All Forum Posts by: Account Closed

I agree. There seems to be hesitation in the air.

 HI Aaron, 155 DOM is a realtor problem. Seriously. Fire the realtor. You are "presumably" in this to make money. I don't care how "cute" the listing agent is, if she can't get the property sold in ninety days, she isn't doing her job. 

If you can't follow the following math, invest in stocks. It's easier.

Since the property is now "shop worn" you have a couple of options:
1) Fire the realtor so you don't have a $12,600 cost ($209,997 * 6%) and sell it on your own. It's a common "trick"
 (excuse), of ineffective realtors to use price decreases as a means of solving problems. They promise the sky and then when it doesn't sell, the price decrease is their only "solution". Each "price decrease" of $10,000 costs you $10,000 but only $150 in commission to the realtor ($10,000 * 6% = $600 / 4 = $150 She probably splits the commission with the other agents) . they don't really lose anything and you lose a LOT!

2) Run the ad for free on Craigslist, Do an "Open" on your own, and put hidden digital recorders in each room to see what people say. That way you can determine what actually needs to be done to get the place sold. The problem is that it is on or backs up to a busy street. So, your buyer is one that doesn't have kids. It's that simple.

3) Offer the property on Craigslist as a "slight fixer" "owner will carry". No, it doesn't need any "fixing" but that is what gets the calls. You need the phone to ring. You can get $25,000 to $30,000 down from a buyer on a Lease Option, with NO REALTOR FEES (so you are $25,000 down plus no $12,600 fees) so you are $37,600 ahead of the game, plus you can have a 6 month contract with the buyer which reduces your taxes from short term capital gains to long term capital gains and saves you a ton of money since you've already had the property for a while (far too long, by the way). Every day you don't sell prevents you from doing the next deal. The key to flips is TIME. Time on market. DOM. Too much time = too little income.

Now, I will take a "breath" and "breathe"; these real estate agents drive me nuts. You are in this to make a living, now act like it.

@George Blower   This looks interesting. I'll play with the numbers you provide. Thank you.

@Justin Windham @Brian Eastman I appreciate your responses.

Since my specialty is buying "Subject To", (taking over the financing) (yeah, I know, a little different than what most people do) I have to revert to thinking how the average transaction works using banks or cash along with the tax write offs. I think I need to play with the numbers to understand this better.

@Dmitriy Fomichenko @Justin Windham @George Blower 

Is there any value in me starting a Solo 401(k) since I am older than 59 1/2 with plenty of cash flow from my properties? 

1) I buy properties in my LLC, fix them up, and sell them on Lease Option for cash flow.The property stays in my LLC for several years. (Long Term Cap Gains) Kind of like a rental with the renter being able to buy it eventually if they want.

2) I also buy properties in another LLC, fix them up and sell them turnkey to investors. (Short Term Cap Gains) which generates about $250k a year.

For #2 - Do I have to stop taking the properties into my LLC and instead Use Assignments to meet the requirement for a Solo 401(k)? (Wholesaling) I can switch to assigning if it makes a big difference.

Then, If I understand Solo 401(k)s correctly, I can take some of that money, fund a Solo 401(k) and do private lending from it. That part is fairly regularly written about, so I think that is correct.

But what I can't seem to grasp is why I would tie up funds in a Solo 401(k) after age 59 1/2 since it is all going to be taxed eventually anyway. Is there actually any tax savings or is it just deferred? 

I already have more than enough money coming in from #1) above (getting cash flow from the Lease Options). I am not needing more cash flow at some future time. But I will continue buying and selling turnkeys.

Is there an advantage to Solo 401(k)s that I am missing?

 Normally that is what I do.  I have a great tax advisor, however the perspective I'm looking for isn't available from a tax professional. I've been through several up cycles and down cycles and I suspect you have been too.

