Newbie located in Sunnyvale, CA

19 Replies

Greetings,

I'm Dwayne Dilbeck. I just converted my IRA to an IRA LLC, thus allowing me to invest in real estate. I am looking to invest out of state. I am currently researching options. I am leaning toward turnkey in Mi, Oh, or In. My planned strategy is rehab and hold.

I am studying for the California Real Estate Sales License. I am also a Notary Public.

If there are any Bay Area RE clubs, I would love to hear about them.

During office hours I am a hardware/software engineer working for an Inteligent Building company.

Welcome to biggerpockets and real estate investing dwayne. I live in san mateo and started 8 momths ago. Currently i hold 5 rentals out of state. Biggerpockets is such a wonderful platform to learn. We do run a meetup every other week in fremont. If you d like to attend and meet like minded people , feel free to Mail me or pm me, would love to share more details. All the best for your nee journey in to investing.

Originally posted by @Dwayne Dilbeck :

Greetings,

I'm Dwayne Dilbeck. I just converted my IRA to an IRA LLC, thus allowing me to invest in real estate. I am looking to invest out of state. I am currently researching options. I am leaning toward turnkey in Mi, Oh, or In. My planned strategy is rehab and hold.

I am studying for the California Real Estate Sales License. I am also a Notary Public.

If there are any Bay Area RE clubs, I would love to hear about them.

During office hours I am a hardware/software engineer working for an Inteligent Building company.

 Hello and welcome! Best of luck to you! 

Hi Dwayne,

Welcome to BP! I am also in Sunnyvale and a newbie. If you'd like to connect feel free to DM me. I can also point you to some Meet Ups that I attend. Best of luck to you!

@Dwayne Dilbeck Welcome to the site and congrats on the IRA conversion. Be sure you are familiar with the ways you can use your IRA when doing rehab and hold or any REI. For example, I believe you personally can not be involved in the rehab if it is an IRA investment, nor can you manage it. Your IRA must also provide all the funding for the purchase or use non-recourse loans to the IRA, which does have some tax implications.

I have done a number of REI with self directed retirement funds, and they have all been passive. In a BP article last year, I discuss Three Key Routes for Passive Real Estate Investing . You might find it a useful read.

@Larry F.Thank you for the Welcome and the hints on things to watch out for. Luckily you didn't mention anything I have not read.  That means I have been doing a good job of research before pulling the trigger on my purchase.

1) No performing work on the property nor doing the PM.   This is one reason I am looking for turnkey out of state. Otherwise my wife would be trying to drive by everyday to check on the property putting me in a bad place.

2) IRA does all the funding. My future plan is to keep 10-15% liquidity in the IRA in case of issues. But initially I am planning 40% for 6 months to a year. I am even considering the Non-recourse loan to keep even more funds available initially.

3) Unrelated Business Income Tax (UBIT) - Only an issue if I do take that Non-recourse loan for more liquidity. Not sure if any bank would even loan to a fresh IRA LCC even when the IRA has 200% of the purchase price in cash. Still looking for that answer, but I am looking out for UBIT.


If anyone else has things to watch out for, yell them out.   

@Dwayne Dilbeck , welcome to BP!

As experienced self-directed investor @Larry F. gave you some good tips, and it seems that you did a good job educating yourself.

As a real estate agent and notary you are considered to be self-employed, therefor qualify for truly self-directed Solo 401k plan. You may want to consider that as an alternative retirement investment vehicle, it has number of advantages over an IRA LLC:

  • Custodian is not required (eliminate all custodian fees)
  • Get checkbook control without the need for an LLC (trust is used as a vehicle to hold 401k plan assets), you have full control over the plan assets as trustee
  • Avoid expensive CA Franchise tax of $800/yr
  • Exempt from UBIT on leveraged real estate 
  • Ability to take a personal loan from your 401k, any time, for any reason
  • Contribution limits are 10X higher than an IRA (up to $61,000 for 2018)
  • Tax-free investing using Roth sub-account
  • Ability to correct a prohibited transaction 
  • and more

Regarding your questions about getting a non-recourse loan: this is an asset-based loan so the age of an entity is irrelevant. The lender is looking at the underlying asset (property securing the loan). If it meets lender's criteria - you'll get the loan. Here is a list of lenders that I compiled over the years who specializing in providing this kind of financing to retirement accounts: 

https://www.biggerpockets.com/blogs/2810/50272-lis...

Hope this helps!

@Dwayne Dilbeck

Welcome to BP! It is a phenomenal forum - and your appreciation of the forum will only grow over time; as you move forward in your RE pursuits,  it'll become an increasingly invaluable resource.

You mention that you're using an IRA-LLC to invest and are considering MI, OH, and IN. In which state is your LLC formed? Will you be registering your LLC in multiple states?

As @Dmitriy Fomichenko pointed out, it seems that you qualify for a Checkbook Solo 401k, which is the ideal vehicle for retirement account RE investing. Being that it does not require an LLC for you to get direct control of the funds, there's no need to incur initial LLC formation and ongoing LLC maintenance fees.

Furthermore, you'd be able to invest in real estate with leverage without generating taxable UDFI. 

There are many other benefits to using a 401k over an IRA-LLC. There are, of course, a few scenarios in which it may not work. For example, if your IRA is a Roth, which can't be rolled over to a 401k. Otherwise, the 401k should definitely be considered.

Although you've incurred costs to set-up the IRA-LLC - those are (unfortunately) irrelevant in the analysis. The question is: What are the future costs of an already established IRA-LLC vs future costs of a new Solo 401k?

  • IRA-LLC potential future costs: UDFI tax, UDFI tax prep, State LLC annual reports and fees, annual and transactional custodian fees
  • Solo 401k potential future costs: set-up, annual plan maintenance  

Best of luck in your RE investing! 

Originally posted by @Dwayne Dilbeck :

Greetings,

I'm Dwayne Dilbeck. I just converted my IRA to an IRA LLC, thus allowing me to invest in real estate. I am looking to invest out of state. I am currently researching options. I am leaning toward turnkey in Mi, Oh, or In. My planned strategy is rehab and hold.

I am studying for the California Real Estate Sales License. I am also a Notary Public.

If there are any Bay Area RE clubs, I would love to hear about them.

During office hours I am a hardware/software engineer working for an Inteligent Building company.

 Welcome to the site Dwayne. I see you are interested in the Ohio market. If you're looking at Cleveland specifically take a look at The Ultimate Guide to Grading Cleveland Neighborhoods while doing your research. It can really keep you out of buying something on a whim with out of state eyes.

@Dmitriy Fomichenko , @Bernard Reisz

That is awesome information.   I did not believe I qualified for a solo401k, since I was participating in my 9am-6pm Employer's 401k.  I will need to dig into this.

I don't do a lot of loan signing(Notary Public), is there a minimum income requirement for the solo 401k?  It will be at least another 34 days before I can even take the CA real estate sales exam, so that should not be a consideration for qualification.

@Dwayne Dilbeck

The fact that you participate in your employer 401k does not have any weight on your eligibility for the Solo 401k. To qualify for Solo 401k you must have legitimate self-employment activity. Being notary public should be sufficient if this is profitable activity, you can also use your real estate agent activity once you get your license. 

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