All Forum Posts by: Jim Dahle

@Basit Siddiqi

So what factors determine whether it is portfolio income or not?

@Basit Siddiqi

You make it sound like it is literally the fund's choice! Why wouldn't they choose to call it portfolio income?

@Eamonn McElroy

By debt fund I mean something like a Broadmark or Arixa fund that makes a bunch of 1-2 year loans to real estate developers. Broadmark adopted a REIT structure last year. Arixa has not. The Broadmark fund I invest in lends in Utah (my state) and Colorado. The Arixa fund lends in California.

So is it different for a debt fund vs an equity fund, or exactly the same? 

And if there is no taxable income in a state (due to depreciation or whatever) or the income is low enough that a return does not have to be filed per that state's rules, is it worth still filing to carry forward losses or establish basis or whatever. 

I'm not particularly interested in owning real estate directly, so I look at both syndications, private real estate funds, a simple REIT index fund.

I generally only invest in syndications in tax-free states or in states I'm already filing a tax return in to avoid that additional hassle.

What I'm still not 100% clear on, however, is how state taxes are treated for private real estate funds, how that changes based on whether or not a composite state income tax return is filed by the fund, whether that changes based on whether the fund converts to a REIT structure, and how that changes based on whether the fund invests in debt or equity.

I cannot find any good resources on this anywhere. Can anyone enlighten me to these issues? When are taxes due and when must state tax returns be filed? Obviously, that's going to vary a bit by state, but a general framework would be helpful. 

I'm not really interesting in buying, managing, or selling individual properties, even turnkey. Don't like it, not good at it, more profitable things to do with my time etc. But I recognize that real estate above and beyond publicly traded REITs can be useful in a portfolio so am gradually moving a small portion of my portfolio into real estate.

I've had some success with syndicated investments and anticipate doing more of it in the future. Thus far, I've done it all in a fully taxable, non-qualified account. That's fine for the equity investments as they have some tax advantages anyway, although the recapture of depreciation when the deal closes after 5-7 years is kind of a bummer and they're tough to exchange. But for the debt investments, it really blows to have them in a fully taxable account, especially in the top tax bracket. At a 10% return, I'm basically losing nearly 5% of it to taxes. So ideally I'd like to do that in a tax-protected (and in my state, asset-protected) account of some type.

I have an individual 401(k) for myself and my spouse for our business. It's at Vanguard invested in low cost mutual funds. Since real estate isn't going to be a huge part of my portfolio, I'd rather not use the individual/solo 401(k) for it. I certainly don't want to invest all of the 401(k) in real estate.

I would prefer to use part of my Roth IRA to do this. Maybe $50-100K initially and gradually more. I'll likely continue to have a significant portion of my real estate investments in non-qualified accounts.

I'm envisioning a dozen or two different investments total, with minimums of $5-50K for each individual investment. So here's my questions:

1) Is it worth bothering with the SDIRA at all? Should I just do it all with non-qualified money to keep it simple? Basically, will the hassles and fees eat up the tax advantages, especially when I'm losing those tax advantages on other assets that would have to be moved to a non-qualified account.

2) If so, would a checkbook IRA be the best way to keep costs as low as possible and facilitate crowdfunded investments? I have no issue opening an LLC, done it before and easy to do in my state.

3) If so, who is the best checkbook IRA company to go through? Broad Financial popped up first in the old Google search, but that might just mean they have the best SEO guy.

4) If I have a few hundred or a few thousand dollars sitting in the account (which I will as the investment pays out interest), but not enough to pour into another real estate investment, what are my options? Can I have the LLC open a brokerage account and buy ETFs until I'm ready to make another investment?

5) Any issues with frequent rollovers into or out of the account?

6) Finally, does UBIT tax (Unrelated Business Income Tax) apply at all to investments like this?

Thanks in advance for your help and especially anyone who has done something similar.

Thanks for your help. We've told them that as per the contract, breaking the lease will forfeit the deposit, plus any unpaid rent. However, I offered the one staying (+ any new roommate) the ability to reapply BEFORE breaking the contract. Then they could determine if they still qualify before breaking the contract for just the price of an application fee. 

I have a lease with two tenants on it for another year. One of them wants to move out. The other wants to stay and thinks she can handle the lease on her own. How would you handle it?

I don't want to spend my time putting together deals. Faster turn is not a good thing for me. I'm interested in low correlation with the rest of my portfolio and solid returns. I don't need 25% returns on $4K. I need 15% returns on $40K.  I'm okay with someone else getting paid to do some work, but I don't want to get taken to the cleaners.

I've invested in real estate for years, including REITs via index funds, directly in a rental property, and in a syndicated deal connected to my employment. I've got a regular job I enjoy, and at which I am paid very well. In fact, I've got two jobs that meet that criteria. I don't need another one. I'm not particularly talented or interested in buying, managing, or selling real estate directly. What I am interested in, however, is the returns available through real estate and the low correlation it has with the remainder of my portfolio (primarily stock and bond index funds in tax-protected accounts.) I have cash, but not time or interest to do this stuff myself. As an accredited investor, I have the opportunity to invest in a number of syndicated deals, and I become aware of more and more of them as time goes by. However,  most of the information about these deals and how they work comes to me from those who are selling the deals, not exactly an unbiased source. Plus, each of these requires a pretty good chunk of change, usually around $50K, making it hard to diversify by buying tons of them. I'd like to learn more about how best to choose between them. 

For example, here's one being offered by Bla bla bla company via bla bla bla crowdfunding company (I deleted the details so nobody would think I was looking for an offer or asking for an offer) right now:

Built in 1968, the Property is a 208 unit apartment community containing 176,783 net rentable square feet. The Property is comprised of 20 two-story, four two-and-one-half-story residential buildings and a clubhouse.

The primary objective of this investment is to acquire, renovate, reposition, and sell the Property in five to seven years.

They estimate a cash on cash return of 7-12% (avg 9.5%) and an IRR of 15.5%. It'll be 32% down on a total budget over $10M. They're calling it a Cap Rate 7.1% property.

The fees are not insignificant- 2% of purchase price as an acquisition fee, 2% of equity (the realty mogul fee), 4.75% per year for property management and investment management. The investors get an 8% preferred return, then it's split 70 investors/30 sponsors above and beyond that.

So here are my questions:

1) How do I know bla bla bla aren't criminals and are actually skilled at doing this? Obviously it's not very cost effective to spend $3K doing a background check on every principal in the company when I'm only going to be investing $50K total with them.

2) Is 70/30 after 8% fair? What's a good deal and what's a bad one?

3) Are the fees fair and reasonable? What would a "too expensive" fee look like?

4) What's the likelihood of actually seeing the projected returns?

5) What's the likelihood of losing my entire investment?

What would you do to properly evaluate an opportunity like this? To make it more difficult, you usually can't compare one offer to another at the same time, because while I might see 20-30 deals like this in a year, it's only 2 or 3 in any given month. Any other tips for choosing a syndicator/syndicated deal to invest in?