All Forum Posts by: Daniel Dietz

@Scott Jensen the current deal I am looking at is a group of 10-12 units that the owner only want's to sell with Seller Financing. We are early in the process, but it sounds like his main goals are to cover his 'recapture tax' with the down payment and have a passive income steam into the future.

From the info I have gathered so far, I think 10-20% down on the various properties would cover that. One of his concerns selling that way is 'finding someone qualified'..... We have know each other for 20 years on a casual business basis as we are both in the local housing industry with excellent reputations and we also have a history of 30 current rentals (with 11 of them being inside of self directed plans) with a great track record in regards to how we take care of our properties and tenants. He did not seem to mind the idea of a non-recourse loan.

Dan Dietz

Thanks for the answers guys. @Brian Eastman I kind of wondered about being a bit to aggressive :-) That why I was hoping to hear from 'real world' people who are providers like you or even members who might have used this personally to get their input.

@Dmitriy Fomichenko I have not contacted either of them yet, but will be contacting Mat's office to get feedback as they are the ones who set up our LLCs for our SOLOs and SDIRAs. You were on my list to contact too since you are my provider, but good to know that IF people are doing it, that it is so rare from the sounds of it.

If any of you could confirm the *general idea* that if I were to buy a property with my Traditional for say 100K with 10K down (10%) that if I were to convert that to ROTH that I would only owe tax on the 10K of equity (which to my understanding it the same as FMV for leverage properties in rough terms) and not the other 90K of the loan? IF that is correct, it seems that I would want to do that earlier on before the equity builds up with all else being equal.

Thanks, Dan Dietz

@Brian Eastman

Any thoughts from the Pros in this arena? @Dmitriy Fomichenko @Brian Eastman @Carl Fischer @George Blower

(cross posted in SDRIA Forum also)

Hello All,

We have been investing with both SRIRAs and SOLO 401Ks for quite a few years now and are looking to do more, and have a few potential deals in the pipeline. I have read up on the concept/method of also using "Adjusted Valuations" when converting Traditionals to ROTHs,  and am very intrigued. Seems too good to be true, but there seems to be a lot of supporting evidence that it can work too. I first read about it in this book https://www.amazon.com/Keep-Ad... which seems to have a lot of 'case references in it.

For those not familiar with the concept the general idea is that you would have a specialized appraiser appraise your investment, which could be say a rental house, or in our case shares of an LLC that owns rental houses, and come up with a 'reduced valuation' due to ill-liquidity being real estate (vs say cash, stocks etc...) or 'minority control' in the case of an LLC (ours are 33% each). The examples in the book and elsewhere seem to vary from 15% to 35%.

An example of the concept would be your 3 way SDIRA LLC buys a rental for say 300K with 60k down and the balance of 240K on a non-recourse land contract with the seller. You then have in appraised with a 'reduced valuation of say 20% on each share being worth only 80K instead of 100K due to those shares not having majority (decision making) rights. Since each share is worth 80K but also has 80K in debt, the 'book value' is essentially $0.  So now you convert over from Traditional to ROTH and since the value is $0 you pay no 'roll over taxes'. Obviously this would be more advantageous in a 'leveraged account'

My questions for any of the experts or others out there who have used this method are;

1) Have you had clients that do this (or yourself) and does it work as straight forward as it sounds?

2) Is there any advantage to doing it in a SDIRA vs SOLO401K all other things being equal?

3) I assume there is no such things as a 'negative value' that a person could use as a tax deduction?

4) Is there any DIS-advantage to doing this strategy in general?

Thanks, Dan Dietz

@Paul Winka to clarify what I meant is this;

I have a SOLO401K that I can stick a LOT into if I want to, but most of what is in there was rolled over from IRAs. Say I have high income this year and end up with 40K to invest. If I just invest it in 'cash' properties I can buy 200K worth @ 20% down. If I stick it into my SOLO401K and buy a property *usually* I would only be able to buy about 100K of property as non recourse loans generally want 40% down. So in essence, you can buy twice as much in cash account compared to retirement account.

Now here is a BIG but :-) IF you can find a way to leverage say at the same 20% inside of a retirement account, AND you dont need the cash flow or equity growth right now (say you are looking at wealth building for retirement) THEN is might make sense to put those funds into a retirement account.

Hard to do, but I am just now starting to explore the purchase of a portfolio of 10 units that the owner ONLY want to sell using seller financing for both spreading out the tax hit and the income stream. He is willing to do a non recourse with minimal down (10-20%). I am leaning HEAVILY towards doing that in my SDIRA and SOLO401K where I WOULD need to make a large contribution, because of the amount of leverage I can apply.

