Rental Property Investor · Member since 2018 · 15 posts · 28 votes
Hi BP Community,
Firstly - has anyone had any experience taking money out of their Roth IRA during COVID-19? I heard there's a 100k withdrawal allowance with no penalty and a 3 year grace period to replenish withdrawn funds. I'm thinking about pitching this to a few potential investors to fund part 2 (below) of this post - what are the tax implications of an early withdrawal and has anyone had experience doing this yet?
Secondly - I am looking for private money (5 figure range) to partially cover hard money costs (15% down, 2.5 points, 11.5% interest - 100% funding). I am based out of Austin, TX and am open to discuss with anyone looking to make an easy 8-10% on their money (ATX would be nice, but not necessary). $$$ needed for Flips and/or BRRRRs.
If anyone has further advice on raising private money please advise!
Investor · Austin, TX · Member since 2014 · 184 posts · 229 votes
6y
Re: second part of your post.
You are OK with paying what roughly amounts to 13+% to a hard money lender who is well secured in the 1st lien position. Yet you plan on offering 8-10% to a private lender in a secondary position who will be taking all the financial risks in your transation while you have none.
To call this "make an easy 8-10% on their money" is just plain silly. If you looked at the list of foreclosure postings in Travis and Williamson county, you'd find a good number of these hard money & construction loans being foreclosed every month. Probably well over a hundred bodies could be found at the foreclosure cemetery over last 3-4 years of the rehab boom in Austin.
A friend, who is an experienced rehabber, was sued by the buyer who bought his remodeled home. He subsequently spent 2.5 years in court and paid tens of thousands in legal fees to his lawyer to defend himself. He was eventually forced to buy the house back and give the buyer all his money.
There are no easy rehabs. Risks of multiple kind are a-plenty in every one of them.
I strongly suggest you not execute on your stated strategy of encouraging folks to take a Coronavirus Related Distribution from a retirement plan in order to invest in your opportunities.
A Coronavirus Related Distribution is a means to solve short term financial pain caused by the economic impact of COVID-19, it is not a "retirement plan hack".
It is also a somewhat complicated matter with respect to eligibility to take such a distribution and the process of regaining taxes paid with amended returns if the funds are returned to the IRA within the allowed three year window. Unless you are a licensed CPA, you should probably not be advising folks on how this process works.
You can have an investor for whom you are not a disqualified person simply loan from a self-directed IRA without needing to take a distribution.
Investor · Austin, TX · Member since 2014 · 184 posts · 229 votes
6y
Re: second part of your post.
You are OK with paying what roughly amounts to 13+% to a hard money lender who is well secured in the 1st lien position. Yet you plan on offering 8-10% to a private lender in a secondary position who will be taking all the financial risks in your transation while you have none.
To call this "make an easy 8-10% on their money" is just plain silly. If you looked at the list of foreclosure postings in Travis and Williamson county, you'd find a good number of these hard money & construction loans being foreclosed every month. Probably well over a hundred bodies could be found at the foreclosure cemetery over last 3-4 years of the rehab boom in Austin.
A friend, who is an experienced rehabber, was sued by the buyer who bought his remodeled home. He subsequently spent 2.5 years in court and paid tens of thousands in legal fees to his lawyer to defend himself. He was eventually forced to buy the house back and give the buyer all his money.
There are no easy rehabs. Risks of multiple kind are a-plenty in every one of them.
Rental Property Investor · Member since 2018 · 15 posts · 28 votes
6y
@Brian Eastman thanks for the insight. I'm not advising anyone on this - I just heard it from a colleague and was looking for approval or disapproval here - thank you.
Rental Property Investor · Member since 2018 · 15 posts · 28 votes
6y
@Alex G. From your experience, what's the best way to fund something if you're short on cash, but you have a deal that's a sure fire win? Keep the horror stories on the back burner there's no benefit there! I'm moving forward with my head down and seeking help along the way.
BTW - I'll keep you in mind if I do find an off market deal that I can't fund, but seems like a win - big fan of your bio!
