All Forum Posts by: Dennis Tierney

I agree with Ryan. Be sure you get a letter from the planning department that the property is in compliance with all zoning ordinances before you buy it. You want to be sure the present owner is on the hook for any permits/changes that need to be done to bring it into compliance before you own it. I made this mistake when I bought an apartment and neither I nor the lender asked and when I refinanced 4 yrs. later the new lender did and we discovered the parking lot was changed 3 owners ago and was never permitted nor was it in compliance with the zoning restrictions and I had to pay for the work to bring it into compliance to be able to get the refi. and to stay out of trouble with the planning department. It was a big hit to the pocketbook!

Jon - Mine is UDIF as I invest only passively as a long term hold and have professional 3rd party companies do the management.

I have invested in apartments through a SDIRA and have not yet run into the UBIT issue due to the ability to depreciate the building leading to no profit for the IRA. I did it to be able to produce good cash flow in the retirement account and not have the risk of it being cut in half as it could be in the stock market. I did it as a rollover from a 401k and so far it has worked well for me. The issue is the nonrecourse loan but I have been able to find a mortgage broker that has been able to get me 70% LTV via an insurance company. They are expensive with a lot of closing costs but I have been able to get 10 yr loans (20yr amo.) at 5.5% rates. Good luck.

For my non real estate investments I have some IRA money in oil royalty trusts and in natural gas pipeline companies. They give a good cash flow and can be automaitcally reinvested so they compound monthly or quarterly. Eventually at retirement you can take them off the reinvestment track and have the cash flow, which of course would be taxed as you withdraw it.

Dan:
I also haven't read any books but the info from Guidant Financial on their website was good and I used them to set up my SDIRA, with which I have purchased 3 apartments. It is relatively easy to do with the caveat that you have to find a good source for a nonrecourse loan if you intend to use leverage.

Tony:
I have purchased four apartments and all were brought to me by commercial brokers as "pocket listings". Get a relationship with several commercial brokers in your area and you'll have plenty to look at.

You must also make sure the loan is nonrecourse, as the IRS would not allow your personal guanantee or credit to be used to qualify for the loan. That would constitute a dissallowed transaction.

Oz:
One option you may want to consider for a completely passive investment is to invest with a private syndication that invests in multifamily. I have invested with one here in Omaha that has a 20+ year track record and half a billion under management that will give you about 7-8% tax free return. They are a limited partnership so retain the tax advantage, but, are highly illiquid. The advantage is you have no management concerns as it is totally passive.
Dennis

I closed my first multifamily syndicated purchase this week (24 unit, 7 yr old high quality condos in Des Moines),but, my second deal fell through because the largest investor pulled out at a late stage and I didn't have a backup investor so couldn't get to closing. I have run across the idea of having a bridge loan as a backup to make sure you have the equity to get to closing and then continuing to sell the LLC shares and retire the loan as the shares sell. This would be a bridge for the equity only, as the first loan would be separate. It would also be for only that portion of equity not sold before the closing date. I always do at least 25% equity for any purchase. I know this does carry more risk as it increases the leverage temporarily. Any thoughts?

I own multifamily and use 3rd party professional management companies. It is imperative that you get good managment or your investment will quickly sour as you have learned. I have made good money on buying properties that out of town owners have had missmanaged and subequently went downhill. The companies I use send me monthly income and expense statements and a cover letter detailing any issues and they also email me anytime and I email them anytime with questions.