All Forum Posts by: Mark S.

@Michael Henry

Looks like that is Spartan Invest in Birmingham, AL. I’ve personally toured with them in that market. Great team/people, but not impressed with rehab quality and have heard some not-so-great things about their property management. This was several years ago, so maybe they’ve gotten better. I found another provider that works better for me in another area.

@Aaron T., I use IRA Services Trust Company out of California. I feel their fees are reasonable compared to many other self-directed providers. There are quite a few nickel-and-dime type fees, but my investment with them is extremely passive with annual profits returned to the account and minimal transactions throughout the year. I simply pay two types of small ongoing fees with them (asset fee and quarterly fee), but all-in it's not too bad.

@Chris Seveney, understood.  My point is that the way these non-guaranteed, “preferred” returns on a passive note investing syndication are reported on K-1s for passive investors like myself where our money is at risk and the payments aren’t actually guaranteed appears to be reported incorrectly. 

@Chris Seveney, do you pay self-employment taxes on your interest income from money you have in savings that is also taxed as ordinary income?

I had an interesting and insightful conversation with my tax team recently about how AHP is reporting these "preferred returns" on the K-1 as "Guaranteed Payments."  What I didn't realize is that not only is this taxed as ordinary income (I knew that part), but it also triggers SELF-EMPLOYMENT taxes as well.  The issue is that, according to AHP Fund's Offering Statement (PDF p. 28 of 78), this seems to be reported incorrectly on the K-1s due to these payments not really being "Guaranteed Payments," but instead "Preferred Returns."

Here are two excerpts from the offering statement on PDF p. 28 of 78: 

How Much We Decide to Distribute: 
To decide how much to distribute during any calendar quarter, we start with our revenues, which include the proceeds of sale and refinancing transactions as well as payments we receive from homeowners with respect to their mortgage loans. We then subtract our actual expenses, which include management fees, bank fees, appraisal costs, insurance, commissions, marketing costs, taxes, and legal and accounting fees. Finally, depending on the circumstances at the time, we decide how much should be held in reserve against future contingencies. The amount we distribute is therefore our revenue, minus our expenses, minus the reserve amount.

No Guaranty
We can only distribute as much money as we have. There is no guaranty that we will have enough money, after paying expenses, to distribute enough to pay a 12% annual return to Investors or even to return all of the invested capital.

The second paragraph above "No Guaranty" to me, means that these distributions of preferred returns should not have been reported on the K-1s as "Guaranteed Payments," creating not-so-ideal tax implications for investors in the fund due to triggering self-employment taxes.  Has anyone else noticed this?  This seems that it will have a negative impact on all investors.

@Brit F., funny you should mention that because the other thing that Garrett Sutton said is basically not to worry about the due on sale clause.  He called it “continuity of obligation” to the bank and that in his decades of law practice, he’s never seen a loan called because of this.  He stated it’s a transfer, NOT a sale.  There are a lot of varying opinions on this, including some people on BP posting letters from lenders to the contrary, however, I put a lot more faith in what he, an attorney and personal advisor to Robert Kiyosaki, says than someone on a BP forum (no offense).

@Roberto

Short answer, from what my title company in TN has told me: warranty deed during sales process, wait until title insurance is issued, quitclaim to my SMLLC, title insurance does transfer. Hopefully this is true as I’ve asked them this multiple times and they’ve always assured me I was fine.

@Sean S.

Great question. I just saw Garrett Sutton speak at an event this weekend (about a 40 minute presentation) where he touched on this. He basically said to use a Warranty or Guaranty Deed for title transfer but NOF a Quitclaim Deed. He didn't go into great detail (as this was one of several things he spoke about), but his comments pretty much mirrored what's been said here so far. The question that came to my mind was along the lines of what @Allison P was saying about transferring title to your own LLC. I've always closed the loan in my personal name and my title company waits until the title policy is issued and then lets me quitclaim it to my single member LLC. I vaguely remember asking them about this one time and remember being told that quitclaim from myself to my LLC is okay and that the title insurance transfers. The way I see it, as others have said, is that you get a warranty deed when you by at arms-length transaction from seller to know everything is legit and you have clear title, and when you quitclaim it to your LLC, even though it's not via a warranty deed, you know what you're transferring yourself. I always felt this was okay and have done it several times. I started to have an "oh, crap" moment and then figured I'd double check here since they weren't taking questions and I didn't have an opportunity to ask Garrett directly.

Looks like your transportation costs are almost 26% of your monthly income - and that’s JUST payment and insurance.  That doesn’t include gas, maintenance, etc.  This likely puts you closer to 30%-35%+.

To be blunt, it sounds like this car is a cash flow killer for you.  I would strongly consider a different vehicle; maybe not a $2K beater as suggested, but something reliable, with lower insurance, and minimal, or in your case based upon the 11% interest rate, NO payment.  

11% interest rate on a car loan says your credit profile isn’t where it needs to be.  

I would read a few books and realize the impact of these early financial decisions.  Set for Life by @Scott Trench is excellent, as mentioned.  Your Money or Your Life by Vicki Robin is also a good one.  Right now, in my opinion, you need to focus on financial education, eliminating that auto debt, building your credit profile, etc.  Once you have all this in place, those reserves will serve you well but I wouldn’t be in a rush to invest cash while you’re paying 11% interest on a car loan.  Not trying to be harsh.  Hopefully this is helpful for you. 

@Cameron Foster, what is your monthly income, monthly car payment, interest rate, and loan length?