All Forum Posts by: Daniel Dietz

@Eric Swint in ours so far there is no 'interest' payment on the Partnerships ones we have done. What the 'capital contributor' (Private Money Partner) gets in exchange for putting in those funds is 50% of the cash flow, loan paydown and appreciation. This is estimated to be a 9-12% return on those funds yearly. We also make that same amount for the 'work' we put it.

If we don't make it 'perform' our returns go down the exact same amount, so it gives us a lot of incentive to make things work. The upside is similar.... if we make them an extra 1% we get the same.

On a couple of our other deals we used Private Money LENDERS. The difference being that ALL they got was a set interest rate, which happens to be 5% on the two current ones we are still paying on.

To me it seems easier to be one or the other, instead of coming up with something like "I'll pay 3% interest plus 25% of the profits" or something similar. 

@Aaron Marx I would suggest you look up the Podcast or Blogs by @Amanda Han & @Brandon Hall. I am pretty sure they both cover that in the Podcast(s) they have done.

IF I remember right and tieing in with what @Michael Plaks says above I would think it has a lot to do with how you plan it. It is also good that you have bought far from home and have the means to do a deal also.

If I had an employee I was sending to find properties and he was going to spend three days doing that and three days bumming I would expect to pay for his airfare, half the hotels, a rental car and food on the days he was conducting business. 

As we were adding to our rentals expanded when we eventually started to run out of capital for down payments we became more aware of using 'Private Money' in some way.... either as loans or equity partners.

It took a while to fully understand how things could work, but I did a ton of studying up on it. I probably 'over thought it' like I do most things ;-). I made a list of all of the potential people I could  think of that *might* be able to fit that. One thing to keep in mind is that this could be with 'cash' or 'retirement funds' (we already were investing with out own retirement funds so were familiar with this).

My thought as I made this list was "who might have 50K or more to invest" and also had a personality I would want to be tied to for a decade or more. People who had good paying jobs, recently switched jobs and had 401Ks to roll over, sold businesses or farms recently, etc....

I 'cast a wide net' at first. I had names of some family, friends, people who have been customers of my construction company where we do a lot of work on higher end homes and vacation homes, people I was in civic clubs with and the like. I ended up with a list of about 50 people and 'ranked them' including who I thought would 1) Have the funds 2) who would be likely to be interested 3) who I would like to be involved with for a decade or more. Out of my list of 50 I had 6-7 'ranked 5' - meaning very good. I asked the top 4 and 2 are invested and one is waiting for me to find a good deal to do together.

I also like @Brandon Turner's advice of telling EVERYone what you do. My 'elevator speech' goes something like "We and our partners invest in and provide high quality rentals in the Sauk County area as long term investments". If people ask anymore or show an interest we simply say "If you know anyone that might be interested in this opportunity please pass on our name".

Our first partners was a friend and someone that I 'talked investments with' on a regular basis and I knew he had a large protfolio and a good chunk invested in CDs with low returns. I approached him about lending on a flip I was doing to make a better return. It worked great for both of us - 5% interest only with a ballon at 2 years.

The next year we did a 'HELOC' with him on a house we owned outright in our SOLO401K at about 70% LTV to use as a down payment on a 4 plex that we now own in the SOLO401K also. All of the cash flow from both properties goes to paying that loan back in 5 years @ 5%.

Our first two private money Partners (opposed to lenders) we know in similar ways. Have known each other for a long time, great rapport, etc... and they heard what we were doing over a couple of years. They both are higher income people with either large saving or retirement accounts that they were looking to diversify. I also have one guy from my local REI group that is strongly interested in partnering (he is getting older and wants to reduce his work load but still stay invested) and a couple others that are interested in maybe using their IRAs to do so.

For these ones I came up with a 4-5 page explanation of how the partnership would work, how their investment would be secured, how funds would be split at any given time etc... Once we agreed to partner we formed and LLC for each one.

I think for a lot of people who don't think they know people like that you might be surprised. One good source could be people with old 401Ks from previous jobs that have not yet been rolled over. Local REI or Investment Clubs can also be a good source.

@Eric Swint in our market we anticipate around year 10 that there will be enough equity built up that we can refinance and pay them back their original capital contribution and split returns too.

Also, if it has not quite done that but say we did this 3 times, we could sell one and use that equity plus the equity that has grown in the other two to but out #s 2 & 3. You could also structure it where you bought their shares in the LLC over a few years which would each up your share of the returns though.

Is there a reason the partner would want our of at a certain point 'due to age'? One of our partners is of retirement age and LOVES the idea of being invested with us in real estate. Secure, not as variable as stocks, and if we hold until there were to pass on some day the equity growth 'steps up in basis' (meaning no depreciation recapture of capital gains taxes to their heirs). Unless they needed the income from cashing out their equity I think it is a GREAT investment for older people.

Here is what we do that *might* work for you guys depending on goals etc.... It sounds like your partner is just providing the down payment with his credit line,correct? If so, read on :-)

Set up LLC with both of you 50-50 partners.

He as the 'Silent Partner' (we call it Private Money Partner) brings ALL of the down payment which is counted as a 'Capital Contribution' from him, and you BOTH sign the LLC loan docs as 100% liable (personal guarantee).

You as the "Working Partner" find the deals, arrange financing, manage rehab if needed, find and place tenants and do all ongoing property management and business management.

Split cash flow monthly, quarterly, or yearly, and then all equity growth (loan paydown and appreciation) eventually gets split 50-05, *after* his original Capital Contribution gets paid back.

This has been working great so far for us, and we have people waiting for us to find more deals so we can do more deals this way. Seems to be a win - win. We each make a 10-15% return over a 10 year hold.

@Account Closed might be able to give us an answer?

I would LOVE a feature where we could search by at least the "Report Title" for something like house #, or a title like Oak Street Duplex.

I feel your pain @Account Closed, I have a couple hundred of them saved and have to search through page after page at times. A search like in the Podcasts would be great.

One things I have used when I pull up an older one  that I know I will want again soon is to go to 'other actions' and 'make a copy' and that will allow you to do a new name such as Oak Street Duplex 11-19-19 or whatever you choose. That new one will then be on your first page, I think.

Not sure how many properties you are at, but we use Rentec Direct and love it so far. The past year we just used it for property management and tenant info, but are getting ready to do our accounting with it next year too.

We leave the depreciation part up to our accountant, but I know that it has that ability if you want to use it too. I like it because it gives us "all in one" ease of use.

@Sasha D. we had very good service from Mark Kohler's firm KKOS Lawyers. It is a specialty of theirs. Ours is a 3 member LLC with all 3 being self directed accounts.

We talked to our local guy who did our LLCs that are *not* retirement accounts and when he read up on it he had no interest and said we need to find a specialist. There are a lot of little details that need to be covered to do it right with all the nuances of it.

If you google Mark's name and IRA he has a TON of good videos on the subject, along with a lot of other real estate entity related info.

Dan Dietz

@Account Closed I think it is completely possible to convert it, but I'll let the Pros clarity that. We are looking into that right now too.

I dont know if you hold any real estate outside of your retirement accounts but what we are looking into is doing accelerated depreciation on some cash held proprieties that will create large tax loses of about 25K per partner and then converting part of our SOLO401Ks the same year.

The thinking being if we each had a 25K tax bill from converting to ROTH but *also* a 25K loss from doing the Cost Segregation Study we essentially wipe out the tax due that year.

I would also recommend getting the book called Keep It! It is all about tax stratagies with retirement accounts and WELL worth the money. 

@Sasha D. are you looking specifically for someone to do Multi-member LLCs where the shareholders are SDIRAs or SOLO401Ks?