All Forum Posts by: Daniel Dietz

My oneother question is that IF it would be better to form a partnership/LLC with Seller 1 either before or after the 1031 exchange, doesn't that in itself constitute a 'sale'?

Meaning this; if Seller One were to transfer his property into a 'new entity' before the 1031 where the value was say 150K for a duplex that is owned free and clear ny him. I come to that same partnership with75K to compensate him for my half so now own it 50-50 and are ready to do a 1031. Didn't he just 'sell me' half of the property in regrads to the 1031 rules?

Thanks, Dan Dietz

@Dave 

@Dave Foster or others, we are getting closer to doing what I call 'a chain reaction' purchase if we can line everything up right, but are still in the 'discussion' stages with the sellers as to how things might work. 

We have 'seller 1' who is interested in selling us 4 duplexes that are all owned free and clear, in the name of him and his wife's revocable living trust. He is interested in reinvesting the proceeds from one of those (150K) into a yet to be formed 'partnership' in a 4-plex that 'seller 2' is selling for 300K. 

The idea is that Seller 1 would provide a down payment, in this case 150K that he sold a duplex for, and either the new partnership or we would borrow the other half of the needed funds. We would do ALL finding, buying, managing etc... and split things 50-50. 

Is there a 'best way' to structure this as far as a joint LLC or possibly use a TIC?

It seems like using a TIC might be the best option with all the rules about 'matching entities' with the selling and buying properties? I would need to talk to our lender who we use to see how that would affect the borrowing side of things.

Thoughts?

Thanks, Dan Dietz

We use Rentec Direct for 25 units, and soon to be 12 more. We like it a lot, but have just scratched the surface I think. The price is very reasonable too. 

@Joe H. are you doing all your own depreciation calculations in Rentec too, or do you leave those up to your CPA? We are just now working on getting the accounting side of things going and setting it up. In the past we have used Sage Accounting which we use for our 'day job' business but are looking to simplify things and make it accessible to all three of us remotely also. Also, is there anything that your CPA says you are 'missing' from using a program like Rentec for your accounting?

Thanks, Dan Dietz

It sounds like you have not had luck with finding what I call 'casual private money investors', meaning friends, co workkers etc.... - people who do NOT do it as a business, but *might* want to take advantage of a good opportunity. 

I would encourage you to listen to every podcast here on BP, starting with the ones that deal wiht private lenders, alternative financing, etc..... 

We ran out of funds at about 25 units (3 of us working together on this) so I made a list of every person I could think of that I was reasonably sure would have at least 30K from cash or retirement funds to invest and had at least some level of familiarity or trust in me and that I thought *might* understand real estate rentals. I came up with a list of about 60, this included friends, neighbors, customers (we are in construction and do a LOT of second or third homes for people) business associates etc.... and 'ranked them' from 1 (hot) to 5 (mostl likely not). Of the first 5 I called 2 have invested, one is interested, one wants to talk in a year or two after he sees how the others go and one is not intersted. 

One other tip I have read a lot here on BP is to go to local REI club meetings and see start relationships with others. We do not have any on our rural area or I would be all over that :-)

Dan Dietz

I let me tax man tax care of this, but I think what you are talking about it 'capital contribution' - the money you 'put in'. We do some of our own work on our units like remodeling labor, lawn mowing etc.... When we take income it is a mix of 'services provided' (labor) which is taxed, and 'withdrawl of capital contributions' (which is not taxed). 

I think you are refering to the second kind of income. I assume that once all of our initial contribution is taken out that then it will all be taxable. 

Dan Dietz

Good conversation going here!

I definetly don't fall into the 'never ending salesman' camp, but I don't 'fly under the radar' either.

I invest with a couple of family members in a smaller town of about 10,000 people. We also have a construction business with a prominently placed showroom, so are ''we known" in town with a great reputation. I guess the point is that people tend to think of us as 'sucsessful'. 

Between my two partners & I, it is me who is 'the promoter' for the most part. I *DO* take every chance I get to tell people what we are doing when the opportunity comes up *naturally* - meaning when they ask how business is going, or mention they saw one of our trucks at a duplex (ours) down the road from them, or I am at an event, party or similar and someone asks what I do for a job, etc..... It also comes up in conversation with our clients frequently. 

