All Forum Posts by: Ed W.

@Carl Fischer

Thank you, Carl, you make many important points.  I happen to be a pretty experienced investor and hard money lender but my experience loaning to an SDIRA was literally nil, hence the original question.  

Related to your question about about a personal guarantee, it just makes the loan that much safer by providing some potential alternatives to foreclosure including options like a loan mod.  Far less incentive  by the borrower to be cooperative or consider alternatives when the loan is totally non-recourse.  In 20 years or more, I've never had to foreclose but have done numerous modifications that allowed the borrower to complete their project and produce a profit while my company received a greater yield by being willing to be flexible.

@Dmitriy Fomichenko

Thank you. I've also learned from a very reliable source that parties unrelated to the IRA and not having an interest in the property beyond a certain level can also sign separate guarantees.

Scenario:

An SDIRA owns a property.

The beneficiary of the IRA wants me to loan money to the IRA so that the property can be rehabbed.

My understanding is that the loan to the IRA has to be non-recourse.

My understanding is that beyond the IRA having no financial responsibility that, additionally, the beneficiary of the IRA cannot personally guarantee the loan in any way.

I don't know of any reason to not use a cognovit note. Are there reasons that a cog should not be used?

There is at least one party who has some kind of interest in the property (it may be a formal or informal interest). I won't know for a few days what, if any, that interest is.

Whether or not that second party has any formal interest in the property, if that second party (totally unrelated to the SDIRA that owns the property) signs a separate cog guaranteeing the money, is there any problem with that?

Are there any other considerations that I'm not aware of that have to be taken into account?

Thank you for your assistance.

@Wayne Brooks, @Mark Creason   @Jacqueline Gardiner   Thank you for your insight and assistance.

@Dave Foster Thank you for the very deep dive into the very murky waters.

All replies were helpful and greatly appreciated.

I've done one 1031 exchange about 20 years ago and used an intermediary. The whole process was completed within about 40 days including identification and closing.  That's the very limited extent of my knowledge.

What follows is a very different scenario that can close in the next 2 weeks because all of the contracts are already in place.  I don't understand the role of the "Accommodating Party" when there appears to be no way for the seller of the 1 property (the exchange property) to "touch" the capital gain before it is used for the purchase of the 2 properties (the properties being exchanged into).

1 Property being sold as part of the 1031: Owned for 10 years, used as rental, capital gain will be $120,000

Purchaser of the 1 property is an arms-length purchaser unrelated to the seller essentially paying fair market value.

2 Properties being purchased (exchanged into) as part of the 1031: Rentals with total purchase price for the 2 properties of $110,000, both properties owned by the same person.  $10,000 of the $120,000 gain will not be sheltered.

Proposed day of closing schedule:

10:00 AM - Seller of the 2 properties being exchanged into signs all regular closing docs, including deeds.

Noon - Purchaser of the 1 property being exchanged out of signs all regular closing docs.  100% of the purchase money is sitting in the title company escrow account having been wired there the day before.

2:00 PM - The seller of the 1 property being exchanged out of signs all of the regular closing docs related to the purchase of the 2 properties being exchanged into.

2:15 PM - The seller of the 1 property being exchanged out of signs all of the docs related to the sale of the 1 property being exchanged out of including the deed.

I'm struggling to understand where an Accommodating Party or an Intermediary is necessary.  They may be, but, in my ignorance, I don't see why.   

Is there additional documentation that is necessary?  If so, is it not readily available somewhere?  

Are there IRS requirements I am not aware of?

Thank you for your assistance.

@Jennifer Rysdam  Thank you for your thoughts. 

I'm going to talk to my friend over the weekend.  My suspicion is that the landlord isn't so sophisticated that they are factoring in what they believe might happen to the market, but I've been wrong before.   

It's not cast in stone but we're leaning towards a letter that outlines the good, long-term tenant he has been, perhaps throw in some things about tenants not truly being bound to 5 year leases (I'm not so sure that saying this is the best strategy) and request an exception.  The fact of the matter is that the landlord cannot replace this guy with a better tenant.  The best he can hope for as tenant who is as good who, initially at least, is fine with a 5-year lease.  Whether the tenant truly stays for 5 years remains to be seen.

Thanks to all of you.  I was actually hoping to get a dissenting opinion on the assumption that I was overlooking something but it appears that we all think alike - and are likely correct in our thinking.  

I'm a pretty experienced landlord in Ohio.  Based on Ohio law, I've never found any reason to have a lease term longer than a year.  My typical arrangements are either a 1 year term that becomes a month-to-month lease at the end of the initial term or a month-to-month lease from the very start.  These arrangements have worked well for me and I have relatively low turnover.

A friend in Missouri who has been a tenant in a single family property for a number of years without lateness paying rent or other incident, is telling me that their landlord is requiring a new lease for a minimum term of 5 years.  For the life of me, I don't understand how that helps a landlord.  Even if the market for rental housing is tight and tenants are lining up outside the landlord's units begging to move in - at least in Ohio - if a tenant has to break a lease the landlord is likely to get only the security deposit (though they are often entitled to more) and the landlord has an affirmative obligation to mitigate the damages by making a good faith effort to lease the unit.  In our current market, most units would be leased within 30 days so the landlord would only get the security deposit and not be able to sue for the rents based on whatever number of months and years remain on the lease.  In a slow market the landlord might have the right to collect months of rent but the cost of successfully suing and collecting usually is not worth the effort.

Other than some value in psychologically tying some limited number of tenants to the rental unit, what, if anything, is the value of a multi-year lease?  Is there something peculiar to Missouri law that makes this truly (vs. marginally) advantageous to landlords?  In a market where there are more housing units available than tenants who want them, multi-year leases - on average - would probably move slower than those with 1 year leases. 

Your thoughts on this are appreciated.

I texted to your number above about an hour ago but it doesn't show as having been received.  Please post your email address.

Ross, are you (or your company) named as the owner of the property on the CFD or are you acting as an agent to sell the CFD or are you acting in some other capacity?

Do you know with certainty whether or not the document conforms with the Ohio statutes related to CFD's, ORC Section 5313?

Why are you selling the CFD?