All Forum Posts by: Daniel Dietz

@Cole McKeon, 

The general idea is this..... for simple math, say he puts down 20K on a 100K property. We split cash flow as we go. After 10 years between loan pay-down of 20K and appreciation of say 30K we have 'grown the equity by 50K that we will split 50-50. 

IF he wants out, I can now go and refinance for 80% LTV or 105K. Out of that I would have to pay off the remaining 60K loan, repay the private money partner the original 20K he put down, and pay him his half of the equity growth for 25K. We also both collected about 10-15K of cash flow along the way.

So IF that happens, I dont get any 'cash out' of the deal, but I do then have a property that I have *none* of my own cash in and 25K of equity. I now get 100% of cash flow and equity growth. 

The reason the partner might want out could be to have cash to live on, to use for kids college, to start a business, etc......

As to it being a headache, I have not experienced that so far. It might have to do with who a person partners with too. Keep in mind that one private investor might want to do many units, not just one property. It is set up as the *only8 things they HAVE to do is provide funding for the down payments. What *we* do is EVERYTHING else. We then do quarterly reports to go over how things are going. It definetly helps when there is a HUGE level of trust there too. Having a good accounting system helps a lot too. 

The people I am working with are all friends, family, etc..... people who know me and have seen the success we are having. They also are doing this with 'extra' money..... retirement funds, investment funds, sell a business and have cash to invest etc.... The point being these are not funds that they need to pay the bills. It is a long term investment the way a mutual fund might be. 

Dan Dietz

@Ryan Baker, 

What we do is have our Private Money PARTNER put up the 20% down and a bit for reserves to start off. We both sign the loan for the other 80%. We do ALL of the finding, paperwork, managing etc.... 

We split cash flow 50-50, and will split all the equity growth, both loan paydown and appreciation, 50-50 as well. 

By the 7-10 year mark there will be enough equity built up that we could 'cash him out', or he might want to just stay in it for the long haul with us. We are looking to hold these at least 20 years if not for life. 

Not sure if that is what you had in mind, but it works for us. 

Dan Dietz

@Basit Siddiqi or others 'in the know', 

Say for my regular taxable income (before cap gains or recapture taxes)  I am 10K below the threshold that takes me from 12% to 22%. 

I now have 20K of long term cap gains and 20K of depreciation recapture. I assume that 30K of that which 'goes over the bracket threshold' around 72K is going to be taxed in the 22% rate and change from 0% to 15% for capital gains?

Thanks, Dan Dietz

We are using Rentec Direct so far for tenant management and loving it. We have 25 units. We are just now setting up the accounting portion and it looks like it will work very well for what our accountant needs. We are actually 'going backwards' so to speak from Sage Accounting that we use for our 'day job' business, but it NOT set up for tenant management and is hard for 3 of us to access, whereas Rentec is not. It also simplifies the 6 different entities we use and makes it almost seamless. 

They have a webinar coming up I think this Wed around noon on the accounting portion of thier software if you are interested. 

Dan Dietz

I just wanted to chime in that 'gifts about 15K are subject to Gift Tax'. To my knowledge, that is NOT accurate. From my experience, the amount ABOVE 15K is RE-PORTABLE as Gift Tax, but it is only for 'tacking purposes' in regards to the Lift Time Exclusion that is now in the area of about 10 million per person. 

In the example that I am familiar with, it was a 50K gift, that 15K is exempt from reporting, and then the remaining 35K is reports and comes off of the 10M exclusion. So now there is only 9,965,000 left of gifting room on the Life Time limit :-)

Dan Dietz

One thing to consider too is in very rough terms you could do 4 units at 25% or 5 units at 20% so to speak. So if you look at the TOTAL returns comparing it that way, it would give you a view of how the equity would perform over time. 

Dan Dietz

@Edmund Fontana I assume so professionals will chime in here too, but this is my understanding.

I just got done with my taxes so I will use the percents that I am familiar with in my market.

Say you invest 100K into 500K of rentals. You make 8K of cash flow after all expenses other than depreciation. You now apply depreciation of say 12K, which gives you a -4K 'tax loss'. 

With your income you cannot apply that -4K THIS year as your income is too high. BUT I *think* you can still take the depreciation down to $0, so even though you had a POSITIVE cash flow of 8K (8%) you pay NO current income taxes on that. I also *think* that you get to 'accumulate' those losses as 'suspended losses' that you can use some day. I just read a post the other day of a couple where one was going to do a year of voluntary layoff so that their income would be low enough to use up those suspended losses. 

You also need to consider your loan pay down, an additional 8%, and say very modest appreciation of say 2% which equals 10% ROI. That is a total of WELL over 20% even WITHOUT the 'tax benefits' that you are deferring.

Hope that makes sense, Dan Dietz

@Taylor L. I have thought of a similar scenario myself as far as 'taking ROTH contributions out' to invest outside of an IRA, although NOT in a syndication. I am guessing that the syndication can get the same amount of leverage whether no matter which was you invest, cash or IRA?

My own thought, and I have brought this up here before and been probably rightly 'shot down' as far as it being a good idea is this;

Say I have 60K in a Self Directed ROTH that I can leverage and use as 40% down on a 150K duplex. Yes, that income would be tax free. Now IF I took out that 60K which is ALL basis and used a commercial loan I could put 20% down and buy TWO 150K duplexes that bring in TWICE the income. That income would likely be tax free for about the first 10-12 years when depreciation is figured in. 

Say if in the first case I made 10K a year tax free, or in the second case I made 20K per year and had it taxed at say 25%, I would STILL have 15% or a 50% better return. 

What am I missing here? I does not seem like anything, but looking for ideas. 

Dan Dietz

@Dave Foster & @Nicholas Aiola thanks for the feedback so far. 

I miss-spoke when I said "AGI", I should have said 'taxable income'. The seller is actually a family member, and we are going to be talking to my tax guy in the next few weeks to get his opinion too. 

It always makes it more interesting when there is not 'clear rules' :-)

Thanks, Dan Dietz

@Dave Foster can you help me out here? I think these folks will be giving you a call in the not too distant future :-)

Dan Dietz