All Forum Posts by: Daniel Dietz

Bill,

Luckily, I have done pretty well with both my retirement accounts and personal real estate. The reasons are several fold that I have diversified into rental real estate; I am seeking higher returns than what stocks have been bringing on average, and more stability also. I also like the idea of more easily being able to leverage the dollars I have to work with in real estate. I do have one duplex that I bought with my SDIRA, and it should yield about 15-18% as an 'all cash' purchase within the SDIRA.

As far as experience goes, I work in the construction industry, so know the 'building side' of things quite well. A relative who is also an employee of mine is somewhat my mentor; he has about 10-11 units, and has been very inspirational as far as how to run things - by the book so to speak. I am in essence emulating what he does, and so far it seems to be working.

One of my goals is to also build wealth outside of the SDIRA, partially because I see higher return potentials by using leverage on traditional properties.

Adam,

I would plan on paying off the HELOC at the time of sale of my primary home. We should come out with at least 250K free and clear, and the HELOC would only be for about 40K at most. Basically just trying to take advantage of a couple of good buys that are just on the market now that can come close to that '2% rule', which in my estimation can make good returns, instead of waiting until my primary house sells. 'fast forwarding' so to speak.

Dan Dietz

All of my stocks and mutual funds are tied up in IRAs and ROTH IRAs. I made the 'mistake' of socking away every dollar I could for years. I'm glad I did it to build a nice nest egg, but wish I had some more assets that were available to use.

The Insurance and Primary Home equity are really the only assets I see as useable (my understanding, at least from the banker I am working with, is that retirement assets cant be assigned).

Dan Dietz

Bump............

Hi,

I have talked to my banker a bit more in regards to a couple of properties I have looked at, analysed, and am interested in making offers on.

For a bit of background, I am short on 'liquid cash'.... it's all tied up in either my ROTH IRAs, SDIRAs, a Life Insurance Policy, or the home equity of my primary residence that is paid for and listed for sale right now, partially so I can downsize and use some of the built up equity to invest in more buy and hold rentals. So with that being the case, I am having trouble coming up with the 30% down payments.

I prefer to do these deals outside of the SDIRA, as they are not 'expensive enough' to get non-recourse financing. We also prefer not to do a withdrawl from the Life Insurance Policy directly for a couple of reasons; the cash value came from a large gift from a family member, and while they are still alive, we would prefer to not tap the basis in there, and it is making about 5% after paying for the cost of insurance for 800K in coverage, etc..... I could do a loan against the policy, but it is currently about 8% interest.

So it looks like my best options are either a HELOC on the house that is for sale at about 4.5%, or to do the pledge/assignment of collateral with the collateral being the Cash Value of the Insurance Policy. My understanding is that on they will lend 100% of purchase price this way. For instance, property #1 that I am looking at would be 60K all in, which normally would need a 18K down-payment and they would finance 42K. In this case, they would finance the whole 60K, and I would need to 'assign' 18K worth of the Cash Value of the Insurance Contact.

What would be the 'pros and cons' of the HELOC vs 'assigning the collateral' in this case? It seems the assigning would be a better way to go, but thought I would ask all you experts to find out what I am missing :). Other things to consider are that why I sell my primary residence, I am likely to pay that assignment off with some of the proceeds, and likley try to finance it into a longer term product after seasoning it.

Thoughts?

Thanks, Dan Dietz

Hello,

One update on this. I spoke to my banker and he is also looking into me 'pledging' (I understand that as 'putting a lien on') other assets, one being the cash value of a Universal Life Insurance policy. It sounds like this might be 'in place of' the down payment.

Do any of you have experience in doing things this way? This is a small local community back that would be keeping this loan in house with a 3-5 year rate look but a 15-20 year amortization.

Thanks for any feedback,

Dan Dietz

Hello All,

I have asked similar questions before, but have a 2 specific deals this time so want to try to nail things down to see if this can work. What I am wondering is what type of Joint Venture, Partnership, or other Entity would be the best route to go between myself (or my LLC) and the seller on these deals. Both sellers are open to options to make these work, partially due to my long term relationships with them, and their trust in me. The lender I am likely to use, a small local community bank, is working on figuring out what could work for this too.

Deal #1 - Duplex buy and hold rental. Seller would consider a LC for up to 5 years for 90% of purchase price with us putting 10% down, or carrying a second mortgage for 2/3 of the "down-payment portion" (20%), with us putting 10% down, for a longer period, maybe 10-15 years.

Is there any advantage to forming some kind of JV or other entity, either in getting the bank to approve, or to have a tax advantage for the sellers.

Deal(s) #2 is similar. Somewhat elderly owners of several 6-10 units that they want to back away from the day to day operations of. They do not need the money at all right now. Taxes are a big consideration for them as the unit are mostly owned free and clear, although there is an 'equity line' on at least one of them that was used for other purposes, which could be paid off by them or left in place depending on the benefits of either way. They are in the process of consulting with their tax people also.

