Note Investor · Pasadena, CA · Member since 2009 · 849 posts · 544 votes
15y
You can buy good paper for 18% - you just need to find a motivated seller, just like buying real property.
I always try to structure the deal where the WORST case scenario is that I get paid off with the monthly payments. If I buy right (ITV of 60% or less), the BEST case scenario is that they stop making payments.
Investor · Kalamazoo, MI · Member since 2009 · 1k+ posts · 495 votes
15y
I am sorry-I went back and checked my original question and it was: "dumb question but, if the home is listed om the MLS isn't that a public market?" Sorry bout that!
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
So, with that clarification, is it the consensus that "flipping notes" would be subject to UBIT but intent to hold notes would not and flipping stocks, bonds, funds, etc. are never subject to UBIT due to the explanation above?
Investor · South Barrington, IL · Member since 2011 · 102 posts · 57 votes
15y
I have not read all of the replies. But my response to the question would be, I would buy low cost rentals in good neighborhoods not war zones. I don't like hard money loans in general to hold the bulk of my IRA money and all the paperwork and running around after rehabbers. But I will use them on small properties where I know the quality of work will be good and the comps show a quick sale is possible. I would take the $50k, invest $40k in a great rental, take the remaining $10k and work with a rehabber on a small rental property, maybe churn a few more hard money loans and then when there is enough money to buy another rental I would do so. Returns on the small rentals should still be in the 15% to 18% region even with professional property management in place. In Cleveland where I invest, there is good demand for small rentals and I can create finished product for $40k to $50k with tenants in place showing positive cashflow. :)
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15y
I find it very hard to believe that flipping notes could be considered appreciably different than transacting stocks quickly. Stocks being traded on an exchange with parties don’t know each other doesn’t really mean much to me. The question is whether or not there is INTENT to run the transaction as a “business.†That is even nebulous. If a day trader is trading inside of his retirement account and later takes a 72(t) distribution and retires on an island from profits he has made how is that different than trading discounted notes?
I would love to hear some expert explain this one.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
Originally posted by Bryan Hancock:
I find it very hard to believe that flipping notes could be considered appreciably different than transacting stocks quickly.
I don't think we are saying that they are "appreciably" different, just that the two investment options (stocks on public market vs. private market notes) are different in other means.
I have no idea which is the correct and legal answer, but in my opinion, I see how one can argue that notes sold/transfered from flipping which deal with a buyer and a seller who negotiate between themselves and have contact between them in a private manner is functionally different than flipping stocks in a public market where the buyer and seller never negotiate and never have contact.
To add to the confusion, what if you bought and immediately sold an actual business inside your 401k/IRA. Would UBIT apply?
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15y
Flipping stocks doesn’t just magically occur either. A buyer and a seller still have to agree on a price for a transaction to occur. There may be fewer things to negotiate in these transactions, but I don’t see how they are really different from a “business standpoint.†What about trading something on the pink sheets? Is that somehow different still?
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
Originally posted by Bryan Hancock:
Flipping stocks doesn’t just magically occur either. A buyer and a seller still have to agree on a price for a transaction to occur. There may be fewer things to negotiate in these transactions, but I don’t see how they are really different from a “business standpoint.†What about trading something on the pink sheets? Is that somehow different still?
I almost always agree with you, but will have to agree to disagree on this. Regardless of who is right, as no final evidence has been discovered clearly (and may never be clear), we just have two different thoughts on this. I see a difference in stocks vs. flipping notes as explained, you do not as explained. No problem.
Originally posted by Bryan Hancock:
Yeah...unfortunately that doesn't really help very much with UBIT David.
Exactly right! Not only that, when they discuss the fact that the IRA can use debt leverage on a rehab, it makes no mention of UDFI which also triggers UBIT (unless debt is paid off 365 days before sale). As I have mentioned in the past, unfortunately, find details are often missing from TPA's such as ETC.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15y
Will...The only strong opinion that I have is that the whole thing is very unclear. I was hoping that someone could cite cases on the matter or private letter rulings or some such. I can see the IRS taking the same stance you do....I just don't agree with it for the reasons cited.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
Originally posted by Bryan Hancock:
Will...The only strong opinion that I have is that the whole thing is very unclear. I was hoping that someone could cite cases on the matter or private letter rulings or some such. I can see the IRS taking the same stance you do....I just don't agree with it for the reasons cited.
This is where we are both on the same page and I agree 100%. I too can see them take that stance, but also would not agree with it. I think it should be fine to flip notes without incurring UBIT just like stocks.
