All Forum Posts by: Daniel Dietz

@JC Conchas, I think @Brian Eastman hits the nail on the head. You need to keep in mind that you can still use the rest of the funds on other investments if you use leverage for the first one. Think of it this way - if you borrow at 6% and can make 12% on what you do with those fund that is a pretty good return.

One other things we look at is the equity build up rates. If you pay 100K cash and you are in a market that has appreciation of 2% you are only making 2K  (2%) in addition to your cash-flow each month. If you put 40K down on the same place you would knock down cash 2K-3K per year with the interest payments, put you are gaining about 4K-5K with loan pay-down and appreciation, and you are doing it with a 40K investment. So if you figure you are netting an extra 2K on a 40K investment, that is an additional 5% return. 

I hope that makes sense. 

Dan Dietz

@Carl Fischer you make some good points. A lot to think about. I do see what you are saying. Just to clarify for others reading this too, I would still have both rental properties and stocks in ROTH accounts - I would only be doing this with a portion of my funds, exactly for the reasons Carl points out. 

Part of my thought was to use the RMDs to manage withdrawals up a tax bracket point and then use ROTH withdrawals or cash out refis for some extra non taxable funds if needed. 

I guess what got me thinking about this - even though I realize that it is not 'the normal approach - is that being self employed I am currently in a relatively high tax bracket; 25%fed +5% state + both halves of SSI @ 15% + the change in ACA premiums of about 10% depending on income. So at a minimum of 45%. I have been doing a lot of reading about managing for taxes in retirement and think I can easily cut that in half. 

In my head, the math locks like this

• 50K now in ROTH @ 10% for 15 years = about 200K of non taxable assets.
• 50K withdrawn from ROTH and added to SOLO401k (over 2 years) + the added tax savings of 20K invested @10% for 15 years = about 280K of taxable assets. 
• 280K of taxable assets taxed at 20% as withdrawn = 225K after taxes

It seems like I am 25K ahead, but I am sure there are some catches. Not disagreeing on the advice I have gotten, just trying to look at all angles. 

Also I use the 10% as a conservative value. I expect more like 15% (what we are doing now) which would make the 'surplus' even larger it seems like. 

Thanks for the patience and help!

Dan Dietz

@Dmitriy Fomichenko & @Justin Windham, I might not of explained it as well as I should have. 

What I  was thinking, IF my understanding is correct, is that I AM allowed to withdraw the contributions tax and penalty free. I have made over the years since they were 'post tax', but NOT the earnings. I HAVE had the account for about 15 years. 

So I was thinking of only taking out a portion of those contributions but NOT any earnings, and then use those (which I am assuming are just like cash on hand or regular earnings) and put that into the SOLO401. 

So really not a 'roll over' of any kind - just withdrawing from one account and using it to put into another. 

Does that make more sense?

Thanks, Dan Dietz

Hello All, 

I have been having good results with investing in buy-n-hold rentals using my ROTH SDIRA, SOLO401K and regular 'cash' investing. 

To me they each have their place when looking at goals; a combination of some current supplemental income, some taxable retirement income to pull flexible amounts from to manage tax brackets, and some tax free income for additional needs. 

I have some funds in my regular ROTH that are basically the original contributions (basis) that is not currently invested in real estate also. I have 10 - 15 years to go until retirement, and from my rough calculations using the amazing Rental Property Calculator here at BP and retirement planning software, I project that SSI and returns from my cash and ROTH SDIRA properties will give us a comfortable living without touching principal. So the Traditionally IRA properties would not need to be touched most likely and could be 'back up' if needed.

I am considering moving some of my ROTH IRA funds into my SOLO401K for current tax savings. The thought is if I were to move say 50K from ROTH to Traditional IRA, I would save about 20K in taxes (I am self employed, so fed, state, and both halves of SSI). I would then have 70K to invest instead of 50K.

This seems backwards from all the advice I hear. What am I missing? Please feel free to tear apart my theory :-)

Thanks, Dan Dietz

@David Morgan I believe it does, but I have not used that feature yet. I *think* the way it works is that you make a 'pretax contribution' TO the plan, and then after it is in there you THEN convert it. I do know unfortunately that I can NOT roll over funds ALREADY in a ROTH :-(. That is about the only reason I also have a SDIRA account as you CAN roll ROTH funds into those. I will let @Dmitriy Fomichenko confirm or deny that I am phrasing this correctly :-)

Dan Dietz

@David Morgan, it sound like your thinking is solid to me from a consumer side of things. I will let the Pros in the field chime in to confirm too. I would highly recommend using one of the Providers on here (I use @Dmitriy Fomichenko and have been very happy with his services) , they are not directly allowed to promote themselves on here, but just look at the signature lines and you can tell who they are. 

