All Forum Posts by: Mark C.

So in Colorado you have to have a RE license to be paid to mange a property for someone else. So if you have a property in your SDIRA/401k you can't just get your buddy to manage it, unless he happens to have an RE license.  

My understanding is that if you get someone to partner with your SDIRA/401k, they are a managing partner of the JV, and do not need a license.

So this leads me to the optimal SDIRA/401k cocktail ...

1) Say 20% in cash from your SDIRA/401k, with proof that it could have bought the property on it's own with a non-recourse loan.

2) say 75% from you as a mortgage, with proof that you could also have bought the property another way.

3) 5% from a non-disqualified party who will act as a property manager without a real estate license. Perhaps you can do a complimentary deal with their SDIRA/401k and you acting as manager.

Will this pass IRS scrutiny?

Is anyone doing this?

... 50 shades of SDIRA gray ...

So if i enter into a JV with my SDIRA, and can show that the SDIRA could buy the property on it's own via a non-recourse loan, and that I could also have bought the property with a regular mortgage, then it would seem I have no direct nor indirect benefit, correct?

If that works with a cash deal, can I throw a mortgage into the mix?
e.g. $200k purchase, $50k comes from SDIRA as cash with proof that SDIRA could have got a non-recourse loan. $150k comes from me personally in the form of a mortgage, with proof that I could have also bought the property with say $10k down, and the rest as a mortgage. The split would start with me having 75%, and SDIRA at 25%, and that would not change. Is this a valid shade of gray for the IRS?

There is a sweet spot. No-one wants to live with their bedroom window a few feet from the tracks, but properties that have a sounds barrier and are a couple of blocks walk away will tend to see a nice boost. 

Throw in the fact that the space required for a station is usually large, and comes with city sponsored parking, and you create a space that becomes interesting to other businesses. Older residential properties in poor repair are likely to be picked up and ploughed under as part of secondary commercial redevelopment. 

At this stage you have a transit hub with parking, commercial, maybe a few nice restaurants and bars, and the residential side become very attractive.

I have see this happen in the UK as separate distinct phases that were unrelated. The US tends to see these as a bundled solution. My primary residence is about 6 blocks south of the Westminster mall redevelopment in the NW Denver metro area. Linda and I also have 3 rental properties about a block north of the old mall.

The old mall closed a decade ago, and the area had become a little run down. This redevelopment is in it's early stages but will include new upscale residential, commercial space for restaurants/bars and night life, and the all important light rail station. This is all in close proximity to an existing Park and Ride, and the bus routes that use it as a hub. 

We have already seen a huge boom in these property prices due to the mile high pot legalisation affect across most of Colorado. This is just about starting to slow down now, and the market is a little less frenzied but still appreciating steadily. If this post has any validity, we are expecting to have a local boom come in about 2 years time from this transit redevelopment. Stay tuned ...

Looking at your spreadsheet, I would get a better idea of actual costs rather than using an arbitrary 50% rule. This will vary by property, hopeful making this more accurate will show a clear leader and better returns.

@Nicole Glaros, welcome! Going the owner occupier route will be slow, but you can consider some alternatives :-

1) If you haven't done it in a while, check your rents against market and increase them. CO is going nuts, and rents are increasing quickly, try to stay at market without pricing so high you have a hard time renting.

2) Try to save as much of your income as possible, rather than spending it on lifestyle upgrades - they can come later.

3) Do you have other sources? An IRA or 401k that could be converted to a self directed IRA? This can then be used to buy property, or partner with other investors.

4) Find other like-minded investors, BP meetups, posting in forums etc. I am interested in partners for deals too, so you have found one already!

5) If you are not going to owner occupy, look for good lenders, lots of recommendations for those on here, traditional, portfolio loans, hard money lenders are all worth a look.

6) Put all of the above together in a new deal. e.g. your SDIRA, and a BP partner do 20-25% down on an investment property; or your stash of cash becomes part of a larger deal.

I did not do the OO path, but had my primary residence, and bought investment properties solo, with partners in an LLC, and via my SDIRA. I bought my first investment property in Oct '14, and just closed on my fifth this month, and hoping to keep that pace if possible.

If you are intending to manage this property yourself, then I would recommend a 401k loan. There are strict constants on who can manage your SDIRA property for you. e.g. You cannot work on an SDIRA property yourself, you would have to pay someone else to do it for you. 

1031 exchange is to avoid paying capital gains, and therefore not applicable to SDIRA since capital gains are tax free within the SDIRA. If I were to sell the property I bought in December of last year for $85k for the current market price of $125k, those funds would be available to the IRA to use on a similar property or on any other investment without paying tax on the $40k gain, no 1031 issues at all. You are only taxed when funds are distributed from the IRA.

I agree Mark, it's better to have two horses in the race. The SDIRA grows without paying tax on your rental income - which may be a big benefit. Meanwhile you get tax breaks on your regular investments that are not available to the SDIRA.

Both offer capital growth.

I have some properties that we run as regular investments, but my SDIRA owns one free and clear, and the income from that has been used to invest as a part owner of an LLC that owns a second property with other investors.