All Forum Posts by: Daniel Dietz

@Sam Grooms or @Ben Leybovich,

Thank you both for sharing how these things work with all of us. Quite the inspiration on many levels, from building relationships, building your reputation, how all the different players can benefit for each roll etc....

On a deal similar to this, what is the typical minimum investment you would be looking for from an investor in a round number? as in 50K, 100K or 500K?

 I see that you do not like the idea having 1031's come into the deal which is understandable. What about 'Self Directed' investments, either SDRIA or SOLO401K?

Thanks, Dan Dietz

I think I may have read/understood this a little different than some of you. 

I am thinking of doing something similar with an upcoming duplex I am in the works of purchasing right now. Currently my two partners and I generally use as long of amortization as possible, which varies from 20 years for non-recourse and 25-30 for standard loans. We do NOT pay off early on those as we either take the cash flow or use retained earning in our Retirement Fund owned properties to buy more of the same. We do that with 25 units right now. 

On the upcoming duplex I am thinking/planning on doing it a bit different,and similar to what the original poster is saying, for a few reasons. 

This one I am going to 'own solo', on the others that are co-owned we all three 'vote' on when to refi, reinvest, etc.... My plan is this will be my 'start retirement' property :-) 

I am going to do my standard 25 year amortization loan in case I run into any unexpected things along the way, but use the projected cash flow on this property to apply all of that to paying down the mortgage early. I should have it paid off in 13-15 years.... right when I am going to want to retire. Yes I will be letting the renters, NOT my own cash, pay off 5% money early, but will be buying 'peace of mind' at retirement time. 

When the property is paid off in 15 years, I will have the choice of 1) Enjoy the 'bumped up' cash flow of about $1200 per month 2) Do a 'refinance' or 'cash out' of say 180K on a now 240K property and let the renters ALSO pay that off for me or 3) Sell the property outright for 240K. 

The choice would depend what I need at the time. Do I want to rent a retirement home somewhere and put the $1200 towards that? Or do I want to take the 'cash out' and buy a home somewhere, or maybe a nice motorhome to tour the country in? :-) The original investment in EITHER of these scenarios would STILL be generating equity growth at the same time of roughly 6K per year. 

Lots of ways to look at it!

Dan Dietz

I think there is a forum on here SPECIFICALLY for 1031s. You might want to cross post there too to get more feedback. 

Dan Dietz

We (two partners and I) own 13 of our 25 units in SDIRAs or SOLO401Ks. You are getting some great advice above about the 25K being too little to do a good job of starting. 

What COULD work is to find one or more like minded people who ALSO want to do what you are doing and partner with both of you using SDIRAs or SOLO401Ks. That is how we did our first and every unit since them. We each put in 1/3..... mostly because the concept was new to us, and we had all partnered on 'cash properties' before, so we thought we'd try it out together. 

Dan Dietz

To all you professionals who contribute bits of advice here, thank you for your time!

Question..... say I do a refi on a rental and pull say 400K out. Let's assume I feel that property can handle the extra debt load etc.... I then take that 400K and pay off (or just pay down) 4 separate properties that each had a 100K balance on them. So 'rental to rental' so to speak. 

Obviously the cash flow would go up on the four now paid off units, so that would likely have it's own tax situation change.

Is that 400K that was taken as 'cash out' on the original property still deductable since being used in the rental business?

Thanks, Dan Dietz

I think one of the best 'tax tips' is to just pay attention to 'the little things' that can *maybe* be written off as a business expense instead of paying 'after tax' moneies for it. 

In my case, I am self emplyoed at my 'day job' in addition to my real estate things. So from a tax rate perspective, let's round off to 15% Fed, 5% state and 15% FICA (self employed pay both sides of it). So a total of 35%.

Esentailly what this means is that if you pay for things with 'after tax' money, you need to take home, after taxes, 150% more than if you wrote it off as a business expnese. 

Say a new printer for the home office that is just for work. As a business expense, you pay $300 and write it off. If you think 'ill just put it on my personal card to get points' or the like you now need to earn $450, pay your 35% tax rate and have $300 left over to pay for it. You just wasted $150 or 1/3 of your income!

There are a ton of little things like this that can really add up. To make it simple for book keeping, I HIGHLY recommend setting up a separate checking account with debit or credit card to not have any excuses of 'too hard to keep track of' things. It also make a more clear distinction of personal business  for all sorts of reasons.

Dan Dietz

I would second what the experts abover are saying. My first venture into SDIRA investing I did a joint venture with a dsiqualified person. We used a lawyer that specialize in retirement account investing to make sure to do it 'right'. 

What I didnt know was that 1) We could never use leveraege 2) that we could not add more properties to that same LLC we formed in the future.... a new entity would need to be set up. Even with expert help we did not fully understand it.

We have since disbanded that venture and each found others with SDIRAs or SOLO401Ks that are NOT disqualified people to each of us and partner with them on things.... MUCH simpler! 

Dan Dietz

I HAVE had this work, but it is NOT very common. 

I bought a property that I was going to flip with 100% 'seller carry'. This was a 85K purchase on a place that was worth 140K and when I was done worth about 180K. 6% interest and a balloon in a year. 

I had to come up with the fix up funds myself. I considered taking a HELOC on my primary for the 40K or so needed, but found a Private Lender (remember to tell EVERYONE what you are doing, you never know where you will find what you need!) who would lend it to me in exchange for a second position mortgage.

When I was done with things I actually decided to move into it myself as I came to love the location, and relatively inexpensive housing cost for the area. I simply refinanced it into my primary mortgage. I could have just as easily been refinanced into loan suitable for a rental property. 

The key is finding that person to do the second, or to have the HELOC capacity to go that route.

Dan Dietz

I will second what @Joel Fine is saying above. I too LOVE what is all available here, but have ideas of how things can be even better. I have had no response when sending info and trying to contact someone who could respond. 

Case in point is the Rental Calculator. Great tool, but could be even better if we could export the data into Excel and have date for EVERY year of a hold, and bring a depreciation and tax savings component to it. I would be happy to make that program and share it in the File Place if I could figure out how to get the yearly data.

Thoughts @Brandon Turner @Mindy Jensen @Scott Trench or others 'in the know' out there?

Dan Dietz

@Brian Schmelzlen, would the same 'bad news' apply if properties are held in a 3 way LLC that is taxed as a pass through partnership (K-1)? We have rentals and no flips this year.

Thanks, Dan Dietz