All Forum Posts by: Jeff S.

Since IRAs are regulated at the federal level, it doesn’t matter what state your custodian is in or where they are located, @Huiping S.. You will never visit them, but be careful. Many self-directed retirement companies are administrators and want to give you the impression they are custodians. Administrators are really middlemen who will handle your money and then pass it on to a custodian in the background. By law, all IRA funds must be held by a custodian.

Custodians are highly regulated. Administrators are not and there have been issues in the past with embezzlement (lookup American Pension Services, an administrator). Maybe not perfect, but you can tell if you are dealing with a custodian rather than an administrator because they will usually have the word "Trust" in their name or they will be a bank or brokerage. If it's not clear to you, then ask, and insist on a clear answer. Also, some companies, usually brokerages, offer self-directed IRAs but limit you to stocks, bonds, CDs, and maybe their mutual funds. They will not allow you to invest your IRA in real estate. Also, ask about fees.

Fees are how these firms make their money and they can be substantial. Some IRA custodians charge by the transaction, some charge by the total value of your account, and some by both. All publish their fees online so you can use a spreadsheet to determine the lowest cost solution. This will obviously be personal and depend on your available assets and investment strategy.

For example, if you are flipping houses and have a lot of relatively small dollar transactions, then pick a company that charges by the value of your account. If you expect to do relatively few higher dollar transactions, such as lending money or owning rentals, you might pick one that charges by the deal, etc. What works for me, might not work for you, so be careful when others recommend a specific company.

Last is service, which really only comes from experience and reputation. After you’ve narrowed your search and selected a few companies that fit your style and investment strategy, you might post a few names here asking about their service. Also, ask around at some of your local real estate clubs, where you might find others more aligned with your strategy.

None of this is difficult, Huiping, but as you can see, there is more to choosing a self-directed retirement plan custodian than asking for a few names or locations.

Good luck, to you.

This is one of the few times you don’t need an attorney or outside service company, @Sendill Arun. California makes it incredibly easy to register a foreign LLC. You can do this online and at no cost. You will first need a Certificate of Good Standing (or equivalent) that you obtain from the governing agency in the state your LLC was formed.

Here’s a link to the CA Secretary of State Business forms:   https://bizfileonline.sos.ca.gov/forms/business

Select Registration – Out-of-State LLC along the top row of forms. It will first ask you to create an account to log into the site. Then, just fill in the requested info and upload your Certificate of Good Standing.

You’re done.

This process will take ten minutes and is free. Of course, you’ll eventually have to pay the $800 minimum annual Franchise tax, so they get you one way or another.

You don’t have to use a registered agent. This is a privacy issue. Nor do you have to use an expensive service for this year after year. Talk to your accountant. He or she will likely be preparing your CA tax returns, which will now be required, and at an additional expense to you. Welcome to California.

It’s a good question and not something you should take lightly, @Eric Wood. I can speak for the lending side. This means working with a lending lawyer. These are not real estate attorneys who might do closings, leases, and evictions. Lending lawyers special in lending and securities. Both you and your family member(s) should sit with one to understand lending in general as well as usury, licensing, other possible state restrictions, title insurance, hazard insurance, as well as origination in general. 

Eyes wide open.

The lawyer should also explain the risks to your family member and their options. This might be uncomfortable for you. For example, think twice about asking someone inexperienced to lend to you in second position. They could easily lose all their second-position money if a first-position lender forecloses or if you go bankrupt. I know you’re thinking it's unlikely, but this really does happen. What if they have to foreclose on you? Or sell their loan?

You'll read here from those who claim all you need is a note and a mortgage or deed of trust (state dependent). And, that you can obtain these from a title company or, for heaven's sake, off the web. To properly protect them, your family member should use a set of professionally prepared loan documents. These will include a note, mortgage/DOT, personal guarantee, title insurance, fire and hazard insurance, lender instructions, and a host of required disclosures and agreements.

Things can get ugly when business and family mix so it’s important everyone is protected, Eric. There are several lending attorneys who work nationally now, but local is always better if you can find one. Speak to some HMLs in your area and ask them who they use.

Some lending attorneys now offer online documentation. You provide the loan details, and it spits out a set of docs. Get your feet wet first and meet with an attorney before you get into that.

With the prime rate currently at 6.25% do you actually think that any private lender will lend you money at 5% for 25 years? Their cost of money will be higher.

This is a scam, @Nathan R Andersen. A scam.  You can look up all the documents you want. It doesn’t mean the website or the representative you are speaking to is legit.

Do yourself a favor and stay off the web when looking for money. There are way too many scammers out there and it's almost impossible to anonymously identify the crooks. If it's completely out of the question for you to go to a local REI club, call the owner and ask them for the names of some lenders they know who regularly attend their club. This is a business based on relationships. Go to lunch and get to know one another.

Perhaps this is regional, but the very few REI clubs out here that charge a membership fee will allow you to pay by the meeting. Miss a few meetings and this is the cheaper way to go anyway. Plus, as much as I don't like them, a lot of clubs still meet using Zoom. Certainly, there is a way for you to attend these?

Sorry. Double post.

Here a private lender tried to charge a 9.9% late fee against a missed monthly payment plus a 9.9% charge against THE ENTIRE LOAN BALANCE.

Considering that this was a particularly large $5.6M loan, with a nearly $40k monthly payment, the late fee went from a reasonable $4000 to seemingly over half a million dollars – for one missed payment!!!

