All Forum Posts by: Daniel Dietz

I have wrestled with the exact same questions! When I discovered Self Directed Accounts at least 80% of my existing retirement funds were already in ROTH IRA, the balance in Traditional IRA.

So I rolled the Traditional over to a SOLO401K to avoid the UDFI taxes mentioned above when leveraging, and the ROTH to a SD ROTH IRA. I have so far chosen NOT to leverage the SD ROTH IRA.

I have also looked at withdrawing the ROTH *contributions*, which would be penalty and tax free, and then *contributing* those funds to my SOLO401K, and doing a ROTH Conversion once in there. I do NOT see a downside to this, but need to look into it more.

To the Pros out there, am I missing something in thinking it would work to take the *contribution* from my ROTH IRA out, tax and penalty free, and use that 'cash' to make a large contribution to my SOLO401K? Note that I do NOT make large contributions right now, so I would not 'be using up that years contribution'

Thanks, Dan Dietz

@Keith Thomas, yes, we had a lawyer draw these up. We just did a ton of reading on what to think about as far as what to have in there. I think in our area it was about $800 or so to do that.

As far as where to 'park the money', we formed the LLC first (a different one with each Private Money Partner) and their down payment funds just went into that LLC's checking account until needed for the closing. We also had them fund enough for 6 months of PITI in reserves to cover things until we could build up more reserves.

On the Private Lenders who Lent, and opposed to Partnered, we had a lawyer draw up a mortgage and promissory note if I remember the correct terms. On those we closed at a Title Company where the PML sents a check that we held in escrow until paper were signed.

However you do it, a little money for the proper legal work is some of the BEST money you can spend, especially in our case where it is family and friends we are working with. You want to make sure EVERY one understand the transactions. 

@Dawson Thomas you have the general idea right. We are all 33.33% owners.

If one of us, or if one of us passes away and their heir wants out 'their share' is first available to the remaining partners at the '100 times rent multiplier'. From our discussions that is most likley what would happen as we all intend to stay in this for the long haul. So say we had a duplex that a partner wanted to 'cash out their equity' from. Let's assume it is worth 180K and we owe 90K on it, so we have 90K in equity or 30K for each share. The two partners who wanted to stay in would each have to come up with 15K to buy out that third partners share. The other options is the two remaining partners could refinance that duplex for the 90K balance + the 30K needed for the buy out and have a new loan of 120K.

IF we happened to not want to buy out and just sell, we would put it on the market and whatever the equity was after the sale would be split three ways. That could be less or more, depending on the sale price on the open market.

We use a mix. 
Properties that we (2 partners and I) hold in individual title we do regular 30 years bank loans. 

Properties that we own in LLC's that are NOT in retirement accounts (more on that in a second) we use a local 'savings and loan'. Meaning they are NOT a big chain. I think they have around a dozen branches spread around our rural area, and they hold these 'commercial loans' 'in house', meaning they do NOT 'resell them' the way a Fannie, Freddie, FHA etc... is, so they have MUCH more flexibility. I have friends who do these same kind of loans through their local Credit Unions - VERY popular in our area. Again, NOT big chains.

We also hold a large portion of our properties in retirement accounts - SDIRAs & SOLO401Ks. For these our separate retirement accounts formed 3 way LLCs made of OF the retirement accounts as the partners. For these, the loans must be 'non-recourse', meaning NO personal guarantee, which requires special lenders. They are essentially lending 'on the deal' as they have no other recourse if you do not pay. They MIGHT also lend to LLCs that are NOT made up or retirement accounts, not sure on that.

We also have done a couple loans with a Private Lender for short terms, like 5 years or less. That Private Lender has now become a Private Money PARTNER, where they bring all of the down payment and we do all of the work and PM. We use our Saving and Loan lender for these.

Dan Dietz

We had no problem getting the loan in the LLC, because that is what many banks intend 'in house' or 'portfolio loans' for. Our LO actually said they prefer to do those types of loans to an entity.

We found ours, and several others with the same type of product, through our local "Apartment" association. REI Meeting ups could be a good source too.

Dan Dietz

My 2 partners and I do this. We all had between 1 - 9 rentals on our own before we started investing together thought too, so we fit 'the experience' part of it. We went to a local 'savings and loan' (credit union would be good too)... the key here is LOCAL.... as in they will keep the loan 'in house' so they are not as locked into someone else's criteria. About half of the members of the Board at this bank are also investors, so I am sure that helps as well.

As far as the paper work, whether to be LLC, JV, etc... we knew we were in it for the long run, so went the LLC route. We also have very specific buy out provisions that cover us and our heirs, whether they wish to stay partners or be bought out.

The summary of our buyout is this... .say we bought a duplex for 100 times rent - meaning 150K for a place bringing in $1500 a month. That is our 'multiplier number'. Fast forward say 10 years and one partner wants out. It is now renting for $2000 per month, so the new 'value' as far as a buyout goes is 200K. The other partners have 'right of first refusal' at that price, and if they do NOT want to but out, it could be sold and all profits split according to % ownership. 

Hope that makes sense.

Dan Dietz

As far as the tech goes, check out a Youtuber named Steve Dotto at "Dottotech". He has hundreds of videos teach all things tech, and lately a LOT of virtual meeting stuff.

Dan Dietz

If you shared where you are at and what you have in mind we could probably help you more. 

I agree with @Joe Villeneuve also, *if* you look and find the right kind of sellers, you can likley end up with the same or lower rates than banks. We are working on a deal right now for 4-5% over 30 years with a 15 year ballon, better than we can get on a non recourse for our SOLO401K LLC. You need to find the owners with paid off properties that are likley to invest that equity VERY conservatively - say CDs - and offer them something 'better'.

Dan Dietz

@Joe Splitrock hit it on the head for us. My two partners and I own 30 units and do all of the PM, some of the unit turns and maintenance. We each have our specialty area; business, PM/Tenants/Maintenance. If our maintainence guy is gone on his two month summer vacation and we turn a unit that needs paint we hire it. He loves to do it when he is here etc....

We do really like dealing with our tenants.... we screen really hard for good ones that bring *us* gifts at the holidays because we take good care of them.

We have less than a 3% vacancy rate and an average stay of over 5 years. I dont think I would see that from a PM. We often have turns of less than 3 days.

We save about 30K per year in PM fees, and we track hours religiously for the way we split profits. We spend about 100 hours per year on PM (not counting maintenance, which we 'pay' ourselves for as it happens) so that means we are 'making' about $300 per hour for work we actually enjoy. I'll take that :-)

Dan Dietz

Where do we find this at on the site? I have heard mention of it, but can't locate it.

Good work on the progress!
Dan Dietz