I am more interested in two things really, looking forward as though things will change and the status quo as we now know it, is no longer

1) What is the smart way to hold money (regardless of the tax consequences because I can figure that part out ) for making quick purchases as opportunities arise in the next down cycle which I am guessing is 2019

2) What is the smart way to hold money for quick retrieval in the very likely event the government decides to change the rules regarding Solo 401(k)s, IRAs and other retirement plans. My concern is the mind boggling unfunded liabilities that have only two options for resolution: 

a. The unfunded liabilities will be unilaterally declared null & void (unlikely scenario) 

b. The government will raise taxes to confiscatory rates (it has been done many times) and will declare Solo 401(k)s, IRAs, etc to be part of a "bail in", the way the banks have done "bail ins" in a couple of places around the world. In this scenario, we would not be able to access the funds in the Solo 401(k) or IRA.

c. I suppose the third option would be to run inflation up and inflate some of that debt, but if that should occur, I'm already covering that with my real estate.

They will have to get the money from somewhere. My tax guy is great at reducing taxes, not so great about understanding the market. (For my part, putting my money under the mattress or putting it all in gold aren't part of an investment strategy. ;-) 

And, if I am totally wrong that the staggering unfunded liabilities mean nothing . . .  Hmmm, unlikely.

@John Thedford Hi John, I ran across this old post of yours here "I still am NO FAN of putting RE into a retirement account due to tax reasons. Though TECHNICALLY correct you get SOME write-offs, that doesn't benefit me every year the way owning RE outside of the account does." and since you don't appear to sell 401(k)s or IRAs but you have practical application, I'd like to know your opinion. 

I have contemplated a Solo 401(k) but I do a mixture of things. I do occasional Fix & Flips, but mostly Sub To, Wraps, Lease Options and Land Contracts. And, I've been very fortunate to be at the $200k+ adj gross because of consulting I do. Of course the taxes are also very substantial. And I would like to add HML to the mix.

I've seen many of your posts and I have a similar outlook and belief that it is better to have money to invest with now rather than assume it will be there in the distant future (based on the realities of government overspending, and the associated probable tax increases, etc.) 

It's dang near impossible to sort through the noise of the various options of retirement plans and tax consequences and having my funds being immediately available, to take advantage of opportunities as they arise. I am over 60 and as such, I have no 59 1/2 restrictions. 

If the goal was to continue doing Sub To (holding long term as rentals) along with a substantial income from consulting and adding HML, how would you set it up if it were you?

@Dave Foster Thanks for the insight. I did think it was a bit of an "iffy" thing, so thanks for the assistance. Also, in a Sub To, one does actually get the title deeded immediately, at closing, and it is recorded right away. This is years before the loan is finally paid off. Ownership has transferred and title is recorded immediately. It is a bit different than a land Contract that way. The seller has no way to foreclose if I stop making payments. There is no mortgage and no note. Your comment about "risk of loss" was a new one to me but it makes sense. 

That is a good insight. and it raises a question I have:

Can a property bought using Subject To, (taking over existing financing) do a 1031 to another property? 

I bought a $200,000 property taking over the existing financing. I gave the seller $20,000 of their equity paid out of my LLC and I took over their loan of $170,000 with my LLC making the payments. Escrow recorded Title in my LLC. I have the property rented out and the rental payments have been paying off the principal.

Now I want to buy a bigger property. I want to sell the property and use the money to buy a much bigger property using Subject To. I would use the funds to pay the seller his equity and I would take over his loan on the property.

Is this even workable?

Also, since I am self employed and over 59 1/2 is there any advantage to doing this in a Roth 401(k) or Roth SDIRA?

  Hi Wes, I was approached by an Investor who wanted to get into the game by learning Subject To. That is best done by doing a Joint Venture on the first couple. Here is how I recently did one with that new Investor. He put in the capital and I put in the expertise and the work. We split the profits 50/50 (all by written agreement of course) Here are the Spreadsheet numbers

The property is a 4 bed 2 bath with pool in Mesa AZ that I found "off market" and negotiated the Purchase & Sale Agreement for $180,000. ARV on it is about $225,000. I put down $15k and the seller took back a 2nd with an underlying loan of $145,000 that we took over. The roof needed to be replaced. Within a week I found a Tenant Buyer who put down $20,000 (which the investor and I split, that made the investor happy ;-) and the Tenant Buyer replaced the roof at his cost, not ours. Our payment on the underlying loan is $995 a month PITI and we have it out to the tenant Buyer for $1650 a month. So, monthly cash flow is about $655 - not a home run but decent.

 Nice numbers. I'm still finding lots of opportunities in Phoenix and Glendale. We should have lunch sometime and compare notes. I do the occasional one in California but the returns and better in in Phoenix.