As to why wouldn't you do ALL of your investing inside of a self directed retirement account there are several

• You have maxed out your contribution limits to those accounts
• You can generally use leverage at a much higher ratio outside of retirement accounts. with my properties I hold IN retirement accounts I need to put 40% down. OUTside of those accounts only 20% down. Which will give me a better LONG term return?
• You can not actively do 'fix up' work inside of the accounts (IF that is what a person wants to do)
• You want CURRENT income instead of waiting until retirement years.

With all that said, I do hold quite a bit inside of retirement accounts (as do my partners). One of the primary reasons is that we ALREADY had a lot save up in regular retirement accounts (we are all around 50 years old). There is absolutely nothing wrong with doing it that way

One other things to consider is that it is quite possible to make almost tax free income in many markets investing conventionally when the benefits of depreciation are applied and 1031 exchanges are used. 

Dan Dietz

@Dave Foster or @Lauren Speidel , 

I am wondering if when doing a 1031 can I 'switch' the debt portion from a traditional lender to using a partner in the new property?

An example would be I sell a place that I own for 400K that I still owe 200K on to a bank. The new property(s) are 600K. I reinvest my 200K of equity, and instead of borrowing the 400K from a bank, I bring on an equity partner for the 400K. Or, some  mixture of an equity partner for say 200K and a bank loan for 200K.

Thanks, Dan Dietz

@Tom Horan if she is 'tax savoy' as you say you might want to search past post here for discussions of 'price vs interest rate' for lack of a better term.

Meaning this; on a 100K loan @ 20 years @ 5% you get about $660 month, and a total of 100K principal & 60K of interest. You would have the same payment on a 120K loan @ 20 years @ 3% and a total of 120K principal and 40K of interest. 

She would know pretty quick which would be more tax advantageous for her and her heirs down the road.

Dan Dietz

@Tom Horan It looks like @Bill S. covered things pretty well above.

It is kind of ironic how many landlords, particularly older ones, are adverse to doing 'owner financing' or similar when it can *maybe* solve some of their problems. 

We had a friend who was well into retirement years, their early 80s, and he and his wife still had about 20 units - it was their 'retirement thing' when they both retired early from their professional careers. They still did almost all of their own painting between tenants, their own PM etc.... They had all units owned free and clear AND nice pensions too boot. Unfortunately she passed away rather suddenly and all of the property stuff was no longer enjoyable to him and he wanted to sell a lot of them. He did not need the cash in any way - just wanted out of the work of it all.

We struck up a deal to buy 4 duplexes an 1 fourplex from him. We tried to entice him to do owner financing, but after some thought he declined. One thing that was NOT an issue for him, but *could* (probably) be an issue for many sellers was the Capital Gains Recapture Tax. In his case, since his spouse had just passed, all of that gets 'stepped up basis' to the current values. That means he would NOT need a large down-payment to cover that. Many if not most sellers might need funds to cover that. 

We offered to put 10% down to 'have skin in the  game' and 5% interest for 5 years up to as many years as he would like. Being a friend, we know his investing habits and knew he would likely just put it in a CD at 1% or so. He decided not too mostly due to not wanting his kids to have to deal with payments over time etc... once he passed. In MY mind a payment stream for 5-30 years to your heirs would be a nice legacy to leave, but we are all different. 

The funny part is at the closing table he jokingly said "I wish there was something I could do with these fund to earn a decent return". ;-).

More to the point of what specifics of what to be aware of are I know I have read on here that there are different ways to title/deed/etc.... things that can make it more beneficial to the seller or buyer if things come down to a foreclosure - learn those. You can either use it to protect yourself, or to reassure her that she is protected. The assumable clause mentioned above is GREAT advice in the case we have rising interest rates. It could make it a much more attractive property when it comes time to sell.

Good Luck, Dan Dietz

We just started using a program called RentecDirect.com and really like it so far. We are at 25 units with 5 different entities as owners, so it is pretty important to keep accurate track of things! We started this year using it's 'tenant management' features and are just now starting to explore is 'accounting side'. It has an electronic payment component too, but we have not yet used it. We have 2 tenants who pay that way and both just do an electronic payment directly from their account to ours.

Dan Dietz