As others have mentioned some people are of the 'that's nice' catagory, some want to know how  they can do that too, some want to tell you about horror stories that they have 'heard about' etc....

In my case, in general I just like to talk real estate, but I DO have 2 differnet adgenda's in the long run that I hope to accomplish - finding property owners who might want to sell at some point and be on their radar as a possible/likely buyer of thier units, and to find potential Private Money Investors who would like to partner on future deals. It is often not the person that I am talking to right at that time who is that eventual person, but someone that *they* know..... as in 'my uncle Jim has like 10 duplexes and has been talking about retiring, you should talk to him; :-)

Just last night the fruits of this came to fruition! I have been working on keeping in touch a couple of potential sellers for over a year now. Both older guys ready to retire from the business. One is finally ready to sell his 4 plex (which is right next to one we already own) and the other is ready to sell 4 of his 6 duplexes this year and the others in a couple of years. In our area, almost *NO* quality MF units go to the MLS, so this is about the only way to find them. So last night my partners and I met with a 'silent investor' that is going to bring the down payments, and we will do ALL the work and ongoing PM.

So the moral of the sroty is DO take every 'natural' opportunity (dont force it or brag about it) to talk about it and be ready to act when the opportunity comes up!

Dan Dietz

@Scott Goulet you are getting mostly good advice here. 

What I would like to add is to echo what @Bob Green is saying..... There ARE lenders out there that will do 'portfolio' 'asset based' or commercial loans', what ever you want to call them, on 1 to 4 unit properties. 

We found ours at a local credit union. In my case, I hold properties both in my own name and with 2 partners in an LLC. With the LLC, these types of loans are our only option. Right now I am looking at adding a property in my own name and am debating whether to go commercial or conventional.

Advantages of commercial can be a quicker close, lower down payment, and lower closing costs. Disadvantages are only a 10 year lock in our case, a slightly higher interest rate.

On the deal I am working on right now we can get a rate of 5.125%, 20 percent down (that can come from our Private Money Investor) 25 year amortization with a 10 year lock on the rate and under 2K in closing costs. after year 10, the rate can go up only 1% a year and a max of 6%.

Dan Dietz

If I am understanding your questions correctly, you WOULD ben paying for 'maintainence' from 'rent proceeds' as ALL rents must flow back INTO the SDIRA account and will be there to pay for the maintainence. 

To me, it really seems no different than  holding rentals in a regular cash method, other than you should have even MORE reserves to pay for maintainence since you can not take any posative cash flow. 

Dan Dietz

@Scott Weaner I agree with the Rentec Direct recommendation. We are just starting to use it this year, but still do our accounting on a different system that we use in our day job business. 

Do you do all your accounting through Rentec too, to the point that is all you need to take to the Tax Man at the end of the year? 

It has been working great for day to day, work orders, communicating  with renters etc.... The mobile  ability is great too. We have 25 units, working on buying 12 more right now, and 3 owners along with a maintenance guy and very part time secretary who can all get too whatever info we need at any time.

Dan Dietz

Hello All, 

We are working on setting up a new LLC/Partnership for buy-n-hold rental investing that will have two members. In the past our other LLCs have had 3 members, so 'tie votes' were always a simple majortiy .... nice and simple :-).

One member will be the Private Investor that brings all the down payment, and the other member will be our existing 3 member LLC that will do all aquisition, management etc.... Things will be split 50-50. Our goal/plan is for at least a 10 year hold, partially because that is how long our loan rate is locked for and long enough to build some equity.

What I am wondering is what you all have used, seen, thought of for 'early out' ideas, clauses, etc.... As in what if one of use wants to get out 'early' for whatever reason. The simple solution is if the other memeber can refiance on thier own to simply do a buy out at that point. But what if due to a declining market, rising interest rates etc... that is not feasable? 

Our exsiting 3 way LLC has a great track record, and our Private Investor does not see any need for these funds before that, BUT it is always good to be prepareed for the 'what ifs' I think.

Thanks, Dan Dietz