All Forum Posts by: Paul Winka

I've set up my own LLC before in Missouri. It takes less than 30 minutes and costs around $55. I once paid a princely amount to attorney to do that for me and it took 3 weeks. I learned my lesson. So...

But what about setting up an LLC with checkbook control to use with a SD-IRA? Is this something I can handle myself with a few templates or should I should I hire a specialist, and how much could I expect to pay them? My local attorney wasn't able to assist.

And between checkbook controlled SD-IRA and a SD solo 401K, the latter is recommended by several here on BP. Can I convert the IRA to a 401K?

Thanks for the contributions, and they have encouraged me to have the mortgage serviced. I arrived at the same conclusion on my own.

@Bob Malecki I've decided to go with Madison Management Services, and we'll see how they do on this. I was surprised to find out that they report to TransUnion, a nice plus. For performing notes, it's $40 at the start and $20/month w/o impounds, $35 w/impounds.

Like many buyers, I would bet they more likely to stick with the program than if it were just me, Cozy, and our bank accounts involved. With a servicer it's like I have "my people" taking care of it for me. 

@Andy Mirza, you're right, I really don't want to learn the minutiae of compliance for a consumer loan and can focus on other stuff. Part of the value too is getting the experience of seeing how a deal flows with the loan servicing company so I know how it goes with the next one.

I could see it getting really crazy with more than a dozen notes at time especially when there are problems.

I forgot to ask if there is better pricing for bigger portfolios though. Are discounts a thing?

I recently agreed to take back a note on a property I am selling. We’ll close at the end of the week at a title company.

At this point, the way I set out to handle the mortgage payments is through Cozy, just like it were rent paid. It's free and straightforward. The only hiccup I see is if the mortgagor decides to make extra principal payments. Cozy is better for the same thing at the same time every month and would imagine extra principal payments could be handled well by loan servicers over cozy. And then there are probably tax forms that need to be sent out by 01/31 that they'd probably take care of?

At some point, I plan to scale up and purchase some first trust deed notes and get more involved in this field. But for now, is it overkill to set up payments with a servicer like FCI, Madison Management, Polaris, FCI, PPR, Allied Servicing, or ZimpleMoney for this one-off deal? I’ve started exploring these websites while writing this post.

What I have read thus far is that these servicers “keep you in compliance with federal regulations” and it’s obvious they provide a value for investors wanting to scale, because I don't see how one could be involved with dozens or hundreds of notes and stay on top of it all. But just one to start, do I really need a servicer? 

Originally posted by @Chris Seveney:

Curious to get others opinions but has anyone EVER had a desirable outcome from using your servicers attorney?

If I was “forced” to use them I find they are:

1. Lazy

2. Lack communication skills

3. Extremely slow

4. Rack up costs

I would also not recommend asking your servicer who they use or recommend as I know of an attorney a servicer recommends and they are the biggest POS on the planet.

Always ask other investors and IF THEY USED THEM. I see far too many people recommending individuals they have not personally used because they read a post on Facebook etc.

Chris, I don't understand what the likely scenario would be in which you would need to hire your servicer's attorney. Perhaps the borrower stops paying and now you need to start sending them notices in the mail in accordance with their state laws, or worse, begin foreclosure? And because the property might be in TX and you're in MD, you probably can't use your local attorney, so you just the servicer to get a referral to who they use?

And, in a perfect world, part of doing the proper diligence ahead of time involve find an attorney in that state early on before there is a problem? 

Originally posted by @Jay Hinrichs:

if U have never had a bad deal or lost money in real estate   be it notes or the physical asset.

this simply means you don't do many deals or your fibbing .. any high volume outfit will have a few bummers.. 

Yes, Jay, seems all the veterans here have a horror story if they've been around long enough. Bottom line is that other investors/mentors that readily share their failures are more trustworthy and credible.

What was your worst note deal if you don't mind and what did you learn from it?

@Marco Bario,

Hi Marco, sure I have a way of explaining it that has an analogy so bear with me.

I learned the importance of following procedure early on, and have seen that getting away from that can lead to bad things happening.

I was in the Air Force for most of my career and went through flight training. Life as a student wasn’t easy and had some quirks to it that seemed annoying. The annoyance was following a checklist, line-by-line for every…single…action one could imagine that could be done in the cockpit. These checklists were on paper and strapped to my knee and covered everything from starting the engine, putting out a cockpit fire, to ditching the aircraft and jumping out to parachute to the ground.

I would memorize these procedures (and we were encouraged to do so) but instructors were always adamant about doing them “by paper” and not “by rote” no matter how basic the procedural steps were…they want to see students going through the list on the paper and talking it out with the copilot. A brand new student pilot or a veteran of more than 2000 sorties would do it the same. If I recall correctly, on a T-34 of the type that were used in the training environment in the early 2000s, it was possible to eject without pulling back the glass canopy first. Now that’s a bad day!

My point is that this diligence and precaution is necessary with notes too, and highlights the importance of running things like a business and having a system. So about notes and my story…

When I started with notes in 2017, I did the first few HML deals right, and more by the book and probably more in accordance with what I'll soon learn about here. That is, I got a first lien position, a DOT recorded, and the houses would be easy enough to recover and sell quickly for discount, even the work was unfinished. At the end of the deal, I got all my cash put back into my account.

But the success and easy money went to my head, and I got away from procedure of protecting myself and now have a lot of unsecured debt out there. I wasn’t a good gatekeeper for myself and my borrowers. They asked, I provided because I was still getting paid, all the while sliding down the slippery slope. So the borrowers got overextended because I didn’t throttle myself. It’s kind of like a begging dog that will basically eat unlimited food if given the opportunity…this where I would have be the gatekeeper for the dog for his own good and limit what he eats. That’s my failure in this.

