All Forum Posts by: Account Closed

Thanks, Ian! This is exactly what I was looking for. Good point regarding a hard money loan fund being another alternative. 

I look forward to reading your article!

Hello, I'm looking for someone who can speak to the tax implications of investing in Mobile Home Park crowdfunding through a Roth IRA.

My understanding is that one of the disadvantages of investing in MHPs is that there can be less paper losses from depreciation as compared to investing in apartments or even SFHs because they primarily consist of land, not buildings. I also understood that that one of the disadvantages of using an IRA to invest in real estate is that you can't use depreciation to offset your income tax.

So then I thought to myself that maybe it makes sense to invest in MHP crowdfunding inside my self-directed Roth, where the fact that I don't "have to pay taxes" on the gains would theoretically offset the lack of depreciation benefits.

What confounds me though is the concept of UBIT (Unrelated Business Income Tax). I always thought of Roth IRAs as being "tax-free" but it appears that they are subject UBIT if it seems that the IRA "entity" is engaged in activity the IRS considers to be "unrelated" to it primary purpose (in this case, investing for retirement)...

Is there anybody out there who is doing this? What has been your experience?

Thanks!

Rachel

Thanks, @Alina Trigub! 

I appreciate your tip about references. I've wondered how useful that really is, and you offer a compelling alternative. 

Thank you for the additional insights!

@David Thompson, once again you already have an article that answers my question. I will follow @Omar Khan's advice and check out your blog.

The takeaway for me is that if I want to defer paying capital gains taxes on a syndicated deal, I need to invest in sponsors who will utilize this option and that have strong acquisition capabilities (no use rolling over into a dud). And in any case, I should be always prepared to pay capital gains at exit because it's up to the sponsor to initiate the exchange (which may or may not happen).

@Greg Scott, it's always great to hear from another investor! Sounds like you've made some great investments. Do you plan to pay your portion of the capital gains tax when the property is sold or will you make an exchange?

@Ivan Barratt, thanks. You make a fantastic point about needing the right tax counsel sooner rather than later. I like to learn as much as I can on my own so that a) I'm better equipped to assess competence, and b) I can make the most of the time I'm billed for! But at some point, professional advice tailored to my situation will be necessary. Thanks for pointing that out.

I just read this great article by @David Thompson, and want to check my understanding of taxes for limited partners in real estate syndication.

- Income distributions are taxed at ordinary income rates, but there may be no taxes at all if there are "paper losses" from accelerated depreciation.

- If cash is returned to the investor through a refinance, that is a partial return of equity and a non-taxable event.

- When the property is sold, any gains are taxed as capital gains. 

- A 1031 exchange of sorts is possible if you roll the sale of the limited partnership into a similar and larger limited partnership, but you cannot 1031 directly into your own property acquisition.

Am I getting this about right?

What have your experiences been (or those of your investors)?

Thanks!

Thanks @Mike Dymski! I listened to the podcast last night and learned a lot. Jeremy's detailed information about running background checks was especially helpful. If a basic one can be done for about $6, there's no reason not to.

Thanks, all! More great insights to ponder. : )

@Michael Bishop, Thanks for the tips about the sensitivity analysis and conservative underwriting.

@Todd Dexheimer, Good points. I would definitely want to work with someone who is a competent professional, not just a nice person.

@Percy N. It's nice to hear from a fellow investor that is not a deal sponsor. : ) I appreciate your insight on how few syndicators have been doing this for a decade+. I asked if I was being too picky, and I think I have my answer...

@Jim Watson, There's no way I would trust someone with no skin in the game, unless I had past history with them. It's crazy to me that some sponsors get a hefty percent of the upside, but stand to lose nothing if the deal goes south. If you are not putting equity in, then how are you a partner? Perhaps some people have so much deal flow and too many investors to keep up with their own capital, but in general, this seems like at least a "yellow light" if not a red flag.

@David Thompson, Thank you so much for chiming in with the links. #10 Holistic Win/Win is such an important point. I would be concerned about somebody who doesn't look out for all their stakeholders, including their residents.  I look forward to re-reading these articles and internalizing the concepts.

Thanks, everyone! I so appreciate you taking the time to share your wisdom with me.

@Michael Dang, Thank you for that great resource! That is exactly what I needed. Have you used the advice yourself or are you trying to build a business by that example?

@Jay Hinrichs, You make a good point about cash reserves as one way to mitigate experience. I guess I would also be looking for a pattern of resilience and the ability to solve problems. It's amazing how some people fall apart at the first sign of difficulty.

@Jered Sturm, I appreciate your comment about syndication as a partnership, and I love the idea behind the "Mom" test even if I would never ask that. I completely agree with your thoughts on mindset. I hear too many things about the benefits of reduced risk for the sponsor, without any regard to the responsibility that comes with that. 

@Dave Foster, You make a compelling case for the SYNDICATOR being the deal. My gut said that same thing, but your logic that bad deals don't come from good syndicators confirmed it for me. Well put.

@Ericka Grant, the most popular index fund type is the S&P 500, which tracks with the top 500 public companies. Vanguard is famous for their low-cost S&P funds, including an ETF version (VOO) you could buy through any personal brokerage account. That said, investing in the S&P 500 or any other major stock index works best when you buy it in small amounts at regular intervals so you get the benefits of "dollar-cost averaging." While you do buy at high prices sometimes, you also are buying low as long as you are always buying. 

The stock market is very high priced right now relative to the real earnings of corporations, so I don't think it's a good place to park your available cash while you are looking for a new real estate deal. Maybe it's time to start looking for a partner who is great at finding deals...