All Forum Posts by: Mark S.

@Marc Marquez, I’m an investor in Memphis who buys turnkey. While the offerings are plentiful, I won’t buy anything in 38127.  Automatic no for me.  I’ve driven through 38127 personally a couple of times over the years.  It may be a tad better than it used to be but definitely not an area I like.  

There’s a podcast that @Dean Harris and Douglas Skipworth do and have a few episodes on Memphis zipcodes.  Their opinions generally seem to be spot on with my experience in driving these zipcodes. Check it out. 

 Any updates?  Did you move forward?

 Mid South Home Buyers.  

@Kathy Leach, great question and lots to consider.  I am following this thread to see others’ thoughts as well.  This is not tax advice, just some dude on the internet’s opinion.

With the 401(k) loan, you’d likely be looking at a general purpose loan where the max repayment is 5 years.  Most plans will have a fixed interest rate.  If things get tight, you still have to make the loan payment; otherwise, the outstanding balance would generally be taxable and if you’re under 59.5, also generally subject to the 10% IRS early withdrawal penalty.  Some plans will allow you to continue contributing while making repayments while others may not (for a period of time, usually much less than the loan repayment period of 5 years).  Another consideration is if you are suddenly no longer employed with that organization - many plans will require the loan to be repaid in full shortly thereafter; others may allow you to continue making payments.  Make sure you understand the rules of your plan.  

With the HELOC option, many HELOCs have a 10-year interest only period followed by a 20-year principal and interest repayment period. Most HELOCs will have a variable interest rate, however, some also offer a lock-in feature to convert it to a fixed rate on a specific, outstanding sum (subject to some minimum amount). The fixed lock-in is usually slightly higher than the current variable rate.

For example: Let's say you have $50K outstanding at a variable rate during the interest only period. Some HELOCs may allow you to "lock-in" that $50K at a fixed rate 0.50% higher than the current variable rate. This might make sense if you believe rates will continue to rise. You want to learn the specifics of the HELOC you're considering - things like interest only period & repayment period, any fixed "lock-in" options and corresponding restrictions, closing costs (if any) to get the HELOC - some credit unions offer $0 closing cost promos if the initial draw amount meets a certain minimum, any annual fees/maintenance fees, etc.

Step 1 in my opinion is gather information and map it out.  This is crucial before thinking through the rest of the decision.  

Remember that a HELOC has your home as collateral. If you default, you lose your home. With the 401(k) loan, your house isn't at risk, but the loan terms can be more stringent and possible acceleration reasons can introduce some risk as well. Lots to think about, but hopefully this is enough to get you started.

 The 5-year rule related to Roth conversions (different than the 5-year rule that applies to earnings) determines whether or not the conversion PRINCIPAL will be PENALTY free (the converted amount is NOT taxed “again”).

Check this out for more detail than you ever wanted: https://www.kitces.com/blog/un...

Correction after speaking directly with the syndicator:

It is not a debt fund (although that was the initial structure which had a fixed return), but it is in fact an equity fund with depreciation pass through, however, the 1.75X multiple cash out is firm (so upside is capped).  

Sounds like they're looking at possibly doing a different structure next time, but this is it for now.

Came across an interesting syndication opportunity recently related to car washes.  The fund is structured and labeled as a Debt Fund (not equity), the return is capped (at 1.75X multiple), yet they seem to be promoting all the wonderful accelerated depreciation benefits of car washes.  

After speaking with my CPA at a high level (we were discussing other things and this came up towards end of conversation), it appears that real estate DEBT funds generally do NOT pass through depreciation and the like, and that returns from this investment would likely be taxable at ordinary income.

Anyone else ever run into this?  Am I missing something?  

At first glance, the opportunity seemed interesting but if there's no depreciation passthrough on a debt fund, then it's not nearly as enticing.

1.0 DSCR will get you in trouble real quick.

 Keith Weinhold and Get Rich Education podcast.