All Forum Posts by: Steve Hall

@Kris L.. Everyone's situation is different. I have a living trust that owns an out-of-state LLC that owns a land trust that owns my personal residence. So yeah, it can get even more complicate then you think, based on your objectives. You might want to read this post I wrote on the benefits of LLCs and why you should have one (or many!)

It's time to hire a CPA...

@Charles Soper I have no experience with high-rise buildings, but just a few things popped into my mind if I were considering purchasing one:

1) Code. Specifically fire code; fire escapes, fire suppression systems, stairwells, doors, etc.

2) Insurance costs.

3) Elevators.

4) Parking.

5) Security.

These are over and above what I would already be looking at with a single story garden style complex.

@Mushfiq S. Obviously, you would not have taken a second position if your money was not protected by the value of the property, right? So let the primary lender foreclose and do all the work. Sit back and collect your check at the end.

If you are worried about the foreclosure sale and what the property might fetch at auction, then I suggest you help advertise/market the foreclosure sale yourself and/or attend the auction and bid up the price. I would imagine the first position lender won't bid above their total investment. (loan balance So you could safely bid up to the value of your investment (i.e. first mortgage + your mortgage + costs).

Worst case: The property does not fetch enough at auction, so you purchase the property for the price of the first mortgage.

Best case: Primary lender does not bid and you can get the property for LESS than what is owed to the primary lender!

Once you have title, then you can do the rehab yourself, or just sell it to another investor.

Lots of lessons here:

1) Don't loan money in second position unless you understand what happens if the borrower defaults.

2) Don't loan money 3,000 miles from home, unless you're prepared to travel to the property to attend a foreclosure auction.

3) Plan better. Have an attorney in place to first to handle issues as they arise & know what it will cost to get out of a jam. 

4) Do your due diligence. What was the borrowers credit score? What did their credit history look like? I also noticed in your other post that you bought a SFH and had to replace a roof within 2 years (which wiped out your total investment). This capex should have been factored into the purchase price.

@Simon Stahl First, you did not quote Paragraph 6 of Regulation D of Rule 501 correctly: "Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;"

If you make $220k per year, for the last 2 years, and you marry someone with no income, that does not mean that you are NOT accredited now. Your spouse would not be accredited, but you still would be.

There are several other ways to be accredited as well. Remember though, just because you are accredited does not mean you you are qualified to play with the big dogs.

@Mike Moran I am pretty sure there is a limit to how much you can borrow from an individual 401k - something like $50,000. There is no limit to how much of your SEP you can use as a self directed IRA. I only used a 401k when I was employed for a company that matched 6%.... Of course, I put in 6%.

As far as your other questions, you are way beyond the scope of an investor and deep into accounting territory. To answer them accurately, one would need to know how your entities are structured. 

If you are asking these questions here, you either don't have a CPA, or they are not very good. Wait til May 1st (CPA's need a break for a few weeks) then go find a good one.

@Mike Moran

If you are over 21 and your business earns more than $600, then yes you could start a SEP. How much you can contribute to the SEP is the tricky question. You will need to hire a real estate savvy CPA who can help you structure your business so that you can contribute the MAX possible to that SEP. Always max out the SEP every year, and if you can afford it, then fund the Roth. If you are in the highest tax bracket, I would advise you to skip the Roth, and invest the $6,000 in real estate.

Then borrow against your 401k and make a self-directed IRA with your SEP (once you save up at least $50k) and buy real estate with your SEP. In your SEP, all of the income from your rentals is TAX FREE!

To anyone 21 and over and not self-employed: You should start your own business. (Even while you are still working!) If you make more than $600 per year in your new business, you can contribute to a SEP. A SEP is, by far, the best retirement savings vehicle there is!

@Stacee Evans If the person you want to partner with is "very smart", then you should just ask him/her how he/she wants to structure it. Don't go to them with an idea of how you want it to work, because they will tell you. If they are not yet interested, just ask them for their opinion on the deal.

@Jeremy Bohnett If you are paying cash, why is the EIN filing holding you up? Sounds like you already have the LLC filed, right? If it's cash, I don't understand why you can't close today in the name of the LLC?

@Jeremy Bohnett Cart before the horse. Put in an offer first. By the time they counter and you counter - you've eaten up a week. Assuming you come to an agreement, make sure your last counter offer increases your closing date to 45 days (or more). This will give you time to get your affairs in order. 

Remember, success happens when opportunity meets preparation.

@Amy Heitner I am sure you had good intentions, but copying inaccurate information from another third-party source and posting it on BP, before verifying the accuracy of the information yourself, is unprofessional and likely illegal.  If you did not get the site owner's permission, I'm pretty sure you've violated copyright laws. Unfortunately, many new members of BP trust all of the information they read on this site. You are doing them a great disservice.

Your post has quite a few upvotes, which I can only assume means that many BP members are thankful for the information, but I'm sure those that voted didn't know the information was mostly inaccurate and incomplete. For those that want the correct information, here are links to the ACTUAL Fannie Mae and Freddie Mac Small Balance Loan Programs. The other loan programs mentioned my Amy vary so widely by lender, it is impossible to list their specific details.

Just as an example, here are just a few of the things that are wrong with the Freddie Mac loan specifications posted by Amy:

Freddie Mac Small Balance Loan Program

• The rate is NOT fixed for a range of 5 years to 30 years. (The maximum fixed rate period is 10 years)
• Loan to value rarely reaches 80% unless you are in a "top market"
• The size of loan is NOT limitless. (Limited to $7.5 million)
• 30 year amortization is an option, but it is NOT the only option.

There are so many more qualifications/ disqualifications like:

• 90% Occupancy
• No military or student housing
• Net worth equal to, or greater than the loan amount
• No subordinate debt

I find that most people don't even qualify, instantly, because they don't have a net worth of over $1 million, which is the minimum loan amount.

Bottom line here BP members: Don't believe everything you read on BP. Do you due diligence and go to the source to verify that what you read is indeed accurate.