Investor · Kalamazoo, MI · Member since 2009 · 1k+ posts · 495 votes
15y
I think you’re trying to over analyze this and impose rationality and reason on the US government, which is of course quite impossible. Step back and ask yourself one question while forgetting entirely about the IRA aspect of it â€" would note flipping be considered a trade or business if you did it personally? If the answer is yes, then it is, by definition, a trade or business within the IRA as well, and it will generate UBIT, assuming it is “regularly carried on.†If the answer is no, then it should not generate UBIT. Whether something else like day trading stocks is or isn’t a trade or business is irrelevant. You are focusing on the IRA aspect of it when you should be focusing on whether or not it is a trade or business. In general terms, anything that you buy as “inventory†for resale to the public is going to be considered a trade or business, whether it is real estate, notes, widgets or anything else. Unfortunately, the standard of when you cross the line from being an investor to being in a trade or business is fuzzy at best and depends on many factors. Oh well, that’s the world we live in.
You may also find more information on UBIT in IRS Publication 598. The Internal Revenue Code sections dealing with UBIT are 26 USC 511-514.
Review Page 3 of IRS Publication 598, which states: “Business activities of an exempt organization ordinarily are considered regularly carried on if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations.†An example is given in the publication. I agree that intent is very important. I’m not sure that an occasional flip in an IRA among many other investments will cause UBIT, but certainly if that’s all that the IRA invests in and the IRA owner also flips properties outside of his or her IRA that would weigh heavily in the consideration of whether the IRA had dealer income. While IRAs are very rarely audited, it is always important to give the IRS what they are due, because they have what it takes-to take what you have.
Investor · Farmington, UT · Member since 2011 · 314 posts · 179 votes
14y
Why not do some good old conservative HML (combine with others if needed to get into better loans) and leave 5k or so liquid and wholesale properties with options. So instead of filling out a REPC and giving earnest money you fill out option paperwork and pay them an option fee out of your SD IRA. This way $500-1000 of option money can turn into a tax free 5k or so. Lend out your wholesale profits, rinse and repeat.
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
14y
let's bring this back to life..any new updates...looking to fund my retirement account in the next week or so to reduce my adjusted gross income...would like to have a good idea of what to do with this money..any new ideas?!?!
Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
14y
Depends on how "hands on" ya wanna be. I would pick up a home in my area for 50k, sell it for 110k on a lease purchase. get 5k down and 800 per month. Hopefully cash out within 36 months. Then do it all over again.
Investor · Tampa, FL · Member since 2014 · 104 posts · 32 votes
12y
Interesting read. I was employing the "deposit and forget about it" strategy. You know deposit the funds, then try to forget that you have invested the funds. When you remember that you DID invest the funds some 15 years later; badda bing you are now a multimillionaire... I am going to have to rethink my plan now...haha..thanks guys
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
12y
Originally posted by @Account Closed:
let's bring this back to life..any new updates...looking to fund my retirement account in the next week or so to reduce my adjusted gross income...would like to have a good idea of what to do with this money..any new ideas?!?!
Send it to me, I can find lots of things to do with it! :)
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
I buy distressed properties in my city for $60,000 or so out of my 401k (SD). 12-15% ROI is typical right now, 18% was common a couple years ago, but the prices have increased.
let's bring this back to life..any new updates...looking to fund my retirement account in the next week or so to reduce my adjusted gross income...would like to have a good idea of what to do with this money..any new ideas?!?!
Send it to me, I can find lots of things to do with it! :)
Will are you partnering with investors on smaller amounts like that? (50k) I remember you were seeking investors for a deal awhile back but the minimum amounts were in the low six-figures if I remember correctly.
Las Vegas, NV · Member since 2015 · 237 posts · 107 votes
11y
Just something I wanted to clear up. There's a lot of talk about how it might be worth taking funds out of a qualified account (IRA 401k 403b etc) and leveraging it to purchase RE. While its true that most people expect that their taxes will be high in the future, its not as simple as pay now or pay then. First of all because qualified funds are tax exempt you have more funds to use, like someone mentioned above $50k after tax and possible 10% early withdrawal, would really net you a little over half, depending on your individual tax situation. The idea is then to leverage those funds. Well this sounds all well and good but if you were to invest $50k from an IRA you're investing $50k with no interest and any income is still tax deferred. Compare that to taking $50k out of an IRA cutting it down to around $30k with taxes and then say 2-1 the cash at a bank to invest, this means your paying interest to someone else and any income is not tax deferred, so while you're paying down the loan with the bank, you're also paying taxes on the income your generating.
Seems to me that as long as you aren't looking to generate income, then a qualified account seems like the clear winner.