All Forum Posts by: Daniel Dietz

@Thomas Kwan we are working on something similar. Our situation is that we have someone that is willing to use their SDIRA and SOLO401K (on two different deals so thier SD funds would not be getting co-mingled on the same deal) for the 20-25% down payment, and then the joint LLC that we would form between their SD Account and our regular LLC would get a commercial loan from the same lender our LLC used for all of it's loans. This is a small local bank that lends just in the area.

The trick is getting the trick is getting the bank to be OK with only the members of our existing LLC signing the 'personal guarantee' part, which is where the 'recourse' comes in. Our loan officer is going to take the concept to the next board meeting and see how it goes.

With that said, we have an excellent history and reputation with this lender already, and our loan officer feels we are always on the conservative side with our numbers also.

Dan Dietz

We are using Rentec Direct and really like it so far. We have 30 units across 4 entities so use the PM version, and only ran one of the entities in the accounting portion of it last year, but plan to do all next year (We use Sage Accounting  from our 'day job' business for the others right now, but it is WAY overkill I feel). The only downside is that is does not do 'balance sheet' type stuff, but we use an accountant who  takes care of all that anyways.

@Account Closed could you share how many units you have, what Rentec is NOT doing for you that you want it too, and what you think Rent Manager will do for you that Rentec won't?

Thanks, Dan Dietz

@Chris Mason is spot on here.

I wanted to add that where he is talking about 'cash flow only loans' there *might* be exceptions in your area. I think you are in a similar area to me in WI, not in a larger competitive city where stuff screams off the shelves.

We found a regional lender in our area where they do BOTH the 30 year fixed stuff AND 'Commercial Blanket Portfolio Loans' for loans down to about 50K. We can keep them separate per property or 'blanket' then to cover a set of properties.

They are 20% down, about 5.25%, 10 year lock with 25 year amortization. DSCR has to be 1.1 or better, we like to personally stick to 1.2 or better.

One advantage of the 'blanket' way is in using your equity. An example is the last set of 3 duplexes we bought for about 500K we needed 100K down (20%) and a 400K loan. The appraisals came in at about 540K so they would loan us 430K or 80%. We only borrowed 380K so had 50K of 'space left' so set it up as a HELOC on the group in case we run into needing 3 roofs at once of some such thing. Only cost an extra $100 or so for paperwork.

So Chris is right, find the Commercial Loan Officer, and call until you get one.

To clarify we have NOT borrowed that way yet as in our market I have not found deals cheap enough to stick to that 1.1 DSCR.

With that said, talking to both our main lender and our Private Money Partner who is ALSO willing to LOAN if the right deal comes along, the downpayent money would be a Second Position Mortgage/Lien that IS secured by the property.

One thing we HAVE done with our Private Lender is to do First Position "HELOCS" on properties we owned free and clear in our SOLO401Ks at 70% LTV. Just like a bank loan essentially. If we (our SOLO technically) does not pay he can foreclose on the property. We used that loan to put down on a 4 plex we bought in our SOLO401K and borrowed the remainder from a traditional non-recourse lender.

If I was a lender, I would NEVER consider lending without it being secured by the property. 

@Matt Burr, we have done a couple that are similar to this now. One caveat is that we ALSO had properties without a partner bringing on a second for the down payment, so a 'track record' if you will. 

Our commercial lender typically requires 20% down and a DSCR of 1.1 or better. They will allow a partner or seller financed second position IF the OVERALL payment is STILL at that 1.1 DSCR or better.

It is VERY hard to find those deals in our market. So what we have done is brought on a Private Money PARTNER with the down payment of 20%, we provide everything else; finding, rehab management if needed, and ongoing PM and overall management of the assets.

The Partners get NO interest, but instead we split all cash flow and equity growth 50-50. Yes, we give up 50% of a deal, but  we also MAKE 50% of a deal with none of our own cash just by using our management skills.

As the saying goes, 50% of a good deal is better than 100% of no deal :-)

Why hold rental property in an IRA at at all?

It mostly comes down to that is where my assets were/are, and how can
I make the most use of them at the least amount of risk compared to
repair.

Dan Dietz

What you could do is sell your existing property that you are not wanting to repair, and buy a DIFFERENT lower maintenance one with your SDRIA or SOLO401K (if you qualify).

Doing the loans in your SDIRA or SOLO401K is not really that complicated. NASB is one of the top lenders and makes it pretty straight forward. You would need 40%+ down instead of the standard 20%. The good thing about non-recourse is that the property they are on are the ONLY thing the lender can come after if you were to default. We own about 10 of our 30 units in Self Directed Accounts, and are working on adding 8 more through a Seller Financed Non-Recourse Loan.

@Quentin Brown I think you were getting some good advice here. Have you used the BiggerPockets rental calculator? It is a great asset and I would recommend watching Brandon video and how to use it.

We will consider anything below a 1% deal, and prefer around a 1.2% or better deal. I figure a total of 30% of rent to cover repairs, capex, vacancy, and Property Management. Most people do not factor in enough for these items. It could be that the current owners repairs capex have been lower than last few years, but that just means you're closer to needing a new furnace, roof, etc

for each potential deal I run through the calculator I might take it harder look at 1 out of 10, and of those worn out at 10 maybe consider making an offer on two or three.

@Markus Ennis I think you are getting some good advice here, but at the same time I think you need to just sit down with them go over what you are thinking

I don't quite follow your line of thinking where you would pay the whole mortgage out of the income? I am not familiar with mobile home parks we do all 2 to 4 unit homes, but the mortgage it's basically 50% of the income. So what would be left for you?

With that said, what you are proposing is exactly what we have done on our recent partnership deals. But there is a big but to that also, before we did those deals we already had 30 units of our own come almost 700k of our own capital put into them, stellar track record hunt Property Management and performance also. so they knew what they were getting so to speak

One other thing you might not be understanding is that even though the partner wait only have to come with 25% down payment come, there is almost a 100% chance that they will have to sign on the loan for the other 75% along with you. So if the deal goes south they are on the hook for the whole works, you can walk away without losing anything really. We had lost a few potential partners once they realize they would have to sign the loan also.

Could anyone comment on how that would be different if the LLC is a "3 Way LLC" instead and NOT a disregarded entity but the owner is a majority owner with 35% ownership and two partners 32.5% each?

The property is worth say 180K with an 80K loan on it currently. He would like to sell it to the LLC to 1) Access some of his equity (he would use some of that equity towards his share of the LLCs down payment) and 2) Reduce his workload as the sole owner because the other two partners in the LLC would then take over certain parts of the responsibilities.

Is there a way to reduce or minimize his tax burden on this scenario?

Thanks, Dan Dietz