All Forum Posts by: Harry Metzinger

Hi BP, I have a lead from my direct mail campaign and welcome the community's advice on how to handle:

- Purchase Price: $220K

- Rehab: $10K

- ARV: $290K

Property is not yet under contract, but I know from talking to the seller that I can lock it up for around $220K.

Here's what I would like to do and I believe the seller would agree to:

- Inspection, financing, and title contingency of at least 14 days

- Closing within 90 days 

- Permission to market the property on the MLS (I believe the seller will agree to these first 3 conditions as long as I meet their price)

My contract would include a Liquidation Damage Clause which states that Buyer shall be entitled to receive $50K from Seller if Seller decides to terminate transaction at any time prior to close of escrow.

Given this Liquidation Damage Clause, it would give me protection in the event I decide to complete the rehab while the sellers are still living in the property (presuming the sellers are ok w/ this).

For those who say pass on the deal only b/c it doesn't meet the 70% ARV minus repairs rule, no need to chime in. Since it's a small rehab, I am ok w/ violating this rule of thumb.

I would like to do a double closing if possible. (I presume it's difficult to assign a contract to a buyer w/ FHA/conventional financing, but if you think otherwise, please chime in.)

If it's an FHA end buyer, how would you go about completing this transaction? (Rent to end buyer for 90+ days after deed is recorded before entering into purchase contract w/ end buyer???)

If it's an end buyer using conventional financing, how would you go about completing this transaction?  

Any other advice is welcome.  Thanks.

@Brian Eastman

Oh that's great to know. One more reason to set up the LLC first. Thank you! One last trivial question - does it make any difference for formation purposes if I make the address of the LLC different than my home address (and thus the Solo 401k LLC has the same address at the LLC) but the Solo 401k sole proprietorship uses my home address?

Thank you @Brian Eastman. My thought behind not having two Solo 401(k)s is that only one would receive my Traditional IRA rollover, so for the other one, the minimal contributions in the plan trust might not justify the startup costs. I am presuming Safeguard Advisors and other 401k administrators would charge separate fees to establish a Solo 401k sole proprietorship and a Solo 401k LLC. Is that correct? I will heed your advice on the timing of the LLC formation; I have reached out to the attorney to form the LLC and plan to pursue that action before initiating efforts to establish a Solo 401k.

@Dmitriy Fomichenko @Brian Eastman @George Blower @Daniel Dietz

Hi guys, I met w/ an attorney today who is knowledgeable regarding Solo 401k's and Self-Directed IRAs.  I presented the following scenario to him:

- My current self-employment income is as a sole proprietor

- While not currently formed, I would look to create an LLC for real estate purposes soon

- My self-employment income is small and possibly will not be recurring, so I considered other possible self-employment income streams

- I have not done any flips to date (just BRRRRs), but once I do, I would look to do them in an LLC

- I also have potential real estate self-employment income in another fashion. Follow me here - my wife and I are currently joint owners of two of our investment properties. This week we filled out mortgage applications to do cash-out refi's on both properties, with the new title and mortgage only in my wife's name. We are doing this to preserve my ability to obtain conventional mortgages in my own name individually for the next few rental properties. Once we close on the refi's, even though my wife will be the sole owner, I will continue to be doing all of the work related to the management of the property. My question to the attorney was could I create an LLC and serve as the property manager for my wife's properties? He said yes. The way I envision it, my wife would pay my single member LLC a monthly fee per property (exact % TBD, but following industry standards). We would show it as an expense on Schedule E and revenue on Schedule C. According to the attorney, this would be permissible.

It sounds like it would be best to avoid opening up both a Solo 401k as a sole proprietor in addition to a Solo 401k as an LLC (I welcome your thoughts on that), so I am looking to make a decision now on one or the other.

- My question is if we do not close on the refi's until, let's say August 31, can I open up a Solo 401k LLC now (or immediately after the LLC paperwork is filed), despite the fact that this LLC would not start receiving self-employment income until September. In other words, is it acceptable to open a Solo 401k on January 1 as long as you know you will have self-employment income in that same year, or does the IRS require that some amount of self-employment income be received in advance of initiating the process to open up a Solo 401k LLC?

Thanks again for your words of wisdom.

@George Blower thank you! Very good information. Do you have anything to add to my Roth IRA question?

@Dmitriy Fomichenko @George Blower @Brian Eastman @Daniel Dietz

A few possibly more trivial questions since I have your attention...

