All Forum Posts by: Daniel Dietz

I read a description once this way.... "think of it like a cross, with you at the 'intersection'. Think of your ancestors and descendants on the up and down axis - they are OFF limits. Think of your siblings, aunts uncles, cousins, etc... as the horizontal axis - they are NOT off limits.

Dan Dietz

We use Private Money Partners instead of Lenders. They bring ALL of the down payment, we do ALL of the work including PM, and we ALL sign on the loan. We split everything 50-50. They get a great, safe, steady return that is WAY better than what they were typically getting at a similar risk profile, and we get to 'make money from our time, knowledge and talent'. A win-win

Originally posted by @Michael Plaks:

"I'll point out two flaws in your thinking. One is that you must add the Roth conversion income first, before calculating allowable deductions. For example, if your income is currently $100k which allows you $25k of rental losses, you start by adding $100k of Roth conversion income. Now you have $200k income, above $150k, so you can take NONE of the rental losses, with or without cost seg. (If you qualify for RE Pro - a different story.)

The second mistake is that  even if you stay under $150k, your potential loss is limited: no more than $25k until income hits $100k and then gradually phased out to zero between $100k and $150k. You can never take an extra $100k from cost seg, unless you're a RE Pro or you sold some properties for a gain or some other special situation applies.

And due to the unlimited number of possible what-ifs, questions like yours cannot be correctly resolved with a quick online post. This calls not just for a tax accountant but for a tax strategist to figure out the best way to move forward in your situation. And if you need one - you know who is who on this forum. :-)

@Michael Plaks, thanks for the response. I am pretty sure I understand what you are saying about the 'income' from the ROTH conversion has to be added BEFORE the CSS 'deduction' gets applied to determine what the AGI is to determine IF I would be eligible to take up to that 25K loss.

With that said, I *think* I would still be in a good spot. Even when adding my regular income/AGI AND my ROTH Conversion (40K) I would still be under the 100K limit where the phase out starts, probably around 80-90K. THEN I would deduct the first year accelerated depreciation deduction of say 40K and be back to where my AGI was at the beginning.

A lot to think about! I guess I could just pay the tax on the conversion and say the depreciation for down the road too, as I plan to hold these long term. One of the main reasons I want to get the SOLO401K converted is that I am working on 2 different Seller Financing deals that I want to buy with this account, and I would prefer to do that FIRST as their is going to be some nice equity in them.

Thanks again, Dan Dietz

Good discussion! @Michael Plaks I also read your other thread you shared.... some very good things to be aware of and make sure of what is being 'sold to you'. 

I am wondering in VERY general terms if doing a CSS would be beneficial in the way I am thinking for a situation I have in mind.iIf I have a Traditional SOLO401K that owns a property worth say 400K that I owe 300K, so 100K of equity in and I want to convert it to a ROTH SOLO401K.

I also have some 'cash properties' that I bought for say 500K that I have 400K of basis in that if I did a CSS on I could accelerate 100K of depreciation.

I am thinking that the 100K of accelerated depreciation would 'offset' the 100K of Net Equity in the SOLO401K that would be taxable if converted to a ROTH.

In VERY general terms, would that be a logical use of a CSS? Income is WELL under 150K if any losses are created and in the low end of 22% bracket. One other reason I am considering this is that I am working on buying another 600K of rentals in the SOLO401K, and I would like to convert it BEFORE I make that purcase.

Thoughts? Thanks, Dan Dietz

We were able to get a 25 year amortization @ 5.125% (now at 4.75%) locked in for 10 years, and after that we do not need to 'refinance' but the rate can/will adjust to market rates up or down but with a max of 1% a year and a total max of 6%, meaning the highest it could ever go is 11.125% in year 16 and beyond.

I have heard discussions on here that with that '10 loan limit' for conventional loans, that even your Portfolio Loans/Properties 'can count against that limit of 10". That does NOT seem logical to me, but maybe one of our Traditional Lenders could chime in on that?

@Mark Cermak we dont do the BRRRR method, put we are a 3 way LLC that does buy-n-holds.

We each had our own rentals already with conventional loans and decent credit scores. When we first formed a few years ago as a new LLC we worked with the 'commercial side' of a small local bank. They hold the loans in house and mostly base the loan on the deal, not like a typical mortgage. One of the criteria they use is DSCR (lots of info here on BP about it). They like to see a score of 1.2, which means you can take in at least 1.2 times what you PITI is.

The terms are not as good as traditional loans, but one we are looking at right now is 4.75%, 25 year maortization and locked for 10 years, so still pretty good.

Dan Dietz

Hello, 
I am trying to understand from a tax/income perspective why someone would want to do this and how this works, in general terms. 

If Owner A has a 400K Property that he bought for say 200K and has depreciated 100K down, I assume his basis left in it is 100K, or 300K of 'gain'. If Owner B has a 400K property that he bought for 300K and has depreciated 50K, I assume  his basis left in it is 250K, or 150K of 'gain'.

Ignoring the 'land value portion' for this discussion, if they 'swap properties', Owner A now has a new property that is worth 400K, plus the 100K of basis/300K of gain that he 'carried over' from the original. If he sold it at that point, would his 'taxable gain' be the 300K carried over from the first property?  I assume if he holds it long term he can 'start depreciation again' on the 'new 400K purchase', which would be one the of the benefits of doing this?

Or if he holds it long term and it grows to 600K in value and 100K in depreciation is taken, he now has a gain of 300K on the second property to add to his gain of 300K gain from the first property for a total of 600K, making the entire sale price taxable?

IF that is correct, I assume a large part of this strategy would be if you can hold it long enough to pass on to heirs?

@Dave Foster & @Bill Exeter, thanks for all of your wisdom you so willingly share to educate all of us!

Thanks, Dan Dietz

We do ours a little differently, as most of our purchases dont need much rehab... maybe carpet and paint and a days work tuning things up. 

With that said, now that we are out of our own capital once we hit 25 units we are starting to partner with Private Money Partners (PMP). The PMP brings ALL of the down payment capital and reserves needed (about 23-25%). We do ALL of the finding (usually by cold calling/mailing), negotiations, securing financing, setting up LLC etc.... AND we do ALL of the ongoing PM and business management. We both sign on the loan also. A side note - if we are ever NOT able to perform PM, that fee would come out of OUR half of the profits, as that is OUR responsibility.

We split cash flow and long term equity gains 50-50. We form an LCC where we are 50-50 partners. This gives us EACH about a 9-15% return on the amount of capital originally invested. We make money from nothing but our expertise and a bit of time, and the PMP gets a GREAT return considering the level of risk with absolutely NO work on their part - no checking stock prices, rebalancing the portfolio etc....

We also have others that want to do this with us 'standing in line'. Now the problem is finding deals that fit our criteria.

Dan Dietz

Sounds like a unicorn ;-) In all seriousness, where are you finding those terms in a recourse loan? Much better than I have found. 

Our non recourse guy is around 4.75%, 25 year Amortization, 10 year lock and 80% LTV right now. Non-recourse is about 5.5% and 20 years fixed and 60% LTV.

Dan Dietz

@Dave Foster or others in the know.........

Can you explain the 'cash' portion a bit more detailed. 
IF the original property has no loan outstanding and nets say 300K, and the OP only uses 200K (20%) of those 'cash funds' but ALSO has the owner carry a note for 800K (80%), what happens to that 100K the OP 'pockets', since they still have spent more than the original?

Thanks, Dan Dietz