How do you spell loan-to-own?

I actually thought this was resolved a few years ago with the CashCall decision. The court didn't find that a 98% interest rate was illegal in CA, but that it was invalid because it was unconscionable. As a result, our lending lawyer admonished his clients to be careful of unconscionable terms in their loan documents. Clearly, late penalties applied against the entire loan balance, not just what was owed that month, would be considered unconscionable.

I didn’t realize until I just reread the summary that the CashCall decision was for consumer-purpose loans. Most HMLs only make business-purpose loans, thus one reason for the decision you referenced, @Peter Walther. The lender argued, “… whatever the parties agreed to is lawful.” The court, not using the word “unconscionability,” found the borrowers, “… cannot be legally bound by an agreement to pay a late-payment fee that violates public policy.”

Unconscionability. Public policy. What’s the difference? It’s Idiotic lenders like this that give hard money lenders a bad name and get what they deserve. I certainly hope this decision is adopted by other courts.

Of course, Bonnie, you know who makes the most money in the restaurant business? (wait for it) …

.

.

Sign painters.

(Sorry @John Roberts)

You received a lot of advice, @Charles Constant, but never defined the problem. Why is she unable to move? Is it as simple as she needs help packing? Does she need a place to go? Perhaps a medical or emotional issue? Obviously, some of this is easy to solve and some might be well over your head. You asked for next-step suggestions. There are no bad answers here, but what’s the problem? Have you asked her?

No matter what, stay as far away from a court as you can. You will lose. A second-year law student would take you to the cleaners trying to evict or justify an unrepresented wholesale purchase from an 83-year-old woman. Better to understand and solve whatever problem she’s having. First, perhaps you can explain it?

With due respect, come up with as punitive a schedule of progressive penalties as you want. Not all sellers will choose to understand these if all they want is to sell. Get your lawyer involved. But be prepared to face hers. The safest, really only, way to buy a flip is vacant. A deal can be bad even when you think the numbers make sense, as I think you’re finding out, Charles.

He knows he won’t get more than the appraised value and probably a lot less than if you leave the place vacant, @John Roberts. You’re afraid you’ll be forced out if he sells the place.

You guys are playing a game of chicken with each other.

In fact, if you are a desirable tenant (pay your rent on time, take care of the place, don’t make the landlord crazy, etc.) why would anyone who buys the place want you out, unless they also run a restaurant and want yours? Is this likely? Would the place be easy to re-rent? Do you truly have no other alternatives if you really must move (and/or does he believe that?)

Not a lot to go on here without more info but I suspect you hold stronger cards. A signed lease from a long-term desirable tenant will maintain the value of his appraisal. Don’t forget, you’re providing the cash flow. How much is an empty restaurant worth, unless there are higher and better uses?

There doesn’t appear to be any benefit to you by signing a lease with a 60-day notice clause. It only makes it easier for him to sell, buys him time, and adds risk to your continued tenancy.

From what little you wrote, and I realize we’re talking about your livelihood, I would refuse to sign a lease with the 60-day clause and, assuming it even makes financial sense to you, offer to pay the appraised value. An agent, if he has one, would think clearer on this. You might discuss this with a knowledgeable agent yourself.

You already said he’s an accidental landlord and wants out. Now he runs from you? This is telling.

Before you read one word further, @Diane Hagler, call your bank and change your account number. You are being scammed and some of the signs are obvious.

With the prime rate at 6.25% do you really think this company is going to loan you money at 5%? How much do you think this money will cost them? I can assure you it’s more than 6.25%. And for 30 years? Yeah, sure.

A few comments that might not be obvious. You didn’t say but I assume your loan is for a business purpose such as for a flip or other investment property in North Carolina. Yes? NC does not require a license to make business-purpose real estate loans. Whether the company is licensed in CA or elsewhere, they can lend in NC.

As an aside, and only to confuse things, to call yourself a lender in CA you must be licensed. If you are only making business-purpose loans in CA, you do not need an MLO and NMLS registration. You must either be a licensed real estate broker thru the DRE or California Finance Lender (CFL) thru the DFPI (we are licensed CFLs). Britz AG Finance Co. does not list a license on their website that I could find but they are in fact licensed CFLs in good standing since 1997. You can look them up here. Their corporation is also in good standing per the CA Secretary of State.

Why would a licensed lender for 25 years not include license information on their website, as required by law? Do they not know? Hmmm ...

My guess is that you are not communicating with Britz AG Finance Co. There are many fake websites impersonating legitimate companies and some have been discussed here. We’ve been victims of corporate identity theft ourselves and it’s very hard to stop even when you see it happening before your very eyes.  I don’t know how you found this site but if you really want to speak to someone at this company you might contact them through means other than the contact info on the website. LinkedIn, Agent for Service at the CA Secretary of State, or even skip tracing if you really have a burning desire are just a few of many options.

Looking up public documents such as deed-of-trusts, mortgages, lawsuits, and licenses only confirms that the company exists, not that you are speaking to a legit representative.

I know everyone likes the convenience of the web, and they are tired of hearing it, but this really is a business based on relationships, not online anonymity. My best advice is to meet your lenders face-to-face at real estate clubs, conferences, or other professional events. If they’ve been around for a while, the club organizers or others in the room will know them. North Carolina is a big place. I’m certain there are honest lenders there that could help you.

Meanwhile, Diane, call your bank.