All Forum Posts by: Alfred Bell

Considering making a 6 month loan to a flipper for a property that he wants to keep as rental (he will get long term financing later). I've been told one can't loan above 10% for a consumer loan unless it is done through a broker. I was given the solution that if the note is written as a commercial promissory note and it is made clear in the note that it is not a "direct to consumer loan" and that the property is not intended as a personal residence and that borrower's personal use of property will accelerate the loan... that the interest can now legally be above 10%. Is this correct?

I have an interest in a luxury apartment in Phoenix (close to the airport). Phx has been hit hard due to all the residential foreclosures and job losses. We've had to take a 50% cut in our monthly distributions. Asset manager and property manager are working hard to keep occupancy up and expenses down. Just wondering... does anyone here know this market well, and if so... based on your research data what do you think 2010-2012 will be like for Class A's in this area... much worse? will go sidewards? will begin a slow and small trend back up? etc? Thanks in advance.

jawsette: I may not have made myself clear. I own my corp 100%, I'm only person in it. Same with my partner and his corp. When we buy a property we take title as my corp with 50% equal share or ownership of property and his corp with 50% equal shar or ownership of the property.

I'm a RE investor doing rehab/flips and operating out of a single person SCorp. My partner does the same thing. We take title on properties as our two corps with a 50% ownership share. It has occurred to me...

What if something happened to either him or I mid a project? How could I sell the property if he wasn't around to sign, and vice versa? What about my money that is in his corporate bank account, and vice versa?

Is there some simple way to deal with this? Is there some way we could put our wives into the companies so that they would have full authority to act in our stead?

Thanks Matt. But you know... any retirement acct will have restrictions and be problematic... it's the federal government right?

The idea of deferring taxes and having your capital "uninhibitedly" grow sounds great, but the govmt will get the taxes later, AND the tax rates will be higher then they are now, you can be certain of that.

I'd rather be able to act in an unfettered and free style with my capital ("it is my money, I'll use it when and how I want") and work out the best strategies I can to mitigate the taxable events through each year.

Having those monies totally free for my use will allow me to get a much bigger return from them (being an active investor) than I ever could keeping them in a govmt tax deferred account.

If you look into the future... due to the inhibitions of a retirement acct slowing your investment actions and options down, plus the higher tax rates when you start taking the money out later in time—one would actually wind up a lot poorer in the end with less net worth, than one who took the money (paid the tax penalty) and actively invested it through the years with good returns.

If one did 2 decent RE rehab projects a year and obtained a 25% return each, he'd have a 50% return on that money annually. Shelter and use every tactic possible to avoid paying 1 penny more than you have to (avoidance not evasion)... keep taking your profits and reinvesting it back in and the deals get bigger (or mulitple) and that 25% gets bigger too.

Government is all about lowering our prosperity not increasing it. The less I have to do with them the better. Thus... goodbye IRA... here is your tax Uncle Sam... I'm now much more free to prosper... my first deal with that money will repay my tax loss.

Good that I'm writing this because I'm convincing myself even moreso that this is the way for me to go personally.

Thanks for your input.

Will look into it. Have a friend in Calif with a SD corp he uses for RE.

I already have 25k towards ownership of a trailer site in an RV development going up in NV (Pahrump). That is main reason why would make NV domicile state. Stick a little used trailer on it, hook up utilities and it's "home"... I'm a legal, NV resident. Maybe SD corps would be more optimum living in NV too. I'll check it out. Have a year to do so. Thanx.

Thanks for the support Will. As for tax planning... once we launch our startup this year we will make NV our domicile state... dissolve our CA corps and set up NV corps... goodbye state income tax! Goodbye to the CA Welfare State! We'll use a friend's home/address as ours in NV because we are buying a motorhome and taking off to: put a sales team for our startup in every major city in the USA... grow our account base (with Fortune 500 companies) and continue to do RE projects in the hot areas of the country. We're out to amass as much cash as possible in this short window of time before the deflationary phase turns inflationary and money turns to trash (right before the big upswing into inflation we'll turn all our cash into tangible assets).

Enjoy the snow. We live in Idyllwild in a little mountain cabin on a creek. Enjoying the snow as well.

Best,
Alfred

Matt,
Here is a technical question for you:
My IRA is an inheritance or stretch IRA. Don't think I can switch it into a Solo K plan or anything. The only choices I have are to just take my minimal distributions... or just pull it out and pay the income tax on it (no 10% penalty on stretch IRAs). Am I correct?

If I can't stay within a tax deferred retirement entity and have total flexibility (like this Solo K would offer) then I'm just going to take this action as I think it will serve me in the long run (despite everyone else's admonition not to do so)...

I'm doing RE projects right now (rehabbing REOs and flipping them). I've only got 200k in liquid capital for this. I'm going to pull the 120k out of the stretch IRA and add it to my working capital (giving me 320k) allowing me to make more profits in RE. I'll use a protion of my profits to pay the income tax I will incur from pulling the 120k out. If I'm making 50%+ return on my money each year doing these small RE projects it seems to me that paying the tax is a small price to pay for total freedom/flexibility and the ability to maximize my profits.

jawsette:
I'm approximating that I'd come out of this TIC with 300k in equity and 400k in debt. Need to make a minimum purchase of 700k to avoid a tax event.

You are correct. Little homes like that will be very cheap (due to economy, RE mkt and fact that they aren't desireable properties) so I'll need more than 10 to spend 700k.

Not sure if you can include rehab costs in a 1031. Will have to talk to my accomodator about that one.

Robert M:
My concern is how to line up so many property purchases and have them all close right around the same time. It was tough doing the original 3 to 1. Going from 1 to 10+ sounds hairy.

Also, I can't get financing on these (I'm self-employed and don't have the income to back the purchases up.) So, I'll need to spread the 400k of debt around and sellers will need to carry some paper. I guess if I waited until the market hit bottom and was in a total buyer's mkt with desperate sellers I might be able to pull this off.

I don't know... maybe I should just exchange into a multi-plex (that I own in full) and buy the SFRs that I want with other cash.