All Forum Posts by: Daniel Dietz

@Dmitriy Fomichenko or @Mat Sorensen right now my partners and I all use the 'checkbook' control method and are very happy with it (Dmitriy is my Plan Provider and KKOS who Mat is affiliated with did our 3-way Self Directed LLC set up).

I have a friend who is looking to convert to a SDIRA and buy only one property, and NOT have any partners. What, if any, are the disadvantages to NOT having checkbook control? They are leaning towards doing a turn key, but might also just by something local and use a PM. 

To my simplified way of thinking the only disadvantage is the cost, which in all honestly is pretty minimal. Just trying to help them get started in the right foot!

Thanks, Dan Dietz

@Toby Jurging we have mostly used NASB, North American Savings Bank, Jason Zook is the loan guy there.

We have also used a Private Money Lender to do one, just had to be 'non-recourse' which was no big deal.

We are working on one now that will be seller financed to our LLC, which is made up of 3 SOLO401Ks. The sweet thing about this one is only 20% down, whereas most non recourse loans are 40%+ down.

Dan Dietz

I *think* the flips potentially being a business might have some to do with how much 'active management' (work, even if just generaling it). In my mind, it is similar to how you are not supposed to do repairs and such on rentals held by your SDIRA. It would be like making 'excessive contributions'. Just my take on that. Sounds like if you are just getting your returns from 'being the investor' you are in a much better place in regards to that.

I tend to disagree with what others say about Self Directed accounts, SDIRAs in particular, not being a good way to invest in buy-n-holds. My partners and I use our SDIRAs & SOLO401Ks for rentals and have had great success with it.

In our case, our retirement accounts  was ALREADY where 90%+ of our assets were sitting, so it came down to 'how best to use those funds'. We are able to achieve 10-20% returns with ease depending on how leveraged (if at all) we are on each property.

It IS true that loan terms are typically not as favorable as 'cash loans' outside of Self Directed accounts, but if you can STILL get much better returns than say stocks after figuring higher interest and *potential* UDFI taxes, does that not still seem like a better way to do things?

In regards to the potential taxes, one way to avoid them is to use a SOLO401K if eligible. If all you have is a SDIRA and you leverage, then most of the 'tax benefits' of real estate ARE available to you. Meaning if you are say leveraged at 60% loan, you then get to deduct 60% of depreciation, ALL of the interest cost along with all of your other normal expense deductions. So during those years it is not very likely that you will even HAVE a "net positive income" after figuring all of that in, just like outside of a retirement account. So if there is no 'net income', there is no UDFI taxes to worry about.

A couple of other ways to deal with a few of the items mentioned above are 1) Use or convert to ROTH accounts to avoid taxes on withdrawing in retirement, and look for Seller Financed deals within your ROTH (or regualr) accounts to keep down payment low and interest rates reasonable.

Dan Dietz

We used KKOS Lawyers for ours, which was a 3 way LLC made up of  3 SDIRAs. We also have one made up of 3 SOLO401Ks. Their fees are very reasonable, and it is a specialty of theirs. If you google Mark Kohler, youtube and SDIRA you will find TONS of info.
Dan Dietz

@Sarah Brown we DO use the PM version even though we only manage our own properties. The reason being that my partners and I own our 30 units in 7 different entities, including individually, a 'cash' LLC, a SDIRA LLC and a SOLO401K LLC. We DO keep separate checking accounts for each LLC and individually owned ones, which I am guessing that might be difference in how a 'traditional' property manager would do it?

It seemed very easy to print all needed reports for each LLC/Owner and also each property within those for needed items. 

@Sarah Brown we love Rentec Direct. I would highly recommend taking a look at it. We are at 30 units, soon to be 40 hopefully.

Just wondering on the accounting side what it is not doing for you that Quickbooks does? Our accountant has had no problem with the info we give him for doing our taxes. The only thing we do NOT use in it is depreciation component, as we let our tax guy take care of that. 

