All Forum Posts by: Daniel Dietz

Another great source on Youtube is Mark Kohler and Mat Sorensen at KKOS Lawyers and Accountants. The have a TON of great content on Entities and Estate Planning.

Dan Dietz

@Ashish Acharya thanks for the nice clean explanation on that. 

In regards to @Rory Compton's reference to 'owner occupied' I had never really thought about that before, since most of what we buy is NOT that.

Would it be correct to assume that if a place was indeed a SFH that was owner occupied and the gain was under the allowable exclusions, that only the interest portion would need to be counted as income and they would not need to deal with depreciation recapture or capital gains taxes?

Thanks, Dan Dietz

@Shelby Willitts, @Brian Eastman cover that pretty well. We use the value in our 'buy sell agreement' that we have within our LLC, which VERY closely match comps. It sound like he might also be on track with *why* they want you to do that.

Depending what type of investigating your are planning on doing I would recommend taking a look at 'check book control' SDIRA. Just a small yearly fee and very few 'transaction costs' on an ongoing basis.

Have you talked to any of the providers I tagged up above? 

I found our Private Lender from just literally telling everyone what we were doing and letting then know "that we have good opportunities if they know anyone that might be interested in investing". Brandon talks about it often on the Podcasts. We also have a very visible Kitchen & Bath remodeling business in our smallish rural town and an excellent reputation of 30 years that goes with it. Our investor was a family friend who is retired, lives pretty modestly although they have over a million net worth. We had talked about stocks, investing, etc.... so I knew he might be interested. He has since became a Private Money Partner, meaning an equity partner instead of lender on other properties.

We have other people who are wanting to Partner on buy and hold deals now, but are having trouble finding things right now in our area.

I am not an agent or realtor either. We simply studied up on what should be covered in contract, deed, mortgage etc..... and had a local lawyer write things up. On the loans we just did a simple mortgage note in either first of second position. For the partnerships we set up LLCs for each one.

We did not need to use a realtor at all. Between the lawyer to write things up and an excellent local Title Company it was easy to take care of everything.

Dan Dietz

What @Jon K. said, almost word for word ;-)

Dan Dietz

I would have to agree with the side saying it is NOT 'stupid', depending on ones facts and circumstances. 

Both my partners and I invest in buy-n-hold rentals using our SDIRAs, SOLO401Ks, and traditionally outside of retirement accounts. 

To address your points;
1) I do not see the problem with 'ill-liquidity' assuming that the rest of your assets balance out to your needs. The majority of our properties we plan on holding until and well into retirement. If we put them up for sale in our area they would be sold in a week, and often for cash and fast. I don't see the need of 'liquidity' in the majority of my assets.

2) I agree that leverage can by a great tool to increase returns and build equity/wealth. But you seem to be mistaken that it is hard to do as @Dmitriy Fomichenko pointed out. We have several loans with NASB which is a big player in this space as well as 2 'HELOC' type of loans from a Private Lender at 80% LTV on a couple of properties that we owned free and clear in our retirement accounts, and used that to put down payments on new properties using commercial non-recourse loans. And they are easier to get than a conventional loan also.

3A)There is a lack of 'traditional tax benefits' to a large degree when investing with a retirement account as far as saving on your yearly taxes. I look at it as what other returns can I get in my SDIRA or SOLO say from equities at *maybe* 10% average with moderately high risk vs 12-20% returns with real estate with much lower risk. Is that not *still* a better idea, even if I dont get the immediate tax benefits?

3B) Many people don't realize that you CAN take depreciation *inside* of a SDIRA *if* you are also using leverage in it. Save you have a 60% loan on a property - you can *also* write off all of that interest and 60% of the depreciation when calculating if you have any takes due that year, which *might* happen when using leverage.

3C) You also need to keep in mind that at some point unless you hold until you die you have to 'pay back' all of that depreciation that you benefited from, and you also are getting a tax benefit by having your money compound tax deferred in a Traditional Account or even *tax free* in a ROTH! Isn't tax free just as good or better than 'tax advantage' in traditional investing, that you also have to 'recapture' at some point?

As to your points about other methods such as 'investing in a private syndication' or the like imagine this; you can invest say 500K cash and make a 500K return over 5 years that you now owe say 200K in taxes on leaving you with 300K profit - *or* you could invest 500K from your ROTH IRA or SOLO, make a 500K return and owe NO taxes and net 500K profit - a 66% better return.

Dan Dietz

@Shelby Willitts, both my 3 partners and I all use Self Directed IRAs (SDIRA) and SOLO401Ks that are very similar (But you must be self employed). We love it. 

As to @Greg Scott's comment asking if 'it makes sense' because real estate investing is ALREADY 'tax advantaged' (you will hear a lot of that) I would argue that IF you already have funds in a retirement account, the question THEN becomes 'how to make the best use of those funds'.

You don't want to compare real estate outside of a retirement account to real estate INside a retirement account. You want to compare "what is the best use of these funds ALREADY inside of your account'. For us, that is a big portion of real estate. Stocks give an average of about a 10% return with moderate risk, and real estate give us a 12-20%+ return, with much less risk in our opinion.

As far as how to do it there are quite a few good Plan Providers here in the forums, such as @Dmitriy Fomichenko (who we use) @Brian Eastman, @Carl Fischer, @Bill Hampton, @George Blower just to name a few. When I called to find a provider all of the ones on here I talked to seems WAY more personable than a few of the large companies such as Equity Trust.

Dan Dietz

@Ralph Pombo I think @Zack Karp hit the nail on the head  as far as my experience goes.

We have used a small regional bank here in rural Wisconsin to do what I would consider; commercial, blanket, and portfolio, all in the same loan.

Commercial because it is NOT through the normal retail mortgage branch of the bank, blanket because ours are in groups of 3 duplexes in each one, and portfolio because it is held 'in house' (not resold) in a group of similar loans.

We do this because it is a partnership that is an LLC and it is hard to find 'Traditional 30 year fixed loans' when in an LLC, although we are working on it!

The terms we have been able to get here in our market are 20% down, 25 year amortization, and a 4.75% rate that is fixed for the first 10 years, and then a max of 1% a year adjustment in years 11-16 with a max increase of 6% over the life of the loan.

I agree with @Ashish Acharya that you can learn a ton here, and there are lots of good providers here too. 
IF you want to talk to a 'paid professional' for guidance in that area I would suggest checking our Mark Kohler and Mat Sorensen of KKOS Lawyers & Accountants on Youtube. TONS of educational stuff, weekly open forums and I can gaurantee they are WAY less than that. I have only used them for Entity Formation in the 'Self Direct Retirement" area and been more than happy with them.

@Ian Turner, to my understanding, what you would have to do is set up a separate company that your pay a management fee to, and that turns into the 'active income for you. One downfall of this say you paid yourselves 20K for this. That 20K is now subject to SSI taxes of roughly 14%, and you have to do a payroll too. 

A great source of info on this is Mark Kohler from KKOS Lawyers and Accountants on your tube.

Dan Dietz