All Forum Posts by: Daniel Dietz

@Christa S Rickard we have two loans from a Private Lender that are non-recourse "HELOCs" on small SFHs we owned free and clear. He loans up to about 75% of LTV if needed, and we then use this as down payments on larger properties (4 plexs) and are able to pay it back by using ALL cash flow from both properties.

This is essentially what you would be asking a seller to do. I did read somewhere when we started all this that the seller "holding a mortgage/note" as opposed to doing a "land contract" would work better for some reason with the non-recourse part of things. I dont remember the details, but I do know that in a non retirement account it is usually said that is better too, so we just stuck with it.

We did have the lawyers that set up our LLC, which is made up of 3 different SOLO401Ks, review the mortgage/note template to make sure all was good.

We are working on getting a deal like this closed right now. On the good side is that we are only looking at about 20% down, where almost all commercial non-recourse lenders are looking for 40% or so. Our seller is just looking to getting enough to cover his depreciation recapture and then stretch out the payment and interest of 5% over 15+ years.

We are still negotiating, but hoping for a 30 year amortization and a balloon at 15 years, which by then if we have not paid it off early (the plan) we would have enough equity to refinance at that point. 

@Natalie Kolodij what the one lender who I dug into it further with said, quoting from the "Fannie & Freddie Guidelines" is "to use the LESSER figure from either Box #2 or Box #19.

She "did not see a way to add the depreciation back in from the LLC :-(

Dan Dietz

My understanding is that you can only put what is earned in the "self employed" business. I am sure that some of the Pros will chime in too.

What you CAN do however is 'roll' unlimited amounts over into your SOLO401K. So if you have say 100K in a regular IRA and 200K from an old 401K, ALL of that can be rolled in, OTHER than those funds held in a ROTH for some obscure reason.

Hello All,

I am working on refinancing my own primary residence and owning my rentals in a multi-member LLC seems to be affecting my ability to "add back" the depreciation that this can normally be a done with when held personally. 3 lenders have told me this.

I wondered if good lender like @Chris Mason or one of the tax pros out there could comment on if this is a Federal rule or a bank "overlay".

I am trying to get a 30 years fixed Fannie or Freddie loan. We even went over my Form 1065 K-1 box by box. My 1/3 show a -$805 loss in box #2, and also shows a +$4200 in box #19 (distributions).

Am I just out of luck here?  I have a second partnership with about the same figures too.

Thanks, Dan Dietz

@Henry Li, one thing to keep in mind is that you ALREADY are paying that 40%ish on you w-2 Income, you just are not 'feeling it'. What I mean is that about half of that "Self Employment Tax" is ALREADY being deducted from your W-2 check, and the other half your Employer is paying, instead of paying to you to then in turn pay in.

That is one of the 'evils' of being self employed..... you really feel it when you send in that 15% monthly, quarterly or yearly.

In my case, my SE tax is much larger than my Federal Income Tax due to being in a much lower tax bracket, so I do EVERY thing I can to reduce my 'taxable income' that I can. Max out my employer portions of SOLO401K, make sure I use ALL the right offs I can etc..... 

@Ralphie Hernandez, I have a Private Money Partner that I am going to be doing a few deals with over the next couple of years who also is unable to us the 'curent tax lose benefit' of real estate. He is looking much more at the long term benefits of loan paydown and appreciation.

In regards to having to us the loses in a 'deferred' manner he thinks of it this way; "It is like deferred compensation". Meaning that the tax deferment, lets say 100K over the years, will kick in when we sell some day to offset his capital gains half of his capital gains of say 200K (at least that is my understanding of it). So so that might save him 20-30K in taxes.

You have been getting some great advice here. There is a difference between having some tax free income, and actually reducing your *other* taxes due from W2s, K1s etc....

Meaning this..... say you buy a few rentals and your income is 100K. Deduct interest of 60K, PM of 10K, repairs of 10K, and you are left with 20K of "current cash flow". Now come in the depreciation (a non cash 'cost').... lets call that 40K, so you are sitting at -20K from a tax perspective. *This* is where "not being able to use real estate 'loses' " comes in.

You get to keep that 20K of current cash flow, and use *half* of the depreciation to bring your taxable income down to 0K, but you *dont* get to take the *other* 20K and count a 'lose' against your *other* income. My understanding is that this "suspended lose" *can* be 'carried forward' and used against future passive income or else when you sell to help offset capital gains. So not a total lose at all, just a postponing.

This is just my understanding of how my tax guy explains it to me, I am *not* a tax pro, at ALL ;-)

From my experience the basically the only two things that don't count as Parental Assets are most retirement accounts and cash value life insurance.

My wife had receive a sizeable inheritance right when our kids were getting to that age. I have an older Universal Life Policy that we dumped most of that into. There are different rules for most plans now a days. If was able to pay the premiums internally and earn 4-5% on top of that. I think that *maybe* annuities fall under that rule too. 

If you are self employed, even part time, you can open a SOLO401K which has pretty high contribution limits and you could do some of your real estate that way.

One other thing to keep in mind is that it is the "net" value of your investment properties that counts. Meaning if it is worth 100K, and you own 80K, your net value it 20K.

A new book that just came out is Debt Free Degree that is avaialble on the Dave Ramsey website that I have been hearing great things about.

We do what @Abel Sanchez said in our SOLO401Ks that were rolled over from regular 401Ks and IRAs. The one catch is that you typically have to have 40% down. Other than that, it is a great option.