All Forum Posts by: Daniel Dietz

So far we have had GREAT luck with family and friends. I have written several times on here at length if if you search my posts.

Essentially, from ideas from the podcasts here I; 1) Got some experience to show my track record 2) Came up with a written plan using the BP Rental Property Calculator 3) Made a list of EVERY one that I knew - friends, family, business associates, and former customers - who I *thought* might have enough funds to want to invest as partners. I came up with 50-60 names if I remember right 4) "Scored" that list as to who I would want to work with the most 5) Told everyone what we were doing in real estate as 'casual conversation' as they might have an interest - or know someone who would.

6) Off of that 'short list' my top 5 were all in the world of business or finance of some type (small business person, CFO of large company, Finance Professor, retiree who did very well for themselves, etc.... I asked each of them, who already KNEW from conversation that we were working on a 'plan' to partner up with people for investing in rentals, "to look over my plan and give me feedback on pros/cons etc....... And IF they thought it was a solid plan, to feel free to let anyone know about it who they thought would be a good fit.

We are now partnered up with two of them they were so impressed, and two more on the 'waiting list for us to find more properties. The one who was not interested had seen 'family/friend partnerships gone wrong' and didn't want to risk that even though it seems like a good plan.

My understanding is that with a Note and Mortgage, if you need to terminate for non payment it follows roughly a typical foreclosure process = timely and expensive. The benefit is that you *might* have an easier time selling the Note if you ever wanted to.

The Land Contracts as I am familiar with them in my state are almost more like a 'rent to own' contract. As a buyer, you can be 'evicted' MUCH easier than you can-be foreclosed on with a Note/Mortgage. As a Seller, that could be a desirable thing. Not so much as the buyer.

Back in the late 80s or early 90s when I was in involved farming there was a 'famous' case in our area that made the it into the Farm  Press of "Land Contracts Gone Wrong. Long story short Farmer A was "buying" (renting to own really, as the Deed does not pass until the last payment is made) what today would be about million dollar farm from Farmer B (really a group of heirs to the farm that had no interest in it other than the income if can produce).

It was a 30 year contract (typical in farming) and Farmer A made payment for 25 plus years and had almost 90% of the principal paid plus interest. Farmer A also made several hundred thousand dollar of improvements along the way (one of the big "who pays what on a Land Contract"). Farmer A then had a couple of bad years, major family health problems and missed 3 monthly payments out of 300+ monthly payments and was EVICTED (since no foreclosure was needed) and the farm was taken back and promptly resold again. The remaining memeber of the Farmer B family were understandably shunned in the area after that, as it should be in my opinion.

I am not sure WHY LCs were so much more popular than the Note/Mortgage method back then, but it was definitely the norm back then. Personally, I would NEVER buy on a LC.

I have NOT tried either of the ones mentioned, but we use Rentec Direct and love it. It does all of our tenant management, ACH payments, database on properties AND the book keeping. We do not use their depreciation part as we have out accountant do that for us. We have 30 units over 7 different entities (personally owned and various LLCs) and it keeps it all straight.

Good discussion going on here, and pretty civil yet considering the diverse opinions we all seem to have ;-) 

I hope to some day do so 1031s in the distant future, so I get the appeal of them. At  the same time, it much like the Estate Tax  - but it an issue that only affects about 1/10th of 1%, or .0001, of the population. The net worth, not assets, for a couple needs to above $20,000,000 or so for it to even START to kick in.

Think in terms of someone who has held a large amount of land or stocks for many decades. Maybe that stock was worth 2 million when they got it, and now it is worth 40 million, that has NEVER been taxed. Should they not expect to pay SOMETHING on that gain of $38,000,000? How much would 500 workers pay on that amount of income in total tax burden? Maybe about 15-20 million....... Did you know that over 60% of wealth that IS subject to the Estate Tax has NEVER been taxed. Why would we NOT ask the .001% to 'pay their share' just like you and I?

Where this ties into the 1031s is that it IS a pretty sweet deal. But with our nation giving tax cut handouts to corporations and the ultra wealthy like like candy at a kids birthday party we collectively ARE going to have to make that up somehow, someday. Is it REALLY so unthinkable to ask everyone to pay a share currently, while it is needed.

We could start a whole other thread on IF "trickle down economics' works, which could play into whether we should target 'tax relief' to upper income, middle income etc.... Almost EVERY study out there shows that 'the lower down in the income quintiles you put a dollar of tax relief' (or add income through credits) the farther reaching the affect on our economy. To me, that says to stimulate our economy, which it is being argued that is the point of 1031s, we need to focus those relief dollars towards the middle and lower income groups. The recent tax handout to the ultra wealthy that Trump and the GOP did goes to prove that theory too - most studies show almost no known benefits to the economy overall.

Summary? Those tax benefits that are targeted to us who invest in real estate ARE nice, but how long can we realistically expect them to stay as they are, at least as favorable as they are right now?

When you look at world history, it is VERY hard to find a county that has had such a wealth disparity as ours last very much longer without a backlash..... I think we are starting to hear the rumblings of that backlash, especially as information about the huge disparities becomes SO readily available.

