All Forum Posts by: Michael Plaks

@Joshua Harris

Attend local investor meetings. Two places to start are http://www.2020rei.com/ and https://www.meetup.com/Right-Path-Real-Estate-DFW/

@Mike Dymski

I don't believe in too good to be true. Again, from the lender's perspective. Why would I lend at market rate (or near market rate) when the loan is not secured by real property, if I can lend against a secured property instead? If the lender in this transaction charges market rate - something is off. Smells fishy to me.

The dealer does not just "have access" to the money, as you suggest. It's not free access. He has to pay you interest at the rate roughly equal to the interest charged by the lender. If that rate is market rate - it makes sense for the dealer. He gets an unsecured loan at a favorable rate plus 5%. But I still cannot understand how this transaction can operate on a market rate, from the lender's position.

Next, you. Your risk is exactly as you stated. 30 years from now, you still owe the entire principal to the lender. That principal, in turn, is owed to you by the dealer. Neither debt is secured by real estate. 30 years from now it's supposed to resolve itself. Some parties will be dead / out of business / you name it. I dunno, but I don't feel safe about it.

What is also strange is that our discussion is so quiet. I'd expect bunch of sophisticated investors to chime in by now. 

@Erik Nizenkoff

Sorry, the value of the unit does not matter for depreciation. You can only use the $319k cost, and you allocate part of it to land. 

You can use the tax assessor allocation (70/30) - or you can use a more favorable allocation if there's justification for it, such as a commercial appraisal or a Realtor's opinion.

@Alexander Ransom

You can google "best mileage tracking apps" - and find reviews of many. Like with all apps, it's a matter of personal taste. MileIQ, TripLog and MileTracker are just three examples.

Stay away from free apps not backed up by major companies. They can drop support anytime, and then you're stuck. You need an app that can download log reports and keep them for 3 years.

As to what miles you can count - I'm sure someone will post very detailed IRS rules soon. It can get confusing, so here's my informal shortcut rule: Ask yourself whether you would make the trip if NOT for your business. If the answer is no, then you probably have a deductible trip. Round-trip.

But then, of course, there are pages of small print if you care.

@Gabie Tylaman

Better be dry than all wet. JS. ;)

@Mike Dymski

I do not have any first-hand experience with this idea, so below are my general thoughts.

The lender essentially has to issue a 30-yr unsecured interest-only note. Unsecured, because the property has been transferred to the final buyer. His only security is the promise of the dealer. (That is assuming that you're not liable for this note in case the dealer stops paying - which should be the case.) I doubt that there're many lenders willing to lend under such risky terms. If they do, they have to charge sky-high interest, on top of 1.5% fee. 

Assuming that there is such lender, and he does charge high interest - how does it work for the dealer? He essentially borrows a lump sum at an above-market rate, for a very modest benefit of 5% commission. I struggle to see the attractiveness of this business model for the dealer.

That changes somewhat if the dealer and the lender are related, but even then the 5% haul is not exactly hitting the lottery. Also, I'm not sure if the dealer and the lender must be arms-length by the rules.

Finally, on your side, the interest payments from the dealer to you are taxable income. Whether or nor they can be cancelled out by your matching interest payments to the lender - depends. In other words, not guaranteed.

So, something does not quite add up for me on the dealer/lender side - which would give me a pause if you were my client and asked for my endorsement.

Also, you're trading deferral of capital gain tax for a 6.5% discount plus possibly income tax on the interest payments that are not yours to keep - phantom income. Another pause.

Again, I don't have first-hand experience with this approach, so I may be missing something here. Would be interested to learn more.

I'm sure you can ask John directly. http://iralawyer.com/

The ultimate authority if you need one is John Hyre   

@Andrew M.

Three issues at play here. Legal protection, taxes, and practicality. 

Taxes are simple. There is no difference for taxes, one way or the other.

Legal protection is up to the attorneys (I'm not one) - who notoriously disagree on everything related to Series LLC: from their viability to operational details. I've hosted attorney panels here in the great state of Texas ever since Series LLCs were introduced, with the same result: no consensus. Attorneys, when I bring this up, laugh and nod in agreement.

The most conservative attorneys insist that each series needs a separate bank account, a separate set of books, and a separate tax return. Otherwise, they say, the legal protection can be pierced. Other attorneys say that this is an overkill. Third group of attorneys question whether "1 property per series" approach can provide its supposed protection at all, regardless of bank accounts and such. Again, attorneys will not agree on this. I always tell my clients to find one attorney who they like and trust, and then follow this one attorney's advice without trying to validate it with other attorneys or, even worse, online. Validation is futile.

Now, practicality. Imagine you do not do anything with the property but hire a management company. They collect rent for you, pay all your bills and periodically settle with you. They do it for hundreds of properties for dozens of clients. Do they keep a separate bank account and separate set of books for each property? Clearly not. But they better designate each transaction as to which property it applies. Then they can instantly generate a per-property (per-series) report. You can imitate the same system with your own management company, as @Carl Fischer suggested, and stick with one bank account.

Unless your attorney overrules this, out of legal protection concerns.

@Mike H.

It does not matter what investment strategy you use. Whatever you can do with cash - you can do the SAME exact strategy inside your retirement account.

My point is: whatever investment you pursue, doing it inside a retirement account BEATS doing it with cash taken out of retirement account, due to difference in taxation and power of compounding.

The more aggressive your investment is - the bigger is the advantage of doing it INSIDE retirement accounts.