All Forum Posts by: William Joel Idleman

Perhaps find the angle of money that actually interests her.  Maybe it's business ownership, real estate, personal finance, or taxes.  Start with her interests and eventually she will arrive at financial freedom.  As for authors I like both Robert Kiyosaki and Dave Ramsey.  I prefer RK of DR.  DR seems to generate a cult like following and some of those people can come across as very arrogant.  RK aligns with my values more.  Both are great places to start.  Dave offers a course called financial peace university.  It's an 8 week course and sets a good foundation.

Quote from @Chris Seveney:

Quote from @Leslie L Meneus:

@Chris Seveney

I opted to change my taxation should I have changed my formation?

 I would discuss this with your attorney and CPA. There is a lot this depends on that I would not take my advice (or anyone on BP's) without knowing ALL the information.

 Chris is right.  BP is a good place to get general direction but I wouldn't make any decisions without someone who holds a professional designation and necessary experience necessary to offer guidance.

Quote from @Dmitriy Fomichenko:

Lack of liquidity? Can you access conventional IRA prior to 59 1/2? You know the answer. It is still an IRA, the same rules apply, make sure you are comparing apples to apples.

 I mean the lack of liquidity of selling the property.  We can sell a stock in seconds.  If you want to move out of that property it's going to take a lot longer.  It has a lack of liquidity.

Sorry for a delayed response.  I was on vacation out in Mobile Bay area.  If you guys haven't been there you should check it out.  It's really something.  I reached out to a few CPA friends and spent vacation rereading Tom Wheelright's book.  

I've arrived at this conclusion;

Putting depreciating assets in a retirement account is not ideal.  Yes, you can do this. No, I don't believe that if you choose to put depreciating assets in a retirement account that you are wrong or that you won't make any money.  Depreciation is one of the best benefits of being a real estate investor.  I saw someone mention the recapturing of depreciation.  That's correct.  If you depreciate an asset and sell it you will have to recapture the depreciation and it can really create quite the tax bill.

However, for me personally moving forward, I won't be putting any depreciating assets inside a retirement account.  I firmly believe that it requires appreciation, depreciation, and amortization to expedite financial freedom.  My strategy moving forward will be to utilize 1031 exchanges to delay taxes and continue to grow the portfolio.  Upon my death, my family will receive the step up basis in the properties and no taxes will be collected.  The long term goal is to not pay income tax against my RE properties.  With the tax & financial planning revenue, I'll never be able to qualify as a full time RE investor and that income will always be passive.  No, I'm not married so I can't make the wife a full time RE investor haha.  

This week I will rollover my IRA to a solo 401k so I can borrow against it. The solo 401k will be used as a personal bank and to diversify my holdings outside of real estate.

As a fiduciary, I don't believe I'll run into a situation where I will advise a client to put a depreciating asset inside a retirement account.  It really doesn't make sense not to take depreciation as long as we have 1031s available.

Thanks for everyone's input!

Quote from @Chris Seveney:

@William Joel Idleman

Remember when you sell an asset your cost basis from depreciation is lowered so you are paying it on the back end. All depreciation does is delay a tax event

Not having depreciation in a sdira is meaningless because you are not paying taxes on the income earned at that time.

I would much rather have my money grow tax free and tax it later in life than now.

Right - I get that. However, I can permanently delay taxes through 1031 exchanges, refi to get my money tax free through a loan, and then pass it down to the next generation in which they get the step up basis. Essentially, I can never pay taxes on the growth and the next generation gets a new basis so they won't pay taxes either. I like the idea of putting non depreciable assets inside an IRA though. As far as I can tell, none of the big names in real estate have put depreciating assets inside an IRA. I'm a big Tom Wheelright fan and his position seems to make the most sense.

Quote from @Brian Eastman:

@William Joel Idleman

You are getting caught in a very common trap, but the result is comparing apples and oranges.

An IRA is an IRA. It has the same tax rules and restrictions whether it is invested in shares of Apple or a rental property. It also has the same tax-favored status.

Trying to compare a rental investment done personally with a rental investment done in your IRA is not really relevant. They will always be different.

The better comparison is, "Will an investment in real estate (or a syndication, mortgage note, etc.) provide better principal security and potential for growth over time than something else I might invest the IRA in?"

If you are a real estate expert and know your local market, you can definitely out-perform a conventional stock portfolio with good investments in real estate.

 That's a fair statement.  I was thinking of it as an "all or nothing".  Utilizing real estate in a qualified and non qualified account simultaneously can provide the best of both worlds. 

Quote from @Account Closed:

While I'm not even close to being a financial advisor, I have some experience in the SDIRA and Commercial Real Estate world - and I think they go together quite nicely.  If the goal is to hold real estate in the SDIRA, I would have two recommendations.  

1.  Buy an asset that doesn't depreciate - a land-lease or vacant, raw land.  These are easy to use and are very unlikely to need any sort of involvement from the owner of the SDIRA.  Use after tax dollars, or leverage, to acquire your depreciation needs.

2.  Focus on cash flow, rather than appreciation.  Find something that will give you monthly cash flow and that could be used to fund other, non real estate related deals.  This will help with the RMD, Required Minimum Distribution, that will hit when the SDIRA owner is 67, I think. 

 I like that.  The raw land idea makes a lot of sense.

Quote from @Dmitriy Fomichenko:

@William Joel Idleman

Yes, there is certainly a value. I will use my own example. I purchased SFR in Phoenix using my self-directed Roth funds in 2013. Paid $110K + $10 rehab. Was rented for $895 at the time.

Today it is valued at $420K and I just signed a new lease for $2,000. Do you see the value now?

I don't care about the depreciation, it's tax free! I probably did 10X better than the stock market. And there are many other ways to invest into alternative assets. 

Nice work utilizing the Roth.  I still don't like the lack of liquidity.  Even with a Roth we can't access those funds tax free without penalty until 59 1/2 unless it's the original principle.  That's a great return though.  Good for you.  Personally, I think I'd rather not have that deal inside my roth.  I'd rather 1031 that money into something else and/or take a loan against it to keep the transaction tax free.  I want depreciation because I don't want to pay income tax in 10 years.  

It seems that the idea of a self directed IRA is a buzz word in the BP community. If you use a self directed IRA, would you be willing to share what advantages made you choose that investment vehicle? I understand the idea of alternative investments outside the stock market and agree that there is some value there. I've never seen the value of owning property inside of an IRA because the IRA cannot take depreciation against the property. Is there something I'm missing? I've done financial planning for almost 7 years but I'm not arrogant enough to think I know everything so your feedback is much appreciated.

I'm not a huge Davey Ramsey fan but I do like some of his strategies.  On the spectrum of Grant Cardone to Dave Ramsey, I'm somewhere in the middle.  However, I think this is one of those times to look at the debt snowball strategy.  I can't remember the statistics but the success rate of paying off debt vs getting in more debt after consolidating is abysmal.  Statistics are not on your side if you choose to consolidate and I prefer to stack the deck in my favor.  I've attached a link below on the strategy Dave teaches.

How the Debt Snowball Method Works | RamseySolutions.com