@Mark Davidson you are on the right track getting your SOLO401 into a Self Directed Plan. My partners and I each had SOLO401Ks and SDIRAs that we invest with and are having great results.

We have 'refinanced' properties that we bought with the 'cash' in our SOLO401Ks. The LTV and rate were slighly higher, but not much compared to a purchase. NASB is the bank we use and Jason Zook the lender.

We ran into a similar issue when we started with a property coming up at auction as we were JUST starting to set things up. What we did was have a frined who is also an investor, and NOT a disqualified party, bid on it for us. He then 'assigned' it to us (our LLC made up of 3 SDIRAS actually) at closing. He made a $1000 wholesale fee for his troubles. I *think* that was all OK ;-)

Good discussion and lot of opinions like so many topics. 

I thought I would throw my MUCH simpler experience with Permanent Insurance and why I think it is a legit product. I should add that it is through a Fraternal Organization  (Thrivent).

I have a policy that is "pre 1984" so a little different MEC rules to my understanding. One of the earlier benefits of it was when my inlaws were doing estate planning they gave us a large sum of money, around 200K. We were able to put that into my policy where it is NOT counted on the FAFSA for when my kids went to college. This helping them be eligible or about 90K of grants and scholarships. About the only from of assets that are not on FAFSA are retirement accounts and Cash Value Life Insurance. It also provided 800K of life insurance paid for out of the returns (no premium needed) and a 6-7% return at the time, or double what CDs were. We wanted to preserved these funds if they were ever needed for the inlaws care.

Since getting divorced and my wife getting those funds back I left 15K of cash value in their. I consider it par t of my emergency fund also, that would normally just be in a money market account of something similar. It still provides 100K of insurance by using part of the returns for paying the premium, and also has about 4% return on TOP of that. I am 54 now, and it will pay that premium until I am about 69 without taking the cash value down. I also have the benefits of guaranteed purchase options and converting my Term Insurance, that I also have at Thrivent, over TO that policy if I choose to at what the rates would have been at the time I took out the Term Policy.

I dont really see a downside to it myself, in moderation. 

@Mark Sewell on the current deal we are right at 'market price' on it. I dont really see it as a way to offer more, but I think some people think of it that way.

As far as the tax due the first year..... I have had a few other deals where that was a BIG concern for the sellers. They wanted to at LEAST get enough to cover the selling costs and first years taxes as a down payment. Understandable. Both of those the sellers wanted more for the properties than what I thought made sense. They both DID sell using Seller Financing, and my thought with knowing who bought them is that the buyer thinks of things as "If I make a few hundred more than PITI each month it is a good deal.... while forgetting vacancy, maintenance, cap ex, PM etc...... But glad it worked out for each of them.

@Steve Vaughan yes we will own it. I saw too many farmers in my area in the 80s and 90s getting screwed on "land contracts" that were very popular in this area back then. One guy was only months behind, after 20 years of ontime  payments, in a bad year and the seller took it back. Where do you go with 80 milk cows and youngstock  with a couple months notice.

I would echo what others have said, especially @Steve Vaughan.

My first SF deal was with a house flipper I know, I provide him cabinets and counter tops in my 'day job' and we knew each other for quite a while. He normally would have one for sale at a time, and two he was working on. At the height of the foreclosure crisis, he had two for sale, two he was working on, and got three more he bid on all in a week! He knew I wanted to try flipping one on my own so approached me with deal. House FMV of about 140K, he bought for 75K, sold to me for 85K with terms of 6% interest only and one year balloon. He was borrowing HIS money from retired family (farmers) at 3%, so he made a 3% spread and 10K wholesale fee. I brought all of the fix up money which I borrowed from someone who is now a private money partner on some rentals.

The deal I am working on right now was a cold call to someone I know through my day job of contracting who I knew had some rentals. Turns out he DID want to sell 8 of them probably, but ONLY with Seller Financing!

His reasoning was what Steve was talking about. He has held them a long time, all paid off, getting older and tired of self managing and also doing lots of little fixes himself. He did not really need the money for current expenses, and my impression was that it was likely to turn into part of the family estate for future generations. He ALSO wanted to 'hold the note' to have a better return that other options. He was NOT interested in putting this money into stock as he already had a lot there, and wanted "a safe, conservative" investment. We are talking 4-5% for a 20-30 year amortization and 15-25 year balloon. We are still working on down payment, but somewhere around 10-20%, but just enough to cover his taxes due in the selling year. 

The REALLY sweet thing on this is that we are going to do it with our ROTH SOLO401Ks with such a small downpayment. Normally for those that do not know Self Directed loans need to be 'non-recourse' which typically require 40-50% down when going through a bank, when you can find one.

What we did in that situation is not 'borrow' from the SDIRA (or SOLO401K if you qualify) but to 'use' that as the down payments and acquire 'non-recourse' loans on the properties. 

No 'self dealing rules' to worry about. Very similar to traditional investing systems. That are quite a few good providers on here who are likely to chime in.

Dan Dietz