All Forum Posts by: Mike S.

How about using Solo 401k, which is exempt from udfi. Does that mean it is also exempt from ubit if investing in a multifamily syndication as a limited partner?

Originally posted by @Brian Eastman:

@Lane Kawaoka

Your outline is not entirely correct.

Most syndications do not generate UBTI, only UDFI.

Just because a business entity such as a LLC or LLP is used does not classify income received from a syndication as "business income". How the entity produces income is the determining factor. If the entity produces passive income such as rentals or interest, then there is no generation of Unrelated Business Taxable Income.

If, however, the entity is engaging in a services business or something similar, perhaps hotels, self-storage, adult care, etc., then that produces trade or business income. Generally speaking, trade or business income subject to UBIT is not favorable. Such opportunities will not fit well within an IRA.

Most multifamily syndications do use debt financing as you indicate, and that does produce Unrelated Debt-Financed Income or UDFI which creates a UBIT obligation.

If a deal is 70% debt-financed:

70% of the gross income is considered taxable
$1000 exemption off the top
AND, something you omit - 70% of all your normal deductions such as interest on the debt, straight-line depreciation and other allowable expenses are applied as deductions.
The end result is that a very small amount is then left as the net taxable income, and will often therefore fall into the 10% - 24% brackets - though the top rate is 37% as you indicate.

In most syndications with a $100K investment, an investor with an IRA will lose about 1% of the top-line return to taxation on UDFI and the necessary tax preparation over the life of the deal. So, a deal that would produce 15% will net 14%. That 14% is very likely much better net return to the IRA than a comparable non-leveraged deal with a similar balance of risk/reward. As such, many investors with IRA funds choose to participate in multifamily syndications and are very happy with the stable and quality income such opportunities can provide.

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@Paul Berard Hey Paul, I've had a broad scope of experiences over the past 15 years in real estate. It really depends on the amount of time and risk you are willing to. I agree with others that not using a good loan is a bad idea, because you want to leverage your money, credit, banks money, write offs, etc. As far as time goes, flipping takes alot and can be stressful without a good team. And syndications and reits are ultra passive, like watching paint dry. With that said, as I get older, I like to not stress and work with teams with great experience that can scale operations and have economies of scale on costs. Hence, I would chose residential multifamily syndications. Be wary to vet the teams, general partners. Due diligence. I can recommend some I've worked with and many of my mentors in various fields choose syndications as a great return, low risk, no liability(as limited parnter) strategy. The returns may surprise you! =) Good luck!

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@Brian Ellis Congrats on making the leap many fear to do! I remember I was flipping houses in 2006 and in 2008 came boy did it hurt. I ended up investing out of state for longer buy and holds, found out I needed to make money again, but did not want to go back to the 9-5 grind. I started doing some online marketing to sell products. Over the years, there was ups and downs in the business, but I wouldn't trade it for the world. Now the company is self sustaining even if we are running less than optimal due to COVID, being able to create a business where I didn't need to be there anymore allowed me more time to invest in myself, other streams of income, online marketing, passive investments, and real estate.

We work hard to get to our financial freedom goals still. But more importantly, I look back and realized the real value was time and mobility freedom. I was able to do what I needed, and now what I wanted, when and where I want, with those I care about most near me.

Now that my wife and I have a beautiful and crazy little one, I cherish the time I get to watch her grow up, which was never an option for my hardworking parents. So coming from a background where making the leap is understandably one of the hardest things you could do, kudos bud!

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Definitely a volatile time. I think it will have a broad affect on the market depending which ways the wind blows with long term stimulus or bailouts. Suburbs seem to do better for now. Bringing up averages around. Rates will stay low for years, is my guess.

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@Calvin Kwan I typically get refurbed with warranty on my long term c or b class rentals. I find they last just as long and have the security of warranty as well. Just find a local appliance shop to network with.

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Hi BP Community,

I am searching and cannot find an answer to this so thought I would start a post and see if the BP community can help us navigate. My wife and I are looking to invest into Fundrise, an eReit, that invests in over 70+ properties in a single portfolio. The types of investments vary per property including debt and equity deals. I am told this may trigger UBTI.

Since we are planning to invest using a Solo 401k, I was told by our CPA, UDFI will not apply to us. But I was also told that UBTI may still cause issues and I may need to file a 990-T if there are filing requirements met, which I assume is over $1000 in Unrelated Business Income.

My questions are as follows:
1) Will the any of the dividends be subject to UBIT?
2) Will the K1s received be subject to UBIT?
3) What types of income will be subject to UBIT?

Any other advice related to Fundrise, Solo 401K investing in Reits, and UBTI would be greatly appreciated. Thanks Everyone!

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Originally posted by @Nathaniel Hovsepian:

@Mike S. I currently have a $4000 per month budget, up from $2000 for my first couple of months. I have spent a total of $4000 so far advertising on google adwords, which has generated 37 motivated seller leads. Out of the 37, 29 have been really good fits for me making cash offers on. I have closed 2 deals from those leads, which I have wholesaled.

I have also gotten about 15 calls from my ads, which didn't go into those 37 leads (those are just people that I have actually had to pay for).

I am very confident that from those first couple months of leads I will generate at least 2 more deals.

Let me know what other questions you might have.

@Nathaniel Hovsepian That's amazing and inspiring! Thanks for sharing. If you wouldn't mind me picking your brain, I'd like to DM you for further details as I am in the E-commerce business so I think it would be along the same lines. Appreciate your time. Thanks!

Mike

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@Nathaniel Hovsepian can you give us more insight on pay per click leads. How you got started, where you advertise, and average spend per lead? Would love to connect to discuss more.

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@Bob Okenwa Great advice to help me start out. Thank you!

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@Bob Okenwa Great advice to help me start out. Thank you!

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All Forum Posts by: Mike S.

Mike S. has started 4 posts and replied 36 times.

Post: SDIRA investing in MF syndication, who has paid UBIT?

Post: Working with $200k-$300k Cash

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Post: New or Used Appliances? Buying for a Triplex.

Post: Fundrise Solo 401k UBTI and UDFI

Post: Just finished my first flip! $30k profit!

Post: Just finished my first flip! $30k profit!

Post: Highest ROI Ideas for Adding Value to a flip

Post: Highest ROI Ideas for Adding Value to a flip