All Forum Posts by: Daniel Dietz

@Raymond Brown in my state it is fairly cheap to form an LLC, about $800 or so. It does a great job of spelling out SO many things in detail; voting rights, buyouts, accounting details etc...

The other thing I like, being that our partnerships are 'long term', is that it is well defined how each member can sell 'shares'. This allows partial buyouts and the like. 

There is also the added liability protections that come with an LLC, especially a multimedia LLC (there is some questions if single member LLCs offer viability protection, especially if you don't do a good job keeping LLC things separated from personal things)

Hope that helps, 

Dan Dietz

Jumping back to 'the tax benefits' of real estate investing, one big one for self employed can be savings on the SE taxes, if I understand my tax guy correctly. 

Let's say I have 60K in taxable self employment income (K-1 in my case). My SE taxes would be roughly 9K on that. Now bring in the real estate income. After expenses other than depreciation, let's say that figure is 10K. But, I have 30K of depreciation, so now that income *shows* -20K, even though there was a positive cash flow of about 1K per month. 

So now we have 60K of K1 income -20K of 'rental loses' = 40K of taxable income. I just saved 3K of SE taxes. 

Dan Dietz

We just made an offer today and got it accepted on a 4 plex for 265K. 

The 'private money partner' (no work or management what-so-ever) is brining ALL the down of 60K, and we will do ALL of the finding of properties, purcashe, finance, manage, etc..... We are forming a new LLC (our lawyer advises to do a new one with each private lender if we do this more than once) where we will be 50% owner, and the private lender will be 50% owner.

We are all more interested in the long term equity build as much or more than the monthly cash flow. We will split up any 'cash flow' once a year. In the end, or if we want to do a refinace earlier, the private money partner will FIRST get their 60K back, and THEN all proceeds are 50-50. 

From our exisitng properties (we have 25 units before this) it looks like we should EACH be able to make about a 10-15% return on the initial equity. 

He is getting a great, relatively safe return that is much more stable than the stock market, and we get to make a great return with no cash out of pocket, and just using or management skills which we have pretty well fine turned. 

A win-win if you ask me :-)

Dan Dietz

I have not had trouble getting conventinal loans being self employed. My situation might be a little different as we have a family business and I am less than 50% owner, and I have many years of income data to back up the stableness of the business. 

There are 3 siblings in my town that blended their construction businesses into one, as their accountant said it would have several benefits, one being with getting loans for houses (They build houses and 'house hack' them by living in them for about 3 years and then selling). 

As to the other benefits of SE, if you make enough there is an option of sheltering some of your income from SE taxes with an S Corp. There are many item you can 'write off' as small business expeneses (Get the book here on BP about taxes, it is GREAT). You can potentially pay for things like health insurance, medical bills, and the like pre tax. And a big one is you can potentially set up a SOLO401K for retirement funding that has limits WAY above IRAs.

Dan Dietz

Hello, 

I have read mixed answers to this both here and from other investors, and am hoping some of the more savy lenders or other knowledgable folks can give a more definitive answer. 

It seems clear that if you are just doing 'government loans', meaning Fannie, Freddie similar, that when you get to ten loans that is the limit. 

I have somewhat taken a 'backwards approach' to the common and usually correct advice of doing 10 conventional loans first and then moving to 'commercial loans' as I invest with partners in an LLC and also with retirement funds which require non-recourse loans.

I now want to do some properties either on my own or with just a single partner, and use long fixed rate financing for properties that I plan to keep for the long haul (20+ years, and probably have family inherit some day). 

My questions are;

• Do my current commercial loans through our LLC, that I did sign a personal guarantee, count towards the '10 conventional loan limit'?
• If so, is it 'per loan' or 'per property'? Meaning I have at least one loan that cover two properties.
• Do my current non-recourse loans I have through my SOLO401K count towards the '10 conventional loan limit'. No personal guarantee on these. 

Thanks, Dan Dietz

@Chad M. we were able to get ours at 20% down, 5.125% locked for 10 years, and amortized for 25. After the ten years, the rate can go up a max of 1% per year and a max of 6% more (meaning max of 11.125% max over all 25 years.

It took a while to find it :-) Small local regional bank who also happens to have investors on the board. 

Dan Dietz

@Yonah Weiss, thanks for all of your helpful contributions here on BP. 

We are buying a property in about a month, a 4 unit rental. I assume that the Bonus Depreciation would not affect any of those items mentioned that 'we buy with the property', but only new things we change out AFTER the sale is complete?

Thanks, Dan Dietz

We have two deals going right now for buy-n-hold rentals with Private Money - Silent Partners. They will bring the down payment of 20-25%, and we will do all of the finding, acquisition, rehab if needed. placing tenants and all ongoing property management. We will split both cash flow and equity growth 50-50, and they will get their capital returned either when/if we refinance, one of us buys the other out down the road (we are all planning at least a 10 year hold, barring any unforeseen things  popping up) or the eventual sale of the properties upon retirement. 

One of the reasons we can ask for 50% even though we have no 'cash in the deal' (all though we do have probably in excess of 500K of our own funds into our existing properties, and they know that) is that we do already have 25 units which we have had great success with, and the Investors see that. We run less than 2% vacancy, have a waiting list of renters, and a great team of lenders, handyman, and other services lined up. 

I agree with John above that many Private Money people invest in the person/company as much or more than the specific deal, once you have established your reputation. 

The long term (10 years +) splits for each of us should be in the 8-15% range, a win-win if you ask me :-)

Dan Dietz

@Maugno M. I am coming at this from being a partner in 25 units and having a pretty good grasp on the general concept of taxes on the rental side (I dont do flips). We also use an accountant who HIMSELF has had up to about 50 rentals at one point before he started downsizing. 

To me, it sounds like for what ever reason , your existing guy is not either understanding what you are doing or giving you bad advice. The pros here are spot on to what my accountant says. The debate about at what level of income the flipping LLC should go s corp could be debated a bit. I can't imagine why he would have EITHER in a C Corp from what I know.

I would HIGHLY recommend getting another opinion(s) from someone that you are SURE has experience with smaller real estate things like you or I do. I *think* Linda, and probably some of the other professionals on here, do things 'remotely' AND they have the experience that can serve what you need. If I didn't have a local guy that 'gets it' I would use a remote person in a heartbeat if that is what it took to get things right. 

Dan Dietz

Am I correct in understanding that even if I have been using 'commercial' or 'portfolio' loans that my local Credit Union keeps 'in house', that each of THOSE counts towards the '10 property limit'? Is *sounds* that way to me from what I am reading here and on another tread. 

IF that is true is it 'properties' or 'loans'? Meaning if I had one portfolio loan that covered 4 duplexes, does that count as 1 or 4 loans? 

I assume that Non-recourse loans to SDIRAs or  SOLO401Ks would not count in this total, as they are their own 'entity'? Would a Non-recourse loan to an individual count in that limit?

Thanks, Dan Dietz