All Forum Posts by: Patrick McNeill

I read that same book by Doug Andrew. An advisor was trying to sell me on the idea of putting everything into EIUL’s. After reading the book I thought it was too good to be true, and that they were both insane. How can the value never go down if it’s tied to the stock market? Even if they’re equities. It just doesn’t make sense. And the advisor could not give me a solid answer. Just, “well that’s how they work.”

I had a similar Variable Universal Life (VUL) policy for years. The fees and the death benefit ate away at the earnings and it was worth much less than I’d put in when I finally had enough and cashed it out.

Thanks Will for the response and advice. If I knew some other flippers that were reliable, that would be a good option. But I don't, and really don't think that those would be considered "no risk."
I’m sure there are better ways to use an SDIRA than buy and hold, but I’m just trying to stick with what I know.

Sorry Nathan, didn't mean to hijack your thread. So I'll try to give a little better response to your original question.
If you have an existing IRA, I'd say don't cash it out and take those huge penalties. Turn it into an SDIRA and invest with that.
If you are using your own money, invest with cash. That way you can reap all the benefits: depreciation, write-offs, etc.

Nathan, I have actually thought of doing that and it does make sense mathematically. But there are other issues which I’ll explain.

First, if I were to liquidate, after all write offs and everything, I’d have to pay the 10% penalty plus about 25% in federal taxes. So that’s 35%. And then there are state taxes which would be about 4-5%.

So let’s say I get 60% back. That’s $27k. $108 in property.
50 and 2 gives $2160, clearing $1080. 30 years 5% is $435/mo.
Cash flow is $645. $7740/yr. 17.2%.

Yes this 17% sounds great but these are all theoretical numbers. Getting 5% on a non-owner-occ is pretty hard to find. And I already have 3 rentals with mortgages. So I’m not sure what the limit is at this point, it has been only 4 in the past.
Plus you have to count in PMI and loan fees. I think that $435 is gonna end up being closer to $600. Which would bring us down to the 13-14%.

To me, it just seems that not even dealing with banks at this point is so much easier. It’s easier to bid on properties when you have cash. People seem to accept a lower offer when it is cash.
Now, I’m assuming that this SDIRA will be the same as cash when I go to make a bid.

I understand that leverage is a huge advantage, but once you can’t get loans anymore, SDIRA’s seem like a great way to buy rentals.

Jon and Will, you have both stated in this thread that holding rentals in your SDIRA is not ideal because it does not produce high enough returns. I have been looking into doing just this, and I think many people on this site are. So I was hoping you could look at this scenario and let me know what you think.

You open an SDIRA and fund it with 45k.
You purchase a property for 40k.
Using the 50% and 2% rule, your profit is $400/mo, or $4800/yr.
Let’s say you spend $500/yr on custodial fees.
You have now profited $4300/yr on $40k investment. 10.75% return.

Am I missing something? I know these aren’t phenomenal returns but still must better than the market for the past 10 years.

Ok. I understand that some of you think Joe is sleazy or a deadbeat.
That is not the question. The question is what will happen to Joe and his investments if he defaults on his personal residence.

What if, in this same situation, Joe loses his job or his wages go down and he cannot afford to make his mortgage payments.
What would happen to him then? I am guessing the same thing. The bank will try for a deficiency. But at least maybe some of you would cut him some slack.

Thanks Ryan. I have told him. But some people don't listen.
Hopefully I can get him to look at this forum and see what other people think.

Well then, it sounds like you cannot default if you have any assets. Or else you will be risking getting sued to make up for the money you defaulted on.

But what if you have assets of lets say $40k, in real estate. But your personal home is $150k under water. If you defaulted on your home, could they only get the $40k, or can they sue you for the $150?

Also, what about 401k's and IRA's? Are those protected or can the bank still come after them?

Jon, yes, if I were a bank I would go after the people with assets. But there has to be a point where it is not worth it. Lawyers fees and whatever else could cost them more than they could get out of the defaulted home owner.

I am not sure what you mean in your first 3 sentences. Can you elaborate? Thanks.

Are the banks really going to go through all that trouble? I have heard that they are so busy that they aren't pursuing these kind of people.

Joe could just go and get mortgages on these properties and hide the money under his mattress.

Then what can the bank do? Will they go after properties that are mortgaged say 75%?

I have a friend (we'll call him Joe) who is considering doing a strategic default on his home.

Although it's a struggle, he makes enough to pay his mortgage. But his house has gone down considerably in value and he owes much more than it is worth.

Joe owns four rental properties also. Two are paid off and two have mortgages. They are all rented out and cash flow.

The rentals were all purchased in his name but have since been changed in the county records to an LLC.

My question is, if Joe does a strategic default and stops paying just his home's mortgage, what can happen with his rental properties?
Is there any recourse the bank can take?
He would not be claiming bankruptcy, just staying in his current home until they kick him out.