All Forum Posts by: Kyle Luman

I haven't used a SDIRA (yet), but it doesn't seem like a game changer, to me.  It seems to be just another way to deploy your qualified investment money.  Albeit, one that could be outside of the stock market.  I don't see how it gets you out of the middle class trap, though.  Whether your money is in VTSAX or in a duplex or a syndication, you still "can't touch it until age 59 1/2", etc.

But, they did spend time discussing how you don't just have to purchase actual real estate. You can use the SDIRA (or SD HSA or solo 401k for that matter) to invest in syndications, make hard money loans, etc.  These other methods of investing help to limit many of @Stephen Nelson's concerns above which mostly are directed at purchasing real estate directly.  Scott Trench did a good job of raising these issues and John Bowens addressed them head on, I thought.

In the podcast, they did discuss the UBIT issue.  In the end, it sounds like UBIT is not nearly as bad a deal in reality as it is made out to be in these discussions.  It is only limited to the portion of the investment that is financed, which makes complete sense.  If you want to avoid UBIT, purchase the property outright or pay off the non recourse loan.

@Dmitriy Fomichenko Thank you as well.

After doing more reading (much of it on your company's website), it seems that one of the best things I could do it just to get the Solo 401k open, even if only funded minimally for optionality in the future.  Probably one for me and one for my wife to have ability to receive 401k, 403b, rollovers when we leave our W2s.

@Stephen Nelson  Thank you, appreciate your thoughts.

Toward the end of the BP money podcast recently on SDIRA, Scott Trench made a comment about how using a SDIRA to invest in real estate could help people get out of the middle class trap (all or most of one's wealth being in the primary residence and qualified retirement vehicles). I see how using a SDIRA to invest in real estate can help to diversify one's portfolio and could be advantageous overall, but I don't really see how it moves someone out of the middle class trap. The money that was in index funds in the IRA or 401(k) is still in those qualified vehicles, just invested differently. One still would have to go through hoops (set up a Roth IRA conversion ladder, access your 457 money first or rule 72t (SoSEPP)) to access those funds if one retires early. Am I missing something?

Hopefully you were able to listen to the BP Money podcast this week.  If you haven't yet, you will really find it informative: https://www.biggerpockets.com/blog/money-612

I'm kind of more on the conservative side of things, so I would lean towards trying to leave that Roth money in a Roth situation.  It can be so powerful moving forward.  I would look into self directed 401(k) options (your employer may not allow that) or the borrowing from the 401(k) to see if you can have your cake and eat it too!  I believe my employer allows up to $50,000 loan from our 401(k).

Another option could be to look for a partner to bring the money.

Thank you, appreciate the wisdom.

@Arn Cenedella

@John Morgan

@Marcus Auerbach

What you've said makes a ton of sense. Seems like a really balanced and prudent approach. Love to hear about how you've been patient and wise. Good examples to try to follow.

From the above discussion, I now have some simple, beginner questions about taxes and bookkeeping.

Example property:

Rent: $2000

PITI: $1200, CapEx: 5%, Maintenance 5%: Vacancy 8%: Prop Manag 8% ($520)

Cash flow: $280

In the bank, you keep the $280 along with the $360 from CapEx, Maint, Vacancy while the Prop Manag is paid to the PM. To make it simple, let's say you use up all of the maintenance in 2024, but have no vacancies and no CapEx expenses. At the end of the year, you have $3360 from cash flow, $1920 from vacancy and $1200 from CapEx. So, $6480 in the bank attached to this property.

1. If you don't "pay" yourself anything from rental work in 2024, what do you pay taxes on?

2. Can you avoid paying taxes by using some of the cash flow by prepaying/accelerating loan repayment?

3. Can you use the vacancy and cash flow funds to make CapEx improvements like adding a room/bathroom, a second unit, etc and thus not pay taxes on that money for the time being?

4. Can you ever use these funds as they accumulate to go purchase another property or does that trigger taxes? I.e, you used them for non CapEx/vacancy reasons. (If you did this, obviously, you would have to cover those needs, when they arise with money from other sources.)

I imagine my beginner perspective is probably inaccurate in several ways. (I have the BP tax book by Han and MacFarland that I'll make my way through soon.)

Got it, thank you.

1. If you carry a balance month to month (only paying the minimum or minimum plus), paying twice monthly can save you some money in interest charges.

2. If you don't carry a balance month to month, you can get interest free loans (money saved) for several weeks.  (But, I don't think the twice monthly payment in this situation does anything.  I've researched the 15/3 rule a bit and it doesn't look like it actually helps you if you are already paying the balance to zero each month.)