So it is not that I dont like rentals in a retirement account, it is just that *typically* you can get more dollars worth in cash. Depends on goals.

Dan Dietz

@Paul Winka we have not tried any of those other REITs or Crowdfunding and I don't think we will either. Percentage wise we are pretty heavy on real estate in our retirement accounts already, so we prefer to just keep it simple in the stock market. We use TD Ameritrade as that is where we have all of our regular IRA funds so know their site, tools etc... already.

I dont really think of it as any more work. The paperwork is comparable or even less if not leveraged. We so far have only leveraged our SOLO401s, which do not require the same paperwork as SDIRAs due to the lack of UDFI if I am saying that right.

IF you choose to leverage inside of a SDIRA, you also 'gain back' the right to part of the depreciation etc....

The reason we originally started using Retirement Funds is that is where a very large percent of our assets were ALREADY. We can make better returns more safely than in the stock market and you gain the advantage of loan paydown and leverage if you want to.... a win, win, win all the way around.

IF I had 'cash' to deploy I dont think I would put it INTO a self directed in most cases, but when it is already there it seems to make sense.

Dan Dietz

Hello All, 
We have been investing with both SRIRAs and SOLO 401Ks for quite a few years now and are looking to do more, and have a few potential deals in the pipeline. I have read up on the concept/method of also using "Adjusted Valuations" when converting Traditionals to ROTHs, and am very intrigued. Seems too good to be true, but there seems to be a lot of supporting evidence that it can work too. I first read about it in this book https://www.amazon.com/Keep-Ad... which seems to have a lot of 'case references in it.

For those not familiar with the concept the general idea is that you would have a specialized appraiser appraise your investment, which could be say a rental house, or in our case shares of an LLC that owns rental houses, and come up with a 'reduced valuation' due to ill-liquidity being real estate (vs say cash, stocks etc...) or 'minority control' in the case of an LLC (ours are 33% each). The examples in the book and elsewhere seem to vary from 15% to 35%.

An example of the concept would be your 3 way SDIRA LLC buys a rental for say 300K with 60k down and the balance of 240K on a non-recourse land contract with the seller. You then have in appraised with a 'reduced valuation of say 20% on each share being worth only 80K instead of 100K due to those shares not having majority (decision making) rights. Since each share is worth 80K but also has 80K in debt, the 'book value' is essentially $0. So now you convert over from Traditional to ROTH and since the value is $0 you pay no 'roll over taxes'.

Obviously this would be more advantageous in a 'leveraged accout'

My questions for any of the experts or others out there who have used this method are;

1) Have you had clients that do this (or yourself) and does it work as straight forward as it sounds?

2) Is there any advantage to doing it in a SDIRA vs SOLO401K all other things being equal?

3) I assume there is no such things as a 'negative value' that a person could use as a tax deduction?

4) Is there any DIS-advantage to doing this strategy in general?

Thanks, Dan Dietz

 

@Paul Winka my 3 partners and I all have SDIRAs that are invested in an LLC 'with checkbook control'. In that setup, it is VERY easy to set up an account at a brokerage such as Fidelity etc... and park the money there until needed. Wu just use simple index funds to spread the risk out. We can have cash in just a day or two if needed.

Dan Dietz

I was doing some googling on this topic and low and behold here I am back at bigger pockets again :-)

I have been reviewing a couple of books I have on investing with retirement funds and still am not clear on something.

Say I have a partner who wants to use their SDIRA or SOLO401 to invest along side of me. Their retirement account will bring the down payment of 10-25% depending on the deal and be 'completely passive'. I will do all the finding, buying, and ongoing PM. We, meaning me and their self directed account,will both sign on the loan with the retirement account NOT having 'recourse' and I may or may not need to sign a personal guarantee depending on the deal.

The thought would be to split everything 50-50, cash flow and equity growth. I am currently doing a regular cash purchase this way. Within the framework of a deal with a self directed account being a partner could it still be structured the same way, since both their retirement account and I are 100% responsible for the loan?

Would love to hear what some of you pros out their think about this!

Thanks, Dan Dietz

@Dave Foster I am reading your comment as 'not MORE than 50%'. I take it that means if you are each an even 50-50% that it works? What I am getting at is if I had a choice of owning with either 2 partners (50-50) or 3 partners (33-33-33) that there is NO advantage to going to the 3 person structure to be 'LESS than 50%'?

My other deal that we were talking about here fell through, but have some good things in the works right now. I'd be going in with a partner on several properties who would want out in 10-15 years, and I would like to be able to buy them out at that time using 1031s of other properties. As things progress I'll be giving you a call.

Thanks for all you contribute here too.

Dan Dietz