All Forum Posts by: Chris Martin

Charles, agreed. Definitely a gray area and there are always circumstances in each investor's case. Context is important. But I will add this. I think too many investors worry too much about "violating" the dealer status.

I like to think about it this way. Substitute the word 'house' with 'car'. In my state a car dealership needs to conform to a long list of state laws designed to protect the buying public. Lots and lots of regulation. Page after page of detail. But my neighbor who likes to work on cars on the side isn't the same animal as a car dealership. Yes, he may sell a few cars in a given year. An he has a few classic cars that I hear about, especially on nice spring days! But he is no dealer. I've seen people follow him home after an afternoon drive. I'll bet he made an unsolicited sale or two this way, like on his Monte Carlo SS. It was gone once he finished it. My point is that he does have a passion for the 'car'. He does profit from sales. I'm sure he has cars worth more than some of my property! But in the context, he is not a dealer. Why? In NC, statute says the raw number of transactions is material to a dealer definition. Five. Exceed this number and I think you are on the "radar" so to speak. Doesn't mean you are a dealer... as Rich points out, if you have 20 buy/hold rentals and had 5 sales, I'm pretty confident the IRS isn't going to bother you.

Unless you are missing something major, regarding your comment "Why the hell is there so much activity over this place???? Is it just because of the tax right offs or depreciation?" you may well have nailed it. B Forties, you have gained way more financial knowledge from the handful of great posts above than the sum total of those investors who are going to place offers on this bad deal. These are the people out there who say BS like 'the price can't fall any more' and 'this property has to go up' and 'I don't mind the loss because it is a great tax write-off.' They buy based on misinformation or no information... more speculation and wishes. Not a good model to emulate. Unfortunately I know a few people like that... they haven't fared well in the last few years.

One complication. This property is purchased with a SDIRA account. I'm pretty sure I can't offer a recourse loan, but I believe I can offer to take the note back at par (or at the balance then outstanding) to protect my second position. I'm not sure if this is IRS valid, but in the default scenario I sure don't want the bank to foreclose the first and wipe the SDIRA position out. So I would rather the SDIRA account buy out the first. My intent is clear: protect the second. That's why it is a 50/45/5 and why I want the opportunity to buy back the first. So maybe not a big deal.

I agree with using a loan service company. Seems like there are a few servicers out there that would be adequate.

Andrew, public records are updated daily and are free. If you are keying off just a default, with a S-TR filing you can dig through public record(s) to get most of what you want. Current balances are hard to find until the special proceedings file is updated. You can find initial balances in the D-T... generally the balances are around this number for loans originated in the last few years.

Should I make a list as to why this site is inferior to the local guy?

First I searched "preforeclosures" and clicked on Auction Date. Alas, a blank field (meaning date not yet set) matches before today (11-15-2010) so I had to page forward to page 9. Not that big a deal. So I get to today. Hmm. Looks pretty good so far! Then... WHAT! I see a property I have been following and the USAToday list. That sale is today?? The Status says Active. I scramble to verify. This property isn't on the local guy's site. WT&^! Not on the trustee's site either. Long story short, USAToday doesn't remove canceled sales. Not good. So I decide to look at the "Detail" information for this case, since I am somewhat familiar with it.

Most of the fields mirror the publicly available property card. But the Parcel Number 171411654821010 is incorrect. The PIN is 10 digits. And the Real Estate ID is missing. Ok, not a big deal. I just need the important stuff. So I look for the SP number. Not there. The "Legal Information" section provides the book and page for the deed. So what? The D-T and S-TR are what I want. I look for the D-T book and page. Not there. S-TR. Not there. What value does this service provide me?

So not off to a good start.

Let me try another record. I randlomly pick 2909 Mark Oak Ct. Many fields seem correct. Minimum Bid: $112,117. Not quite exact, since as we all know the clerks like to see the cents. 112,116.74. But over is better since it is acceptable by the clerk. Hmmm! This time the Book: 012106 and Page: 00059 are the D-T, not the deed. The deed type says Notice of Trustee Sale. Not exactly. This USAToday page doesn't have the owner information on it. Yes, necessary for the bid form at the courthouse. The 10 digit PIN number isn't on this page. It was on the last one, why not this one??

So I looked at a few more. Same problems. One was a Hutchens sale. Case Number: 1029998. USAToday doesn't provide the Minimum Bid. Neither does the Hutchens site. Oh well.

USAToday site? Not worth it. Local guy for me.

Jack said I would like to do a thorough inspection to know how the structure, water, furnace, water heater is working... I would hire a competent (or licensed) home inspector. Their services are worth the cost, generally a few hundred dollars. They can spot system (heat, plumbing, split boots, etc.) problems and can point out code violations, etc. that you would want to know about. REOs usually are 'as is' and many have defects that will cost more than the price of the inspection.

Brokers need to re-register with HUD. Insurable (type IN and IE) Owner Occupant periods have changed to a 30 day exclusive listing period rather than the old 10 day period. Possibly good news for UI buyers. UI properties now have a 5 day exclusive Owner Occupant period. After the 5 day exclusive bid period, investors can bid if no OO offer was accepted. Looks like most of the rest of the process is similar. In my area, Asset Managers can also update listings daily vs. weekly with HMB. I think this change is universal. New listing volumes are very low still. Maybe this will change after the new year.

Charles, thanks for the response. Consistent with the IRS instructions, the article also says "Some examples of exempt income to an IRA would include interest from loans, dividends from securities, real estate rental incomes and the proceeds of the sale of real estate that was held for appreciation." The article also lists the most common tests used to determine passive investment vs. business activity, two of which include Intent and Holding Period.

My plan is to rent a property to a tenant who may want to buy the property down the road. Not a lease option, but potentially a purchase with owner financing via the SDIRA account. The IRA would provide the deed take a longer term note, collecting mortgage payments rather than rent payments. I'm thinking 12 months of on-time rent payments may be required before even considering a sale to the tenant. At this point, I'm not worried about UBIT.

I had a couple conversations with Equity Trust Company (ETC) on this, subsequent to my post. Basically, ETC will send a letter at the end of the year if they feel your SDIRA activity warrants UBIT or any IRS filing. They can do the filings on your ETC account's behalf. Regarding the topic, the ETC representative seemed to think unleveraged IRA purchases/sales of less than 5 properties in a year would not be considered a "business" activity and not subject to UBIT. The five properties relates back to the dealer definition and context.

There are lots of exemptions that allow many people to avoid filing a 990-T. If an investment in your SDIRA triggers UBIT, a 990-T needs to be filed. Check with your IRA custodian. They may actually file the form for you (for a fee.)