Investor · Austin, TX · Member since 2014 · 184 posts · 229 votes
6y
@Matt Camilliere I'm unclear if you got any experience in buying and flipping properties. If you don't: You've got an uphill battle. Your only source of money might be family and friends. These are the only folks who know you for the trustworthy person you are.
The alternative is - you wholesale your current deal to another investor and make enough for a 15% down + fees & costs. Or you may have to wholesale a couple of deals before you have enough cash to take down your own. If you can't sell your deal before your closing, perhaps, it's not such a sure fire deal that you thought you got.
You may work out a deal with an experienced investor who'd buy it, will pay you a finder's fee and you'd be shadowing the whole process to learn how to do it right.
If you do have experience: 1. You can find a lender who will fund everything, ie., 100% of the deal + costs. This could be either a hard money lender or a private individual. Be prepared to pay a premium for the risk they take. Jason Payne with ISB Capital used to do 100% financing at below 70% ARV (pre- coronavirus). It's been a while since I talked to him but it's worth checking with him.
2. You can find a partner who'll fund a 100% of the deal for a profit split.
For 1 and 2 it better be a sure fire deal. If an experienced lender or investor won't fund it or won't do a JV deal with you, chances are you don't have a deal.
I've bought one deal through whole sale and fixed it up with a hard money loan. Everything went smooth! I refinanced into an owner occupied loan so it was pretty low risk for the lender. Now I'm looking for a flip or a BRRRR and my main issue is having enough to cover the HML costs.
And thank you for the advice. I'll look into Jason Pain with ISB Capital and consider the whole sale route.
Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes
6y
@Alex G.is the man. I would think about what he is saying as there is alot of wisdom there. @Matt Camilliere Double check your math. Alex is absolutely right. Sometimes in certain deals, the only person that seems to win is the hml and other lenders. A friend of mine who is a carpenter once said to me many many years when I was a kid, as I was cutting boards as his assistant "measure twice and cut once". Those words have stuck with me. And even then I am off a bit sometimes with rehabs. The funny thing about rehabs is that when we buy a dilapidated property that appears to be a home run, we really don't know what is behind those walls. The inspection report won't be able to tell you. Make sure that the rewards will justify the risk
Rental Property Investor · Member since 2018 · 15 posts · 28 votes
6y
@Aaron Gordy big fan of that quote! My father always lectured me on that as kid... And proceeded to make me watch him cut and hold the screws! With the mystery of what's behind the walls - do you find yourself drawing a line towards a certain year build in Austin?
What are typical Hard Money terms that you work with - fees, downpayment, interest, % financed? @Alex G. would love your input too.
Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes
6y
With experience you will get favorable terms from hml. There are also banks that will do it too with cheaper money but the buy side is a bit tougher.
I will buy anything if it makes sense. If its old then I will look at it as a tear down. An outdated floor plan with tiny rooms is just not popular anymore.
Contractor · Grand Marais, MN · Member since 2016 · 249 posts · 417 votes
6y
If we were doing a shark tank style money raise, the second you say "sure fire win", I'm out. There is no such thing. I don't like no skin in the game....if it is "sure fire", sell your car, go to a flip phone, sell everything you own, and couch surf...you will be able to buy it all back, and more, in a couple months. No big deal, because it's "sure fire", right?
@Alex G. From your experience, what's the best way to fund something if you're short on cash, but you have a deal that's a sure fire win? Keep the horror stories on the back burner there's no benefit there! I'm moving forward with my head down and seeking help along the way.
BTW - I'll keep you in mind if I do find an off market deal that I can't fund, but seems like a win - big fan of your bio!
Rental Property Investor · Nowata Oklahoma · Member since 2019 · 61 posts · 37 votes
6y
@Matt Camilliere. I wouldn't take a corona withdrawal unless it was an emergency! If you or anyone else wants to do something like that just move it to a self directed ira. I personally did take a covid withdraw and I plan on paying it back but I lost 5% off the top for state taxes and I will owe fed taxes for the next three years. If I get it paid back I will then be able to file an amendment and get back the tax money but only if I get it paid back on time. The scary thing is no one that I've talked to even vanguard knows how to properly pay the money back. It's all still up in the air. Not worth the risk in my opinion.