@Gary Parilis

We, my two existing partners (brother and uncle) and I already had 3 LLCs set up by the time we started working with a PMP. One for 'cash' purchases, one for SDIRAs, and one for SOLO401Ks, so we had a pretty good 'outline' of what we wanted to do.

We prefer LLCs over JV deals since we are looking at at least 10 years to hold, and a lot can happen in that time.

On the original 3 LLCs we spent a LOT of time go over details. The more simple ones are how we would each get compensated for our time contributions. Financially we all contributed the same capital, so that was simple. The more time consuming was the 'buy out' details if a partner wants out, and the 'what ifs' if a partner were to pass on. 

The answers to those two are; the valuation at buyout if the other partners wanted to stay in is valued at the same price/rent ratio at time of purchase. Meaning if we bought a 150K place that rents for $1500 a month, and say 8 years later it rents for $2000, it is now valued at 200K. If a partner were to pass on, the surviving heirs  would have the option of staying in (which would be all 3 of their preference at this time) or they can be 'cashed out' using the same formula.

I guess a summary would be to think of all of the 'what ifs', especially the 'bad ones' like death etc.....

Once we brought the PMP partners on, who was a family friend and watched our success over time, we let him read over out existing LLC documents and he was very content with what we had, with the exception of covering how him or his heirs would get their capital contribution back, since they were the only one putting capital in.

I would echo what @Dan Schwartz has to say..... I personally use @Dmitriy Fomichenko at Sense Financial and am completely satisfied. Before I chose him I talked to most of the active participants on this forum who are providers and would say they ALL impressed me more with their patience, attention to cluing me in details to be aware of etc... compared to some of the 'big providers'.

The way I look at it if they are going to take time here on the BP Forums to educate and contribute knowledge to people who are not even clients (granted they are hoping to get some clients from this most likley) there is a better than average chance that they will give you good service when you DO become a client.

I also wholeheartedly recommend the checkbook control method if you are going to do rentals like we do. SO much easier.

Dan Dietz

 @Carl Fischer & @Brian Eastman am I understanding you guys correctly that if a person wants to take a property OUT of a Self Directed Account, it is much easier if it is sold INSIDE of that account, and THEN take that 'cash' out as a disbursement, since the 'cash' has a 'defined value', unlike a physical property that would need to be appraised etc....?

Thanks, Dan Dietz

It sounds like you are planning on accumulating and holding these for the long run if all goes well.

What we do is not BRRRR, as most of them are already in good condition when we but them.

We ran out of our own capital, both cash, SDIRAs and SOLO401Ks when we hit around 25 units. At that point we brought on a Private Money Partner, who also had been a Private Money Lender on previous deals. We knew each other for decades, and they were very familiar with our success for far in buy-n-holds. We did/do all out own PM on them also.

The way we set up our partnership is to do an LLC (about $800). I think it is well worth it to cover all the basis, make things simpler for buys outs, deaths, surviving beneficiaries, etc..... We (2 main partners & I) had already done 3 LLCs for various properties and essentially just tweaked if for the new one.

The way we did the deal was that the Private Money Partner put all of the down payment and a bit of reserves in, about 23% on a 260K property or 60K. We find, manage what updates are needed, do all ongoing PM and financial management etc..... We are 50-50 partners on all decisions, although they prefer to leave 99% of that up to us. We split all cash flow 50-50, and when time comes all equity growth 50-50. When we choose to sell some day, or do a large refi with 'cash out', they will get their down payment equity back FIRST, and THEN all the rest is split 50-50. Also, if we are ever NOT able to perform PM duties, the cost for that will come out of OUR half of the 50-50, since that is one of our main ongoing functions that we are responsible for.

One of the main things that the 'money person' gets with a good 'on the ground' partner who does a GOOD job like us is less than 2% vacancy, very low maintenance cost as we do many of the simple little 30 minute type of things, great loan rates as we have the connections and experience, and finding deals that are 'off market' that they would never find otherwise (20 of our 29 units were off market and found by networking and cold calls - there is virtually NO inventory in our rural area that hits the MLS)

The PMP gets a great steady return and sleeps at night, we get to 'make money with our time and knowledge' - it is a win-win in my book :-)