All Forum Posts by: Jeff S.

Here’s a link to a website with a comparison of several IRA custodians: http://www.thehardmoneypros.com/self_directed_ira_custodians.shtm

If you scroll down you can download their pricing comparison spreadsheet. The numbers might be out of date but you should be able to easily update them with the links provided. By the way, this was sent to me and I have no idea who owns the web site.

I personally use IRAServices and found them to be the cheapest of all custodians by a long shot. Not long ago, I funded a hard money loan through them and they came through on very short notice. It was for an REO with a very difficult and unaccommodating bank. IRAServices gave me the name, direct phone number, and email address of their person handing my file. He jumped through some very small hoops to help get the deal done. Though I was appreciative of their service, it convinced me to go the checkbook route and become trustee of a self-directed 401k instead. In my view, it’s the cheapest way to go and provides 100% complete control; cutting out the custodian and need for an LLC.

You’re not buying a cap rate, Norman. At minimum, you’re buying the cash flow. Decide the cash-on-cash-return you need and figure out from there if this deal makes sense for you. Cap rate is a handy number the market uses to provide relative property values without regard to financing. It is not an assurance of profit. For this you must perform a proper cash flow analysis using verified numbers (NNN or not). Even then there are risks.

While it obviously boils down to supply and demand, I always read with interest on BP the difference in HML rates and fees around the country. I swear that sometimes I want to move. There are a number of brokers I use in southern California willing to originate a note for a fixed fee. Of course it depends on the amount borrowed, but this typically works out to much less than a point. The rates and fees I see here for flips are closer to 12% plus two to three points on a three to six month note â€" not that this helps you in Georgia. Property values in southern California are so much higher, that even if you had to pay $4k, the amount is more palatable. The decision between borrowing hard money and using your own cash amounts to the risk you’re willing to take, how much time you’re willing to allocate, and the discount you can buy properties for.

The rehabbers I tend to work with could probably buy and flip two to three properties at a time completely on their own. All choose however, to leverage themselves into five or six deals at once, or more in a few cases, and leave a bit of cash aside for the unexpected. In general, they’ll borrow as much of the purchase money as possible and fund the construction on their own. These are all full time rehabbers who have the time to manage numerous projects at once. Some even run their own crews.

Most rehabbers I know are partnered with someone where one finds the deals and handles the money, and the other is in charge of construction. If you are doing this alone, maybe part time to supplement your real estate business, and maybe with relatively low dollar deals, I’d suggest you use your own money on as few project as you can handle. As you’re able to dedicate more time, and depending on the amount of meat on the bones, you might slowly leverage your money. There’s no sense leveraging a deal you can easily manage on your own, which is where I’d start if I were you.

Lastly Joel, with these fees, a HML would be out of his mind to charge a pre-payment penalty -- unless he has no other business,. The faster you pay, the higher his return. Velocity of money is the name of this game. Keep looking.

Jeff

Yes, you can be your own trustee and you don’t need to do this through a company such as Entrust. In this, case your 401K would be self-directed, you’ll have checkbook control, and you don’t need the LLc necessary for checkbook access to an IRA. There are several benefits to this:

a. You have complete control of the funds through a bank account.

b. You avoid the (substantial) costs a custodian such as Entrust or Sunwest charges. There are no per check, per investment, or asset value based fees. It’s completely your account and you’re in control.

c. You avoid the costs, tax returns, and bookkeeping associated with an LLc.

d. You can respond quickly to opportunities without the having to obtain permission from a custodian using their various form systems. If you ever had to purchase an REO or loan money quickly through a self-directed IRA at one of these firms, you know what I’m talking about.

There are also some drawbacks:
a. You might pay some nominal annual fee to the plan administrator who set you up in the first place. This enables them to keep your plan current and provide you with the latest plan documents.

b. You’re now the trustee and custodian and you must completely understand what you can and cannot invest in and with whom. One false move can cause the IRS to eliminate the plan and make you pay taxes and penalties on your entire retirement savings. By the way, the same is true for an SDIRA-LLc

c. You must be scrupulous with your records since you will not be receiving a monthly statement from anyone.

d. You'll need and EIN from the IRS and your CPA will have to create the reporting forms for you. I think this is form 5500-EZ for husband and wife plan. (You do have a CPA, don't you?)

These might seem harsh, but the rules are not difficult to learn and follow.

You can certainly merge your retirement funds and invest jointly as long as you keep the scrupulous records noted above. In this case, you have to know where and from whom all the funds came so that you can allocate their distribution upon retirement. By definition, the word “disqualified†in your question bothers me. You can’t do anything that’s disqualified.