If this is my first year of self-employment income, and I am operating two smaller self-employment businesses, one makes a little money, and one loses a little money, and combined between the two, it is a net loss, would I still be able to open a Solo 401(k)?  

Would your answer to the previous question change if I reported self-employment income last year?

Regarding potentially opening up a SD Roth IRA too, I will end up investing approx. $8K in my employer 401(k) this year. I know I can invest $5,500 in a Roth IRA this year. Could I invest an additional $4,500 (to get to $18K max) in a Traditional IRA and then immediately convert that $4,500 to a Roth IRA? Then if allowable, once conversion is complete, I would look into rolling the new $10K in Roth IRA funds plus my existing Roth IRA balance into a SD Roth IRA LLC. Curious Dmitriy, George, and Brian if your companies help facilitate an investor pursuing that strategy.

Thanks in advance, really really appreciate your time and insights.

@Dmitriy Fomichenko @George Blower @Brian Eastman @Daniel Dietz

This is all wonderful information.  Thank you all for contributing.  Man I love BP!

Dan, I am considering potentially setting up both a Solo 401(k) and Roth SD IRA LLC around the same time. This thread has convinced me that the Solo 401(k) is definitely worth pursuing. Since my Roth IRA cannot be rolled into a Roth Solo 401(k), I am debating whether to leave my Roth IRA as is or roll it over. I have embraced the idea of self-directing my retirement funds, but since my Roth IRA does not have nearly enough to purchase and rehab a rental property in my target area and price point, it has given me pause. Perhaps we can talk offline....would love to hear about your experiences, especially since you have been innovative in your approach.

@Dmitriy Fomichenko, thank you very much for the speedy reply and your insightfulness!  I read the article you linked too...I probably read that about 2 years ago (I think we corresponded back then), but I ruled out the Solo 401k as an option at the time since I did not have any self-employment income.  

If I earn self-employment income next year but the self-employment income is derived from a completely different source than the income I have earned this year, does that have any bearing on my Solo 401k account or status?

Thanks for chiming in @Will Barnard.  I really appreciate your contributions to the community.  Yes, I would be curious to know the answer to your question too Will.  I know a local investor who owns real estate in a Solo 401k, so I'll have to ask him who he banks w/.  

Crazy to think I was on the verge of spending $2,000+ between attorney fees, CPA fees, and custodian fees to launch my SD IRA...and then I stumble back upon the Solo 401k, with more advantages and little if any costs involved in setup.

Hi BP, I currently have Traditional IRA funds that are invested in stocks, but lately I have educated myself about going the self-directed IRA route. I met with a self-directed IRA custodian yesterday. However, given the advantages of a Solo 401k over a Self-Directed IRA - no need for a custodian, the ability to receive debt financing on real estate acquisitions and not pay UDFI, and the ability to make loans to myself if necessary, to name 3 - have given me pause whether the Self-Directed IRA is the way to go. I have a W2 job and then on the side, I have earned about $2,000 in a seasonal, temporary position this year (without going into details, it's money I can make while at my computer). This is my first year of self-employment history. The revenue and expenses related to this side hustle are in my own name, not an LLC.

Question #1: Given the facts above, would I be eligible for a Solo 401k?

Question #2: Would I be able to transfer the balance of my IRA into a Solo 401k, even though the balance in my IRA far exceeds my self-employment income?

Question #3: Do I need to set up the Solo 401k in the name of an LLC?

Question #4: While I mentioned before that no custodian is needed w/ a Solo 401k, can I presume too then that a manager (whoever would be the equivalent of the person who cuts checks for your SD IRA if you had checkbook control) is not needed for a Solo 401k either?

Any other related feedback on these topics is welcome too. I am convinced that going the Solo 401k route over the SD IRA route is the way to go, as long as both options are on the table for me.

I am meeting with a CPA who I was referred to by the self-directed IRA custodian next Friday, but rather than have these questions rattle around in my head unanswered until then, I welcome the BP's community's responses. I will still be meeting w/ said CPA regardless. Thanks.

Hi @Joel Anderson, I just sent you a direct message. If anyone else in this thread is looking for contact information for HUD help, please let me know. Sorry to those who I did not reply to previously, but if you did not tag me (looks like there were a couple unsuccessful attempts at tagging), then I wasn't notified of your response.