military NAcom joint command fire efforts for San Diego up to the bottom of LA.  Asked him about the current situation.  His primary focus was to protect all military bases in that region.  But by federal or Presidential directive his resources were used to manage fires all the way up to Oregon/Washington.

 He said the 2007 fires in San Diego were far larger than the current LA fires.  Just less Movie Stars.  At the time Governor Schwarzenegger contacted President Bush to make the San Diego fires a national Disaster area.  There were 5 fires at that time.  Just for one of the fires they immediately mobilized 20,000 troops for door to door fire and rescue efforts.  Had over 20 pump trucks, over xx Helicopters and over 40 C17 style water aircraft in play.

They also helped the Oregon and Washington forest fires. They had the 40 Aircraft getting water from lakes and Oceans.  They couldn't put a dent into it.  That is without the Santa Ana winds.

They did make a recommendation to LA to install large dams or holding tanks for sea water high in the hills and pump from the ocean.  The gravity pressure would have operated the system.  But LA did not want to do that.  Also using water tank trucks to get water from the ocean and driving back and forth would not be a viable solution.  

As far as running out of water.  The normal water tower and hydrant system would never work for this type of fire.  Think of all of the water sprinkler systems in commercial buildings. They would have been activated also, plus kept using water even as the buildings were burnt down.  Along with the fire trucks, the water system was not capable of handling such a situation.  

With the above said. So, what.  These events can be seen ahead. Example:  California has been in a drought forever.  But they just had floods.  

A. Floods lead to heavy vegetation growth.

B.  Heavy vegetation growth leads to large fires.

C.  Large fires lead to large mud slides. Next news for LA will be massive mud slides.

As far as not having enough water. California actually has the largest lake in the country except for the Great Lakes.  Tulare lake comes and goes as it is used for agriculture ground and is pumped out or diverted.  It reappeared just last year.  They had tons of water to store.  It's a matter of choice and actions.

We have two properties.  Since owning them, we have installed features to store over 5,000,000 gallons of water in the soil that did not exist before.  That is just one family.  California's topography allows for far more water storage than where we live.

People can do all sorts of dumb things. If the loan is being paid the seller/previous owner has no reason to want off of the loan. They can qualify for a new mortgage and show they are not the ones paying on the old loan so that the payment doesn't affect their DTI.

I don't think the typical sub-to deal would lead to equity skimming because they are likely close to foreclosure and there isn't enough time to rent the unit back out and make money allowing the unit to go to foreclosure.

If the new owner pays on the loan its not "equity skimming" from what I understand of it.

You are correct there certainly are ways for things to be done badly or illegally, but these are BAD MESSY situations before a sub-to deal would even be considered. Its like a short-sale, its better than a foreclosure but has downsides as well. 

Technically, Sub-To is legal, but the way some "gurus" teach it, I have problems with it. The Due On Sale clause was added I think in the 1980s because of "sub-to" deals. Sub-to has been around for a very long time. In many cases, it weakens the lender's position as they did not underwrite the buyer and an owner-occupant tends to pay better than non-owner-occupants. Some gurus tell practicioners of sub-to to hide transaction from the lender by saying the lender doesn't care as long as the payments are being made. That's simply not true. For instance, I served as an expert witness in a case where a property was transferred to a new owner sub-to. The new owner did not make the mortgage payments and the seller had no idea until they were served foreclosure paperwork. The seller had a military contractor job with security clearance. The trashing of his credit threatened his job. Most seller's in a sub-to don't understand the risk they are taking and most lenders have concerns over the overall portfolio quality ratings which has an impact on their cost of funds. Sub to us a bigger deal than most people realize. It's not illegal provided you're dislosing it to all parties and not trying to actively hid it. Now, getting around the Due on Sale might be as easy as doing a Contract for Deed or a Purchase Option instead of Sub-to. In those instances, the title doesn't change hands, thus, the Due on Sale isn't triggered. I hope that helps. Good luck in your investment journey. 

 This very tragic and sad. As of 2 hours ago (1:00pm PST), there were a total of 7 fires:

Pacific Palisades: over 27,000 acres burned, contained 11%

Eaton Fire: over 14,000 acres burned, above Altadena, 27% contained

Hurst Fire: 800 acres, San Fernando Valley, 89% contained

These fires are contained:

Lidia Fire: in Antelope Valley north of LA

Kenneth Fire: west San Fernando Valley, they suspect this one to be arson, suspect arrested (saw on one news report)

Sunset Fire: Runyon Canyon near Hollywood Hills

Woodley Fire: in Sepulveda Basin and San Fernando Valley

Wow. I feel so saved by the Precious Blood.