All Forum Posts by: Daniel Dietz

I run things a couple of different way when I use it. My 'conservative values' are 2% across the board. Historically our rents have been about 3-5% over a couple of decades, and property appropriation has been about 3.5% over the last 20-40 years. For the capital expenditures and repairs I used 8% for each (remember these are % of rent, not property value) which might be a little high, but I would rather be pleasantly surprised.

If this looks good for a property, I go further, just to see what MIGHT happen. Then I use 3.5% rent increase, 3.5% property increase, and still 2% expense increase. On the cap-ex and repairs I go to 5%. These little differences can make a BIG difference over time! Again, I dont want to count on this, but it would be 'icing on the cake' and gives incentive to try to achieve those goals over time if you actually have a 'dollar benefit' associate with it.

What are the rest of you doing for cap-ex and repairs?

Dan Dietz

@Teri Feeney Styers

It sounds like you have come to the right decision on the cottage.

As to the having to pay expense with 3 different checks, have you considered using a 3-way LLC using your two SDIRAs and personal funds?

That is how we do it, but we have also done if this way from the start - not sure if that would make a difference or not. The one BIG caveat is that if you do a 3 - way LLC, the starting %age of each party must ALWAYS stay the same - that is something you need to think about long and hard. In our case, we all were looking at it as a long term investment of 10 - 30 years (retirement funds).

If you are interested in that at all, we used the law firm of Mark Kohler, who was recommended by UDirect IRA Services.

Dan Dietz

@Teri Feeney StyersI am not a professional either, but here is my thoughts from setting up a 3 way LLC with two other 'prohibits parties' (my brother and dad), whicch took a LOT of work watching the fine details.

IF, again big IF, it would work on any way, I would think your SDIRA would have to purchase it's portion of the land from the get go - meaning from the current owner, NOT from you.

I would think that by the SDIRA purchasing it from you, that would create a 'benefit' to you in selling something 'at a profit' so to speak - you would be benfitting from that transaction.

Good Luck, Dan Dietz

Hello All,

I reviving this older thread to get some opinions on this very topic. Great discussion so far.

I already have a couple of buy-n-hold rentals in my SDIRA that I purchased with cash, and would like to add more either in there (where non-recourse loans are needed) or outside of a SDIRA. I do NOT have a lot of my own cash outside of my retirement funds. I do have connections for rehab if needed, management experience, knowledge, etc....

I have a highly potential financial partner who is also a friend. He is interested in talking about loaning funds to me or investing. We are exploring several different options.

A couple of his parameters are:

• He would likely NOT be interested in being the 'signer' on a loan if he provided the down payment. 
• He would be interested in both short term lending (thinking refinance out of properties that were bought at a large discount to current value)
• He would also be interested in longer term (15 years or so) lending or investing. It seems his preference would be lending, but is open to partnering if the returns would be right.

Me questions are how to best use this possible resource to further both my financial position and have him be a happy partner too. We are both much more interested in long term returns compare to current cash flow. We are both about 15 years away from retirement and would not mind holding these for income in retirement years. He does not need income (he would be building his estate for future hiers) where as I would need the income in retirement.

• If we were to go the 'conventional route' of a 25% down loan, is there any type of partnership, JV, etc... that would allow just one of us (me) to do the personal guarantee?
• He would have funds to buy a couple properties outright, but it seems like it would make more sense to leverage the funds with todays current interest rates, no?
• What are thoughts on him lending to me in my SDIRA vs outside of it.

Thanks, Dan Dietz

Thought I would repost this to see if there was any other input out there? As stated in the first post, one of his main objectives is reducing (if possible) his current tax liability (income of around 200K). He is open to lending or partnering on buy-n-holds.

Thanks,Dan Dietz

Chuck,

In order to invest together with your father using both of your SDIRAs, there are a lot of hoops to jump through, but the main one is this: Whatever ratio things are set up in from the start (ours is 33.3% each with father and brother with each of our SDIRAs owning 1/3 of an LLC with local checkbook control) it must ALWAYS remain at that ratio for any properties within that LLC. For example, if my brother and I wanted to do another property WITHOUT our father, we would need to form a NEW LLC just between the two of us. Our SDIRAs can still own shares within BOTH LLCs. Hope that makes sense?

It sounds like in your case this still might not be a good fit  IF you wanted to be more actively involved that just managing the properties if they are rentals. 

In our case, for any one of us to buy rentals with cash would have eaten up a large part of our portfolios, by going in 3 ways it seemed to make more sense. Dad also assumes that he wont need to draw on this portion of his retirement funds and they will eventually get passed onto us 50-50. 

Dan Dietz

Good points, but it ALL depends on the situation an Investor is in.

In my case, I would say almost the opposite - "It ONLY makes sense to invest in real estate INSIDE of my SDIRA

• That is where 90%+ of my free cash sits, so it does not make sense to withdraw it and pay penalties etc....
• Almost all of the deductions that you can take outside of an SDIRA you can take inside of one too. 
• Financing can be had at 25-30% down. 
• You CAN manage your own property, just not contribute sweat equity (this simplifies it a bit)
• In my case I am mostly looking to make my retirement assets grow for both my own use and to pass on to heirs - where better to do this than inside a ROTH SDIRA that will NEVER have taxes dues upon withdrawing earnings?
• You CAN invest with family members, but you must be VERY (did I say VERY!) carefull in how it is set up.

Just a look at the 'other side of the coin' so to speak.

Dan Dietz

@Jeff B.,

Agree completely with the above assumptions. What I was wondering specifically is if there is a 'formula' or 'rule' of what the actual worth of that might be, in order to put a dollar value on it.

Thanks, Dan Dietz

Hello,

My daughter is buying her first home and is looking at a couple of different 'first time home buyer options' that are available with her qualifications. 

Essentially what is comes down to is that going the 'conventional' route would be .125% (1/8 percent) lower interest @ 3.75% than our state's first time buyers plan , WHEDA, at 3.875%. Both fixed for 30 years, no prepayment etc...

BUT, the higher interest WHEDA is an 'assumable' loan down the road if they wish to sell. How much is that 'assume-ability' worth if they chose to move before the 30 years is up? 

I have not paid a lot of attention to the idea of selling with an assumable loan as they do not seem as common as they used to be, or as desireable in a dropping interest rate environment either. Rates are bound to go up some over the next 10+ years I would think.

I am looking for feedback as to say a scenario of them wanting to sell in 10 years, and say going interest rates are 8% instead of the current 4% and the house might be worth say 150K (they are buying at 92K on a house currently appraised @ 140K). 

From some rough figuring, a buyer in that situation would say about $140 in monthly payment and 30K in interest on the remaining balance of the loan. Seems like it would be worth a fair amount, no?. The difference in the two loan options would cost them under $2000 over the life of the loan or about $5 a month.

Thanks, Dan Dietz

@Dan Fisher,

@Brian Eastman covered it perfectly above. We have used the 'checkbook control' model since we started, so I dont have any experience doing it any other way. When I explored the options, the ONLY reason I could see for going the 'long route' would be that it *might* prevent you from doing 'prohibited transactions' since in theory that is part of what the Custodian is supposed to be doing (as I understand it). 

I DID do a LOT of reading and studying what those prohibited transactions were/are to make sure we steered clear of them. A couple of the advantages besides the obvious cost savings in our case are that a couple of our tenants like to pay in cash - easier when working directly with them. We have had a few incidents where we needed plumbers, electricians, etc... for urgent service work - when you cut them a check before they leave the job, they are more likely to come at a moments notice the next time you need them too.

We use UDirect IRA Services out of California and have been very happy with them.

Dan Dietz