Jeff

Check out Ward Hanigan’s Dingbat Retirement Plan. These are his specialty: http://www.foreclosureforum.com/dingbat.html

For information on worldwide real estate investing, nothing beats Global Property Guide: http://www.globalpropertyguide.com/

They have statistics for most every country with the information parsed down to even realtor, lawyer, and accountant recommendations.

Also check out http://www.iproperty.com/
It

I just returned from Las Vegas where I took Gary Johnston’s Money Not Math seminar. Having previously taken his Financial Freedom class, I had extremely high expectations and Gary did not disappoint. Where Financial Freedom is a relatively broad overview of personal investing, with a focus on real estate, Money Not Math is three days specifically about cash flows and cash flow investing. I couldn’t recommend either class more highly.

Clyde Wilson, who has actively invested in real estate for over 50 years, is Gary’s sidekick throughout the seminar. He sits at the front of the room with Gary introducing the problems that Gary shows you how to solve. His explanations usually include property photos and discussions of how he finds and negotiates his deals as well the inevitable (and often hysterical) war stories, which Gary does his best to limit. Thus, the class is composed of real world deals either he or the two of them have participated in and you’ll learn how they maximize their returns.

The course builds from simple time value of money calculations to some mind-numbing, though brilliant, investment strategies. These range from simple payment and interest calculations for the uninitiated, to combining owner financing, options, assignments, leveraging, and walking mortgages - all in one deal!! (My head almost exploded on that one.) Substantial time was spent on some very interesting velocity of money calculations as well as a short time on note discounting strategies, though this is not a note class per se. Simple personal finance examples included deciding whether it makes sense to refinance your home or how often to pay your insurance premiums, and why. Uneven cash flows, IRR, and NPV are also covered. A typical problem would include the simplest approach, resulting in a relatively low return, to strategies for juicing it up and maximizing your money. Clyde likes SFR’s, MHP’s, multi-families, lots, and has done some commercial development so there was something there for everyone.

Both Gary and Clyde are extremely low keyed, approachable, honest, and down to Earth. You can tell they love what they do, love sharing, love explaining, and you could fit both their ego’s into a thimble. Other than maybe 5 minutes spent describing his other seminar and a couple of books, there is no sales pressure and no “running to the back of the room†to buy anything. Nor is there any kind of upselling or platinum level inner circle to join.

The one bad thing about Money Not Math is that Gary and Clyde only teach it once a year. If you’re a cash flow investor, or you’re interested in maximizing the return from your real estate deals using cash flow analysis, I can’t recommend this class enough.

Jeff

Just to close the loop: GRM = price/annual rent

So according to Nic’s definition, rental yield would be the inverse of GRM.

A typical GRM in Los Angeles is well above 10.

1. Your ultimate goal is to have a fully rented property with market rents. If it’s in good shape, makes acceptable money, and you like the tenants, then stick with them. Obviously, if it needs work, you want them out prior to closing.

2. I agree with Loc. I don’t know what an “investment property specialist†is, but more than likely he’ll be showing you the overpriced crap everyone else tries to sell around here. If you can’t buy existing equity, which is very difficult in L.A., you’ll have to drive it by improving the property. Don’t fall into the trap common around here of buying a negative cash flow building and expecting to make money through appreciation. That’s a recipe for failure.

3. Ditto. Never heard the term.

4. If this question came from your “specialist,†then congratulations. Maybe you found someone with an investor mindset willing to help you make money. The more common question is, “What cap rate are you looking for.†I’m asked this all the time. My cynical response is usually that a 3 or 4% cap rate is acceptable to me, however I really have to make 20% on my money (i.e. cash-on-cash). Cap rate might be convenient for relative comparisons of value, but it’s no indication of profit. The cash in a cash-on-cash return is spendable. Assuming he has deals, a broker (or “investment specialistâ€) who focuses on verifiable cash-on-cash returns could be worth his weight in gold.

I’ll add that the COCR acceptable to me might be much more or much less than what is acceptable to you. It's really a personal question that must be weighed against your other opportunities, your goals, time horizon, financial plan, risk tolerance, etc.

Can we get back to the topic…

There’s value in detailed photos and even unbiased opinions. I suspect this person could make some money if he were in an area with enough demand from out-of-town investors. Of course photos and opinions alone are not enough to make a decision about a property. You obviously need to know the area (and the economy and demographics and the schools and rents and the whole host of other obvious criteria). Photos and an opinion of the property, or even the surrounding area, don’t tell the story. For this reason alone I would never buy or even loan on any property sight unseen.

Once satisfied I like the area, and after I met and was convinced I could trust this person’s opinion, I could see using him for backup info on whether a specific deal made sense and was worth traveling to see. His $75 fee could save an expensive trip and would be something I’d happily pay.

It’s unfortunate that I know too many people who got sucked into the whole buying sight unseen frenzy three or four years ago with terrible consequences. It was a bad idea then and it’s still a bad idea.