All Forum Posts by: Joel G.

Thanks Bill.

I figured that the work product probably had something to do with it...just wasn't making that connection.

Hi Lance,

In the small towns outside of DFW...we have found plenty on lots that can be had for $8-12k. 

That price tag is also a little misleading (not intentionally so)...in my wife's family...who will work for beer and pizza...there are 2 carpenters...a licensed plumber...a licensed electrician... and a building inspector. All, of who, will share in the fruits of our labor...only on a delayed basis.

So we are definitely in a unique situation...however...I have never understood why that is so...

I met a carpenter in San Diego once who was working on a restaurant interior...he shared with me that he had a regular job and that this was sideline work (on a Saturday). 

He agreed to do a job that would normally have cost the owner around $20k for no cost up front (except the cost of the materials) but after the place opened he would receive % of of sales for the next 5 years...this would amount to around $400-500 per month...around $5-6k per year and somewhere around $25-30k to complete the transaction. 

He charged a premium for his service for delaying the payout...he admitted to me that he was "just an average" carpenter...but that this job would only take him about 4 weeks...working nights and weekends...moonlighting from his regular job.

He told me that he normally would have only been paid around $10-12k for the work he was doing....but that the owner...who was coming out of his own pocket for this work...was happy to have delayed the payment and therefore did not mind paying the premium...nor did he mind...paying a further premium (in the form of a percentage of sales)...to be allowed to pay out for the work performed.

Everybody won...he was payed VERY well for the work he performed (albeit on a payout plan)...the cash strapped owner was happy about the arrangement...he got to payout for the work over time and IF his doors closed, the deal was off...BTW, the restaurant/bar is still open to this day 18 years later...

The real kicker...was that the carpenter shared with me that this was the 14th project like this that he had done in the last 2 years...and that although most of the jobs were much smaller than this one...they were all paying him something every month...at about TRIPLE what his normal rates would have been for each project.

My question is...why are we ALL not doing business like this? 

Lol...I just realized I climbed up on a soapbox for something you didn't even ask about...my bad

Sooooo...uhh....Small towns outside DFW with help from family to keep costs down.

Sorry to drone on. Happy New Year! Thanks for your question.

That's great to hear Justin. 

Thanks for taking the time and effort to respond! I am continually amazed at the knowledge...and the willingness to share that knowledge...found by members and participants here at Bigger Pockets! 

Take care and feel free to express any other ideas you might have about our situation.

Well...

https://clintcoons.wordpress.com/2013/10/16/seller...

This link goes to an article that describes the situation I originally proposed almost identically...BUT it still doesn't clear up the WHY this regulation exists for builders.

I have read multiple articles now...and done multiple searches...and this is what I have found:

In Dodd-Frank....the builder - "involved with construction of" - seems to have originally had the intent of deterring timeshare developers who were acting as seller/financers and using deceptive practices to lure would be owners not contracts that they knew would never...or eventually not...perform.

The 1 unit rule and 3 unit rule seem to be in there as a go around for builders willing to develop other entities etc and then seller finance that way...so confusing...and so little written or discussed...on my topic anyway...that I can find.

In BP search...I found several articles discussing Dodd Frank...but none from my perspective....or maybe I just don't know how to search anymore.

At any rate...I will continue to search...and will gladly report back what I find.

If you have any other ideas or suggestions please feel free to chime in!

Hi Justin.

Thanks for the explanation. Does sheltering the income in the 401k...preclude you from taking some of that income now...for living? 

Probably taxed...of course it would be, what isn't...but I mean...are there any rules saying that we cannot take a salary from part of the proceeds? 

There are some strange rules on that using ROBS financing for a business depending on how much "stock" the IRA owns...using certain business entities, percentages, etc. definitely using an attorney...lol.

Does any of this affect cash out refi? I mentioned it in the original scenario, but no one has commented on whether that is allowed...at least...in the way I proposed it.

Thanks again for you help. Happy New Year!

So...after some quick reading and a few searches...

I cannot find out WHY seller financing is not allowed if you are the GC. 

I am not arguing the existence of the rule...I am saying that I cannot find the reason for the rule in the first place. 

I'm sure it goes back to the RE crash...but I can't find any articles that say..." the reason Dodd-Frank doesn't allow contractors to seller finance is ABC and XYZ" 

Again...not arguing the existence of the rule...it's there...just trying to understand the reasoning is all.

I'll do a search here on BP as well...I can't  possibly be the only person who has wondered...and asked why...this rule exists! Lol.

 Thanks for the link and search idea. 

Given the basic parameters I mentioned before...could we cash out refi and the hold to rent? 

It would still put cash in our pocket, but the maintenance, tenants, etc would be our continued responsibility.

If we did that...build-hold-rent...would there EVER be a point that we could seller finance the property? Seems like we would cross a line somewhere where it become ok...or maybe not...I don't know.

Next stop...the link you sent! Thanks again!

Hi Mike...Happy New Year! And thanks for your reply.

We looked into opening a business in Texas using the ROBS program and a business loan. It seems to be a very tricky thing (for me anyway) with IRS as far as paying back the investment vs taking salary for work performed. Maybe that's just for a business vs a RE to investment...I'll have to look up not that more...thank you for the idea.

Also, would setting up the Solo K preempt the Dodd-Frank rags that were mentioned in the previous post? Probably not...but worth asking...if for no other reason than to remove as an option. 

Thanks again for your help!

Thanks for your reply.

Exactly why I was asking...I figured Dodd-Frank would come with n there somewhere...just couldn't remember how or where.

Does the fact that I own the home outright make any difference? Or does it come down to a workmanship issue to protect the buyer?

Also, thanks for RE Attorney advice...we will definitely seek one out prior to starting any project. We just wanted to see if there was even a starting line with an idea like this. 

Thanks again for the reply...Happy New Year!

I forgot to add...I am using an iPad...and am unable to see all the different categories in which to post this message.

If this post would better fit a different category...please feel free to repost it there or re-classify the post to better serve the BP forums. 

Thanks again!