All Forum Posts by: William Tong

I have insurance on a NNN single tenant building. The tenant, Workout Anytime, has insurance for his equipment and business related structures. I have had 4 roof leaks in the past year and have decided to replace the whole roof. In the experience of the readers, should the tenant's insurance cover any leak related internal damage? Should my insurance on the building cover roof leaks? Of course I am contacting the insurance companies but thought someone here may have recommendations. Thanks for anyone's help.

Hi James. Your initial enquiry stated you already had a Roth 401K. If so you have slightly different constraints using a Solo401K vs a SoloIRA. No UBIT for Solo401K. I currently have 2 active loans both non-recourse done at closing of a purchase by seller (easy) and the other with a new tenant to fund an upfit. I have a Solo401K LLC formed in Texas (very easy) which I have been self administrating for ~15 years without a custodian. Soooo much easier and faster, without all of the delays, miscommunications etc. On the downside, I am responsible for all of the 5500's, keeping the plan IRS compliant, and annual BPO's (broker price opinion), keeping all of the properties (for me only 2 small strips and an apartment partnership) separate. Note: the Solo 401K owns 100% of the 401K LLC, the 401K LLC owns 100% of each of the LLC's each holding a single property. The 401K LLC also owns all of the related bank accounts and a broker account.

Because I am over 70 y/o, I am transferring the administration duties to an administrator.  I chose Nabors Group although I have no experience with them except that when I started this journey 15 years ago, they were already in business.  They have excellent BBB and Trustpilot reviews, an active Facebook community and low costs.  Good luck.  If you're interested I'll tell you how my transition goes.  

Oh my the way, with regard to Roth and real estate, it is my experience that to enter a negotiation for purchase with $500,000 (pre-tax) vs $350,000 (Roth) you are in a somewhat more flexible bargaining position with less dependence on loans.  The seller is indifferent.  Bill

I have been working under the impression depreciation is transferred to the new property. The cash boot then is taxed at normal individual tax rates, not capital gains nor depreciation recapture rate.  I've heard it is a multi-step issue for the facilitator and your CPA, so may be better to do the exchange with a property of at least equal value, then do a post exchange refinance to get $$ out.  Correct me if I am wrong.  

@Adam Purden.  We are in similar circumstances but in North Carolina.  Bought small house for $168,000 and are in escrow at $375,000, still owing $90,000 in mortgage and have depreciation recapture $70,000.  Both federal and state LTCG are about $50,000.  

Important is the mindset you're in. Do you need money to travel, bills to pay off, etc. We are of the mind (70%) to just pay the taxes and have $$ in the bank to help our kids or travel, etc. and avoid worrying about a dysfunctional HOA or a non-functioning toilet. At a certain point, time is more valuable than money.

That being said, 30% of our mind decided to keep the 1031 in our back pocket. The sale goes on with the proceeds going into the attorney's escrow account.  Upon completing the sale the proceeds will be placed with a 1031 facilitator and from that point we have 45 days.  IF we can't find a great property, we complete the sale and pay the taxes.  IF we find a great property, then we go with the exchange.  We won't buy a marginal property because it is too easy to lose that $50,000 in a bad deal.  With the market slowing (here in Charleston) it is a wee bit easier to find a property not yet sold, so in many respects it is a better time for exchanges.  

Your story also reminds me that condo purchases are only as good as the due diligence on the HOA. Good luck. Tell me how your story unfolds.

Thanks Todd.  Do you have a CPA who would be well versed in this subject?  Thanks.  

I own a Solo 401K which is the sole owner of an LLC which owns 100% of 2 additional LLC's, each holding a small strip mall. I am 2 years from RMD. I want to keep the strips because they throw off considerable income. My plan was to get one of the strips appraised then start taking a percentage of the LLC out each year depending on the RMD calculation and just pay the tax on that value. My question is has anyone done this before or has knowledge about the process and legality? I have owned this Solo 401K for more than 20 years. Thanks for your help.

I own a dark single tenant building.  It is an old Good Year or Firestone type of building, 7500 sf.  It has about 3000 feet of retail and 5000 where parts and repairs were accomplished.  It admittedly needs new air conditioning, electrical, and water repairs.  I have hired a broker, contacted the planning department and have spoken with the owners of the medium sized outdoor strip mall of which my property is an out parcel.  2 contractors agree that it would cost around $350,000 to demise into five 1500 sf units.  I was told the property could sell but only for $500,000 and I would rather keep the building.  The population in the town has increased by 10% over the last 8 years slowly moving down from the Charlotte area, the retail has been slowly improving, the housing prices increasing steadily albeit in the 2-2.5% range.   I am asking for any suggestions.  Thanks.  

Investment Info:

Retail buy & hold investment.

Purchase price: $550,000
Cash invested: $225,000

Single Tenant just left after 9 years. Old Firestone or Good Year building. Out building in a moderately large outdoor mall. Very busy street.

What made you interested in investing in this type of deal?

Long lease and cash flow.

How did you find this deal and how did you negotiate it?

Loopnet, agent

How did you finance this deal?

Seller financing

How did you add value to the deal?

Paid down debt and now in 8 year of 10 year loan.

What was the outcome?

Got 12-13% cash flow not counting loan pay down. Unfortunately the tenant bought his own property and left.

Lessons learned? Challenges?

It is difficult to rent out such a large building (7500 sf) in such rough condition.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

No. So far brokers and agents have been underwhelming.

Yes, collected rents.  

Investment Info:

Retail buy & hold investment in Boiling Springs.

Purchase price: $600,000
Cash invested: $600,000

Small Strip Mall diagonally opposite Gardner Webb University, 1 hour from Charlotte, NC. Very small town.

What made you interested in investing in this type of deal?

I tired of owning small residential for many reasons. Relocated to East Coast and this was my first commercial purchase.

How did you find this deal and how did you negotiate it?

Real Estate Agent in Charlotte.

How did you finance this deal?

All Cash from 401K.

How did you add value to the deal?

Poorly I fear. I relied too heavily on the broker and didn't contact very local brokers ... a mistake but it was my first deal.

What was the outcome?

8 year later, all 5 units are full and I am making about 8% on my investment. The population of the small town has not grown much and the value has increased to my original purchase price. It has little overhead and the tenants are happy, I have good management and have no where else to put the money.

Lessons learned? Challenges?

Investigate local sources to get value, not the commercial brokers from another city. Pay your manager well and many headaches would not appear. My first manager did nothing for 6% but my current manager does it all for 10%. Worth it to me.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Bill Chambless in Shelby NC is my manager.
Rob Cassum in Charlotte helped me a lot as a small investor.