These unit are in excellent shape, and in great locations for our relatively small town. Long term tenants are in place of each of them for the most part. On this deal, they owners are very open to somehow carrying a second for at least the down payment portion (30%) and maybe more if it has tax advantages. I have feeling I could get into this one for almost nothing up front out of pocket (maybe 5% or so) and use some of my funds for some of the yearly scheduled maintenance items (they have a 5 year plan of slow upgrades/maintainence items).

What would be the best way to structure something like this, again to get the bank to go along with it, and to benefit all parties involved?

Thanks for the thoughts,

Dan Dietz

Great conversation going on here.

Zac, I too am working on putting together some similar deals. I too am new to this type of doing things, and do not yet have the funding in place, but have some pretty serious interest.

I think part of what the 'difference of opinion' is stems from the fact we are all in different situations, with different expectations, and deal with other people in a variety of situations too.

Someone asked "why would they even need you if they are putting up 100%" of something similar. I, like you, know people who are intrigued by getting a "better return" than what they are currently getting. They have NO interest in doing rehab, being a landlord, or even just managing a rehab with no hands-on experience.

For example, one potential private lender I just met with this weekend, a good friend of 20+ years, keeps about 25% of his portfolio in 'safe things' which in his mind are money markets, CDs, certain bonds, etc.... He is averaging a bit above 2% on this part. He is interested in possibly lending either short term for buy and holds while they 'season' until we can refinance them. He might also be interested in doing loans for a longer period of 10-15 years for buy and holds in my SDIRA that are not eligible for traditional non-recourse loans.

Part of his interest stems from the potential of getting 3-4 times his current returns for what he sees as a relatively low risk. I am in the contracting business, so know how to deal with properties. The properties we are targeting would be bought at least 20% below value, and we would be going in with about 25% of that amount from our side, so he would be lending at about 60% of value. Pretty easy to recoup that in our area if we were to default.

Just thought I would throw in my .o2 cents on why it DOES make sense from someone else in a similar situation.

Dan Dietz

Sounds like Joel is giving you some good things to think about above. I too am going through a similar situation of owning one that is for sale, and has no mortgage. It is at the top of our price range for our market (300K+). I am also JUST starting the process of getting permanent financing for the one I am living in which started as a flip. The one I am in is ALL 'others peoples money' (family) part cash and part a 'commercial loan' from our local community bank.

The loan for the flip was no problem with underwriting I think mostly because they keep it 'in house' and being commercial it is only fixed for 3 years in this case. This bank has always been great for commercial loans for my 'day job' business (small contractor).

I am talking to both a Broker and this same Community Bank in regards to the permanent financing for the house I am now in. The Broker mostly because I was hoping to qualify for one of the special <5% down loans (all my cash is tied up in the house that is for sale) which does not look promising :(.

I too work for and own part of our family business, but <10%, and get a K-2 instead of W-2, and take a consistent monthly draw - so my income shows TWO years of 'steadiness'. Neither lender thought that should be an issue even with NOT in-house loans. The Community Bank pretty much guaranteed me I could get their in house permanent loan, but it is only 15 years and 1% higher than the traditional 30 year fixed, so I would prefer the 30 year (free up more future funds for more deals).

I do have an excellent credit score of about 780+ and have 150K of equity in the house that is for sale too (ex-wife gets the other 150K :( ) and the new house for me is a total cost of about 150K. My issue right now is coming up with the 30K or so down for 20% to get the traditional 30 year loan. They did both say I could do a HELOC on the house for sale for that 30K, but I am hoping to just sell it and avoid the loan fees for a HELOC which might only be needed for a few months. (we JUST listed it this week).

I will try to remember to update this as I hear back from them after underwriting.

Dan Dietz

Any thoughts out there?

Dan Dietz

Hello,

I am new to the SDIRA and Solo401K world, so take this for what it's worth! We set our 3 member LLC by joining our 3 dis-qualified SDIRAs (brother and father and me) VERY carefully!

I think I have read here on BP that a case like yours *might* be considered dis-qualified IF your wife is the *beneficiary* of your Solo401K. (as her father would be dis-qualified to *her*).

I dont remember any of what I would say are the experts on here chime in on that one, so am not sure to the validity of it.

As to the 'sweat equity' I did a lot of reading on that one as we are buy and hold, and there can be a lot of 'small things' that come up. I think the theory that you can 'maintain' but NOT 'improve' the property makes sense. I think the *intent* is so someone is not making an 'income' from their retirement acount (save putting 10K of labor into a flip).

So, can you take off the screen and take it in to be repaired or put a nail in that piece of trim that is loose? I think so. Can you install new windows or siding? Probably not.

Dan Dietz