All Forum Posts by: Shawn Root

@Steven J. thanks for the suggestions.  I did look at the files that can be downloaded here, but didn't see anything.  I was probably looking in the wrong place.  Do you think this should be done like one of the YL campaigns with a handwritten eye-catching style?

Hi everyone,

There is a duplex, not a mile fom my house, that has been vacant for ten years. I looked up the tax records and have a name and an address. It looks like the taxes are a little behind. What kind of appeal would you make? I think there may be or may have been an estate involved. I think that the property was owned by an older gentleman who passed away in the last couple of years. I think that the son's name is the name on the tax website.  So....any toughts?  I'd love to hear your experience with these things.

@Jesse T.

That's great info.  Thanks.  So, the drawback to what you are saying, though is that I can't take a loan against a 401k that I have from a former employer, can I?  That's where the money I am talking about currently resides. I do have a much smaller balance in the 401k at my current employer.

@Brian Eastman 

I was wondering if you could comment on an exercise I recently did in excel. I haven't fixed the Roth issue that someone else pointed out, yet, but I think that the results are still very interesting. You seem to know a lot about the use of the solo 401k/SD IRA.

Can Someone Check My Math

@Gregory H.

Yep...I was looking for inputs here since there are some pretty smart folks in these forums, but I've already sent an email to my accountant to ask for some sit-down time to seriously discuss options and strategies.  I'm just tired of what seems to be lackluster growth that is probably the result of my own negligence.  But, the current valuations in the stock market are making me very skittish about jumping in deeper.

@Howard Abell

Oh, absolutely, Howard.  I was merely trying to show the difference in outcome with less money but greater leverage.  I would be extremely foolish to leave that money untapped for 30 years....Hey, I'm not sure if I even HAVE 30 years left.  Thanks, for your input.

@Gregory H. 

Thanks! You are right that I was probably incorrectly taxing the roth version.  I'll fix that and see how it looks.  So, many of the issues that you discussed will actually put more weight on the cashout option.  The issue with depreciation I didn't address, but that would have offset some of the 25% tax on the net income. 

I guess the biggest questions I have are:

1. Is the assumption of the disparity in leveraging power accurate or close to accurate?

2. Is my assumption of 30% loss way way too low?  I live in TX, so no state income tax.

There have been many debates on this forum over using the self directed retirement accounts for real estate investing.  I haven't seen the leveraging issue directly addressed (but maybe I didn't dig deeply enough)

Maybe some of the people who have exercised one option or the other could weigh in.

@Gregory H. 

Ok, it's up. Let me know what you think.

https://drive.google.com/folderview?id=0B90uKVbI7dCXZGJxNVNwb1FRUlk&usp=sharing

@Gregory H. 

While I am not opposed to diversification, I wasn't trying to compare stocks vs REI. This example ignored reinvestment. Actual returns in either example would have been much more. I am really wondering if, specifically for real estate, the retirement account structure works.

Also...those 30 year average numbers don't help much when you retire into a bear market.  I like the idea of having at least some control of how investments perform.  Maybe I'm just a control freak.

I was trying to run some numbers through a spreadsheet to see what the effects were

of cashing out a 401k to invest in vs. leaving it in a self-directed IRA/401k.

Assumptions:

1. Starting value of 300k in 401k

2. Lose a third of that by cashing out

3. Lose about 20% by converting to Roth

4. All cash (reserves required + net rents) is deposited in an account and just held there.

5. Rents are 1.3 percent of total purchase price of property

6. Expenses are 50% of rents.

7. Cashout option allowed to invest with 20% down and 5% reserves

8. Retirement accounts required to invest with 40% down and 10% reserves.

9. All had 30 year mortgages at the same rate.

10. Cash option paid 25% tax on net rents (may not have done this quite right)

11. Very simple monthly appreciation and increase in rents based on 3% for inflation

and for appreciation (I know this isn't realistic, but it made the calc easier)

So, for example, the SD Regular IRA would be able to purchase $600,000.00 property

because it has the full 300k to work with, but must use 240k for a down payment and keep

the other 60k in reserve. The Cash Option was able to purchase $800k of property

even though it only had 200k to start with.

This is what I found after 30 years (end of loan):

SD Normal IRA:

Gross Rents - $ 19,100.00

Property Value - $1,470,000.00

Cash Account - $1,629,000.00

SD Roth IRA:

Gross Rents - $ 14,600.00

Property Value - $1,127,000.00

Cash Account - $ 948,000.00

Cashout Option:

Gross Rents - $ 25,400.00

Property Value - $1,960,000.00

Cash Account - $1,378,000.00

What strikes me is that the cash account in the cash option is after-tax money. No

more tax gets paid on that. Also, the gross rents are much higher because a larger

amount of property was purchased.

Now....did I go horribly wrong somewhere? Because by these numbers, I should

dissolve that retirement account tomorrow.

Thanks in advance for any help in figuring this stuff out. I'm sure that I

must have missed several pertinent pieces of info.

Hi Vanessa, sorry, the @ thing just doesn't seem to work for me the way the instructions say it should.  Yes I've read many many threads here about sd iras and solo 401ks.  What I haven't seen is a sort of side by side analysis.  So, let's say that I do have a sd ira and am able to secure no recourse financing.  The required down payment on that will be - what?- 35%?  40%?  Plus a required percentage for reserves.  When comparing that to losing part of your money to taxes and penalties, has anybody looked at the fact that you can use 20% down and aquire more property or maybe the same amount of property but outside of the strictures of a retirement account.  Roughly, if you have 300k in the account and could purchase 600k worth of property vs. cashing out and having 200k where you can control 800k of property because you can put less down for each purchase.  In other words, how much of a drag on returns is the inability to leverage as much inside the account.