All Forum Posts by: Dan Mahoney

@Chase Beasley Sure, a waterfall would work for rental properties.  I think there are at least three reasons why most rental property investors use simpler arrangements:

1) There is not as much upside potential in residential rentals as there would be in an operating business like a restaurant.  But not as much downside risk, either.  Because of this, the preferred or guaranteed return is going to be more important to investors than having a piece of the upside, which might not turn out to be worth much.  All of the complexity in the waterfall is how to split up the upside.  It may not be worth the effort if the upside potential is not that big.

2) When you are setting up an operating business like a restaurant, you have multiple parties involved and you need to worry about each party's incentives.  You want to motivate each party to put in the necessary effort and make good decisions.  I have co-owned two restaurants, so I have some experience structuring these kinds of deals.  It's hard.  The incentive structure in rental real estate is quite a bit simpler. 

3) Banks are very comfortable lending against real estate, so investors typically have less equity and/or mezzanine type capital they need to syndicate in the first place.

All this being said, you can write almost anything into an LLC agreement, so if you have a structure that works for your sources of capital, go for it.

Of course, I am not a lawyer and you should consult yours before you do anything.

@Katherine S. No, it would not appear on your credit report.  How would the bureaus even know about it? 

I'm a little confused what you are trying to accomplish here. I'm not a lawyer and I can't give you legal advice. But it seems to me that managing your IRA assets and pretending that someone else manages them is a bad idea.

@Tristan S. Or, depending on the locality, nothing will happen.  In some areas, code enforcement has bigger fish to fry than an existing unpermitted addition, as long as it is not obviously a zoning violation, there are no life safety issues, and the neighbors haven't complained.  Some areas have "grandfathering" rules that exempt structures over a certain age.

Of course, in some areas, what @Bob Okenwa said is true and you will have to resolve it.

In some areas you need a certificate of occupancy when you sell a property.  In some areas you need a City inspection before renting out a property.  It depends where you are.  Local investors can help you assess the risk better than we can.

@Eric James Yes a 403(b) loan could be useful if your plan allows it.  Potential drawbacks include 1) You can usually only borrow from your current employer's plan (so you can't access money from the previous employers' plans); 2) You typically have to pay back your loans in full if you leave your employer; and 3) You can generally only borrow up to $50k from your plan balance.

Also, it's not an either-or situation. You can do IRA rollovers and loans if appropriate for your goals and situation.

@Account Closed Yes.  And what @Jeff Rabinowitz said.  

@Eric James There are people that would advocate your withdrawing the money and paying the penalty. I'm always reluctant to voluntarily pay extra taxes but obviously the best course of action depends on the details of your own situation. One other option you might consider is rolling over the previous employers' 403(b) funds into a self-directed IRA. Then you could preserve the tax deferral but still direct capital to the higher-return investments you think you've identified.

@Aaron Foye I am not a lawyer and cannot give legal advice.  But in my experience, there is no problem buying a property that was previously conveyed by quit claim deed.  The seller can still give you a warranty deed, which means they agree to be liable for any challenges to title.  And a title insurance company can still issue you an owners policy that protects you from any such challenges.  Make sure in your contract that the seller agrees to deliver marketable and insurable title.  If you can't get title insurance or the seller wants to quit claim the property to YOU, then yes, that is grounds for a steep discount.  But the previous QCD itself is not a problem.

@Tristan S. You can't draw that conclusion without further research.  Tax assessors aren't always coordinated with building departments and in many cases (like here in Atlanta) the tax assessor is part of County government and the the building department is part of the City and they don't really talk.

A better approach would be to research the historical building permits for the property. 

The consequences (and potential remedies) for an unpermitted addition vary significantly by locality, so I can't comment on that.  In many areas this wouldn't be a big deal, but in some places it would be a total showstopper.

@Account Closed Have a lawyer draft a note and a mortgage deed (or security deed, deed of trust, etc. depending on what state the property is in).  Of course this does not gurantee the borrower will pay you back, but it does secure your loan, which I think is what you were asking.