All Forum Posts by: Russell Roberts

I have a group 401K plan at my W-2 employer. I have an unexpected opportunity to transfer funds out of 401K plan while I'm still employed. Yeah! I'd like to transfer funds to a self directed retirement plan and invest largely in real estate syndications which take advantage of debt leveraging. I know a self directed IRA would be subject to UDFI, so I"m interested in solo 401k instead, which is exempt from UDFI.

I don't currently have self employment income, which I need to qualify for solo 401K. However, I'm a major volunteer of Information Technology professional services to a local non-profit Christian school for the last 13 years. I volunteer for mission, not $, and have likely saved organization >$100,000 over that time.

Finally to my question: How much $ do I need to make to legitimately qualify for creating a solo 401K as the destination for the transferred retirement funds? If I billed the non-profit a nominal amount of say $150 per quarter and received an annual 1099 for $600 of services, would that satisfy a solo 401k IRS auditor's scrutiny?

Impressive.   I'm curious on a couple of items.  

- What type of collateral was tied up to secure the 100% financing from local bank?   

- What year was this?

Congrats and thanks for sharing the deal details. 

I'm replying to your question with the assumption that you want to be a passive investor. I've been a passive investor in both Turnkey SFR and Mulifamily syndications. I made a comparison grid to help contrast the two options in my own investing. It's a blend of facts and my own semi-experienced opinion. See linked document. Passive Investing: Turnkey SFR vs CRE Syndication

I considered this from Ridge Lending on an investment property. My thoughts were as follows:

I wanted to have approx $40K in cash reserve liquidity (in case of emergencies). I could keep in a Money Market at 2.x% return OR, what if I kept the $40K sitting in the additional equity of the property that I could tap into the line of credit in the event it was needed.

The quick math:
A rental property @ 8% cap rate - 6.190% floating LOC rate = 1.8% interest rate arbitrage on the extra $40k sitting in equity. That's some less than what I'd normally be satisfied with, but it serves the dual purpose of cash reserves if needed. I'd also be benefiting from the latitude to pay down or not on very flexible schedule. Maybe some price appreciation on property would occur and I'd have depreciation to offset rental income and such. I ended up deciding Not to do this for the following 2 reasons.

1) The loan origination costs were higher than I expected. ($5,657 on a 120,000 property) It included 2.25 upfront loan points. (BTW, I have excellent creditworthiness).
2) Tax confusion: The interest expense might be tax deductible. If I took some line of credit equity out later, I think I'd have to trace it to either another investment, or if it was used for anything personal, then I could not. There is actually a checking account linked to this All in one LOC. I just thought this would get too messy for me with the new interest tracing rules for determining tax deductibility of interest expenses.

This might be a better fit attached to a personal residence (I think the rate would be better too). 

@Jay Chang replied "You can avoid tax gain by refinancing your property. This way, you can pull some of your capital out and not get taxed.:   

My followup question:   With the 2018 tax law changes, if the refinanced capital pulled out were used for some consumer/non-investment purposes, then is the interest expense on the new loan still tax deductible against the property's income?   Or would you be loosing the interest expense deductibility in that case?      

I'd like some feedback on a non-typical cash reserves idea using HELOC on investment property.

Goal: maintain $40,000 in cash reserves

Option 1: Deposit into bank money market for ~ 2.3%

Option 2: Purchase $120,000 SFR. 25% ($30,000) down payment, PLUS the $40,000 "cash reserve" funds. SFR has 7.5% cap rate. Since total equity invested is 58% (70/120), it is certain to cash flow well. Remaining $50,000 is borrowed from 30yr first lien HELOC, with a 75% LTV maximum credit line. So the $40,000 could be quickly accessed if needed (the Primary goal) from the HELOC. Advantage of Opt 2 is that the $40,000 is invested in a property with 7.5% cap rate instead of 2.3% money market.

The disadvantage I see is that the borrowed principal on HELOC is costing 6.25% instead of the 5.0% I'd likely get with fix rate 30yr term mortgage AND HELOC is adjustable rate tied to LIBOR + a margin. The interest rate arbitrage between cap rate 7.5% and borrowed funds 6.25% is thinner than I'd normally find acceptable (normally 2.5 spread minimum) , but the main goal on this one is access to cash reserve.

I'm leaning toward Opt 2. Thoughts welcomed.

Those are GREAT thoughts!!!  No wonder you have so many votes on BP.  THANKS for the ideas.

My father, who is nearing 80yrs and in reasonably good health, wants to sell 52 acres of farmland. It was purchased 45 years ago @ $250/acre and is now worth $5,000/acre. He's interested in providing seller financing over 10 years for the income stream. He'd like to minimize his capital gains tax. Any thoughts on strategy to reduce taxes? Subdivide and sell parcels in different years to stay in a lower tax tier? suggestions welcomed.

I also discovered a great podcast and blog post on this topic.

Who Said All HELOC Interest Is No Longer Tax Deductible?

Who Said You Can’t Deduct HELOC Interest? – Interest Tracing Explained

I also discovered a great podcast and blog post on this topic.

Who Said All HELOC Interest Is No Longer Tax Deductible?

Who Said You Can’t Deduct HELOC Interest? – Interest Tracing Explained