Fortunately, I am blessed to be working with borrowers of high integrity. I will recover from these egregious errors but it will be a long road. So, in a certain way, the wind blew open the glass canopy for me though I forgot, so I can eject and live to see another day.

Hello note community! This might be better posted in new member introductions, but I'll just post it here. Most of what I want to learn and grow from has to do with notes anyway.

It’s therapeutic to post this out for now, like a bold first step and making a commitment to learn deliberately the right way to do it, and hope that I can look back on this post in a few months or years and see how far I’ve come. Sounds corny, but I hope to get to the point to give advice and share experiences with others that are in the same place that I am right now. For now though, seems I am forever soliciting advice as tactfully as possible.

I've started with HML notes in 2017 and it's been a bumpy, emotionally challenging road. Reckless would be the best word for how I got started.

Perhaps I heard it once too often at the end of many BP podcasts about avoiding paralysis analysis…one will never know it all so just jump in and start learning. I took that advice to the extreme and flew too close to the sun.

Most of what I am dealing with now is cleaning up mistakes I made when I started. I am a born again note investor, so to speak. I still believe fortune favors the bold though, it’s starting to turn around already.

See you around the forum!

Originally posted by @Daniel Dietz:

@Paul Winka to clarify what I meant is this;

I have a SOLO401K that I can stick a LOT into if I want to, but most of what is in there was rolled over from IRAs. Say I have high income this year and end up with 40K to invest. If I just invest it in 'cash' properties I can buy 200K worth @ 20% down. If I stick it into my SOLO401K and buy a property *usually* I would only be able to buy about 100K of property as non recourse loans generally want 40% down. So in essence, you can buy twice as much in cash account compared to retirement account.

Now here is a BIG but :-) IF you can find a way to leverage say at the same 20% inside of a retirement account, AND you dont need the cash flow or equity growth right now (say you are looking at wealth building for retirement) THEN is might make sense to put those funds into a retirement account.

Hard to do, but I am just now starting to explore the purchase of a portfolio of 10 units that the owner ONLY want to sell using seller financing for both spreading out the tax hit and the income stream. He is willing to do a non recourse with minimal down (10-20%). I am leaning HEAVILY towards doing that in my SDIRA and SOLO401K where I WOULD need to make a large contribution, because of the amount of leverage I can apply.

So it is not that I dont like rentals in a retirement account, it is just that *typically* you can get more dollars worth in cash. Depends on goals.

Dan Dietz

 

Dan, when I first read your reply it was like hearing Charlie Brown’s teacher. But you put my mind to work.

What I gathered is that normally to leverage what you have inside a SDIRA or solo401k with a bank, it will be a non-recourse loan, typically 40% down, 10% reserve, so essentially a 50% down payment. The part I am still trying to figure out is if the UBTI on the 50% that’s financed will be any more of a tax burden (or benefit, if depreciation & operating expenses exceeds rents) than it would be it were just a cash or conventional financing type of deal.

I hope it is as simple as the rent received, the operating expenses, and the depreciation would all be on the financed portion of the house, ostensibly 50% for the 40% down 10% reserve I described above. So whatever I would have on my schedule E for this property would be half of what would normally be. But I am sure it is not quite that simple. Hahaha, this is the IRS, so probably not!

In your example of seller financing, non-recourse at 80% LTV is a big improvement over what a bank could offer you. And this is a great apples to apples comparison because the LTV is typical for a conventional loan.

I wish you luck on that deal. Can you tell me if I am on the right track with the UBTI?

Originally posted by @Jared Friedman:

I use CrowdStreet. You need to be an accredited investor to use them.  I believe fundrise, realtymogul and some of the others you don’t but they all work with sdira funds. 

I have not heard of CrowdStreet. I'll check them out. And as far as being an accredited investor, I do happen to meet the criteria, but was surprised to find out how these crowdfunders vet that. The rep just asks you on the phone and off you go. No proof required.

Originally posted by @Daniel Dietz:

@Paul Winka we have not tried any of those other REITs or Crowdfunding and I don't think we will either. Percentage wise we are pretty heavy on real estate in our retirement accounts already, so we prefer to just keep it simple in the stock market. We use TD Ameritrade as that is where we have all of our regular IRA funds so know their site, tools etc... already.

I dont really think of it as any more work. The paperwork is comparable or even less if not leveraged. We so far have only leveraged our SOLO401s, which do not require the same paperwork as SDIRAs due to the lack of UDFI if I am saying that right.

IF you choose to leverage inside of a SDIRA, you also 'gain back' the right to part of the depreciation etc....

The reason we originally started using Retirement Funds is that is where a very large percent of our assets were ALREADY. We can make better returns more safely than in the stock market and you gain the advantage of loan paydown and leverage if you want to.... a win, win, win all the way around.

IF I had 'cash' to deploy I dont think I would put it INTO a self directed in most cases, but when it is already there it seems to make sense.

Dan Dietz

Re: "IF I had 'cash' to deploy I dont think I would put it INTO a self directed in most cases, but when it is already there it seems to make sense"                That tells me all I need to know regarding properties & SD-IRAs. Thx.

Now I've got a serious case of shiny object syndrome with what to use this money for. As of this moment note buying has my interest. That might be just the thing. I am reading "Paper Profits" by Joshua N. Andrews to buy owner-occupied notes. I am hoping this will counter the HMLs to flippers which are less passive than I thought they would be.