All Forum Posts by: Daniel Dietz

@Sal M. as far as investing outside of your immediate area, I agree that it is definitely more complex as far as finding capable Property Managers etc.... There was a recent podcast that covered this GREAT. I think the name of the guest was David Greene if I remember right. I believe BP has a book on the subject too - I have not read it yet, but have read ALL the other ones available here and think they are all great, easy reads. I think the Podcast was within the last 6 months if you want to search for it. 

One other way to invest outside of your current area to get better returns is to find a partner in the area you want to invest in. Again, not always easy but it is possible. Right now I am working on a plan to do just that with others I know who like you have the assets/equity but no time or down want the day to day headache where I would do all the finding, acquisition, rehab if needed and ongoing tenant management. 

Dan Dietz

Someone else mentioned the relatively low 'rent to price ratio'. With your 600K in equity you could buy about 2.5M of rentals in the midwest that would bring in about 25K per month of 300K per year. That is not for 'fixer uppers'. That is 10-20 year old duplex and fourplex that are relativley low maintenance. Plus you would have approximately 100K per year of loan paydown and appreciation. 

Are you sure  that your potentially higher appreciation in your market outweighs the relatively low rent?

Just food for thought.

Dan Dietz

@Dave Foster are TICs or DST something that 'needs to be set up' by the person doing the 1031? Meaning finding the deals/investments, or is there a 'plentiful supply' of investing options that are looking for investors similar to REITs? I guess what I am wondering is how simple it is for the investor?

The other thing I wondered is it allowed for the selling party to 1031 their earning into a different property(s) that the buyer of their existing property had? Meaning I buy say a 8 units from seller A that he still self manages for 500K which is all CG and Recapture for him, and he in turn buys 50% of 6 duplexs I have that are worth 1M. We form an LLC (or TIC if that is better) and I do all arrangement and he gets t still share profits with no active work on his part?

Thanks, Dan Dietz

We use Rentec but are really just starting to scratch the surface on what it can do. It is our goal through 2018 to move all of our accounting over to it also. We only have 26 units but 3 owners are involved and it is great to be able to share all the info too. I would sign up for their newsletter emails or follow them on Facebook where they have almost daily updates of new features or 'how to tips' for different segment of it.

Dan Dietz

I am in a couple of three way partnerships which are LLCs. What we do is keep about 3-4 months of 'reserves', meaning if the rent is 5K per month we keep a balance of 15-20K in the checkbook. We then Quarterly take a look at the balance and if there seems to be an 'excess' we take a distribution. Some quarters we have hardly any unexpected expenses. Others like the last quarter of 2017 we had to reside a duplex that had rotting wood siding, a furnace to replace, and two fridges - that pretty much sucked up with reserves so no 4th quarter distribution. 

As far as 'how' to set things up since there are 3 of us we chose an LLC (which also covered what happens to each of our shares if we die and how the ongoing operation would compensate our heirs if they decided NOT to cash out too). In our case with the LLC, I beleive the Title and Deed are in the LLCs name, and we all three had to sign on the mortgage.

In either this tread or another one here on BP this week it was pointed out that if there are only 2 partners that an LLC should be 49-51% voting rights in case there is an unforeseeable issue to agree on. Profits can still be split 50-50.

Dan Dietz

@Michael Plaks I'd be interested to hear your thoughts on what would be a better structure than a traditional LLC for partnering on buy and hold properties.

Our plan at this point would be for my partner to bring the 20-25% down payment from either cash funds or a SDIRA, I would do all acquisition, rehab and PM after we get it rented. We would be looking at at least a 10 year hold period. 

Our thought had been to do an LLC with 50-50 ownership. I do have an existing relationship with a commercial portfolio lender who is comfortable loaning to LLC in this fashion, and I assume would be open to other structures too.

Thanks, Dan Dietz

@Christian Nachtrieb I have a real world example of using a different property as the 'secured collateral' in getting a loan for a down payment. 

We were purchasing a package of 3 duplexes and needed to come up with about 100K for the down payment on a commercial portfolio loan of 350K. We only had about 50K 'cash on hand' to put towards this. Put we ALSO had a paid off SFH that we already owned that was worth about 100K. I went to our Private Lender and had them do a First Position Lien on that paid off home for the extra 50K we needed. The Private Lender was happy as he had a very secure loan.

One thing to be aware of is that the property you are borrowing this down payment for must be able to cover BOTH payments. Or in our case, we pay are paying off the 50K that we borrowed from the cash flow of the SFH that it was borrowed against and should have it paid back in 5 years. Just make sure you know where that extra payment is going to come from.

Dan Dietz

I would say 1) When setting up a partnership for buy-n-holds where one partner brings the down payment funds and one does all the 'work' and they are forming a 50-50 partnership, are there details of how to set that up to minimize taxes, particularly for down the road when selling? 2) What are the tax benefits to selling using "owner financing" or similar for the seller, and what do they need to be aware of such as depreciation recapture being due (?) at time of sale 3) What to be aware of when buying or selling shares of multimember LLCs that own real property.

Sounds like a great show!

Dan Dietz

@Logan Allec & @Dave Foster thanks for the input! That gives me a good feel for how it all works. 

As a summary, what I am hearing you guys say is that; 

1) typically when a property is transferred from an LLC in your personal name, that is not *typically* a "taxable event" and it also would not 'reset' depreciation since it still has the same "physical owner". 2) IF you are going to do this *before* a 1031, ideally it should be two or more years ahead of time.

So if I am understanding right, if the 3 of us in the LLC were to sell say 600K of property and invest in a new property(s) for 900K, AFTER the 1031 2 of us could buy out the 3rd partner, which would be a 'taxable event' for that third partner?

Thanks, Dan Dietz

@Ryann Kluthe you are getting some great feedback here. 

I have both SDIRA and SOLO401K. The main reason I have the SDIRA is because I did not yet know about SOLO401Ks when I set it up, and it is a ROTH  SDIRA so it can not be converted over to the SOLO401K. 

I just wanted to point out that there was a discussion here on  BP a year or so ago talking about when a 1031 *might* apply. Basically, IF you were using financing in a SDIRA and UDFI taxes were an issue, at that point normal expenses such as depreciate become deductible expenses to the extent that you are using financing - meaning if you borrowed 50%, that then 50% of depreciation is deductible. 

I *think* that if you sold that property while there was still a loan on it (not paid off yet) that there would be UDFI due on *part* of the capital gains, even though it is held in a retirement account. This is where you could use the 1031 within the retirement account to defer that tax.

This was my understanding of what one of the providers who was active on here at the time was saying. Just food for thought that you should check with an expert on. 

Dan Dietz