In our final blog on self-direction, we’re going to cover taxation your retirement account might be subject to. Many people are surprised to hear that if they self-direct the account in real estate that it will have to pay a tax. But it’s true! This is because the types of investments your account makes with a broker (stocks and bond, etc.) would not have to ever pay taxes on the income. But in real estate, you can make money in other ways that ARE taxed.

And if you are subject to this tax, then your retirement account must pay that tax in the year, or years, that it incurs the tax. And this means, the account itself, NOT YOU, pays the tax. And if don’t have enough funds in the account (because it’s invested elsewhere), you may have trouble paying it.

There are two types of taxes that you might face. For simplicity we’ll just call them the “business tax” and the “leverage tax.” Both are really part of what is called the unrelated business income tax (UBIT).

The business tax applies to any business your retirement account engages in. Remember that if you invest in stocks, your IRA is not “engaged” in the business; it just “owns” part of a business. If you want to do flips with your IRA and if it’s “regularly and consistently” engaged in doi
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Originally posted on Porch.com

If you’ve ever walked around at an arcade with a couple pocketfuls of game tokens or won similar tokens at a fair to be exchanged for candy and stuffed bears, you already know how cryptocurrencies work. Except cryptocurrencies, like Bitcoin and Ethereum, are digital currencies that can be used to purchase goods and services. Today, there are more than 6,700 types of cryptocurrencies, some better known than others. Traded as commodities on the stock market and known for their volatility, cryptocurrencies have become increasingly mainstream as more people invest in them and trust the blockchain technology employed to secure them. In fact, some people are using their crypto assets to purchase large, expensive items—like houses!

Introduction to Cryptocurrencies

Major cryptocurrencies such as Bitcoin, Ethereum, XRP, an
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In my previous four posts, I covered the three main ways to structure a deal with seller involvement. Each of those has their own unique set of documents. In this post, I will briefly explain what is needed.

In a traditional seller-financing deal (notes and deeds), you should always start off with a seller-financing specific purchase agreement, especially when there is an underlying mortgage in place. A typical state-approved REPC and certainly a simple 1- or 2-page purchase contract are not sufficient to cover the disclosures and terms needed in these deals. Sellers will come back and claim that they never sold the property, or that the mortgage was to be paid off, or, in the worst case, the note is called due. Having a really good contract that covers these possibilities is critical. If you are going to invest in these kinds of deals, you should work with an attorney or invest in seller-financing specific documents.

You’ll also need a promissory note (loan agreement) and trust deed (mortgage). The type of note and deed depend on the type of traditional seller-financing you’re doing. You should also get a power of attorney or borrower’s authorization so you can speak with the bank if necessary down the road. An authorization to speak with the seller’s insurance agent can be helpful.

In a lease option scenario, you’ll need a master lea
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This final part of Key #1 discusses the contract for deed. As previously discussed, in traditional seller-financing, the investor takes ownership of the property. In a lease option, the seller retains ownership of the property. A contract for deed falls somewhere in between.

With a contract for deed, the seller retains “legal” title to the property. On county land records they will show up as the owner. The buyer gets “equitable” title to the property. This is the same as ownership and it’s not a tenancy like a lease agreement. The buyer gets partial ownership in the house, shared with the seller.

A contract for deed is an installment contract, just like you get when you buy a car with bank financing. The bank actually owns the car and keeps possession of the certificate of title, while the buyer gets to use the car. The buyer makes monthly payments and at the end of the contract, the bank transfers title to the buyer and mails the certificate.

In a contract for deed on real property, the seller keeps and owns the title while the buyer gets to use and occupy the property. The buyer makes some monthly payment and at the end of the contract, then the seller transfers legal ownership to the buyer by recording a transfer deed.

Even though the buyer does not own the house, she does own the equity growth. So, she does have more right
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Last week we talked about traditional seller-financing scenarios. In those cases, the buyer actually bought and owned the property while the seller became a lender. Lease options are the exact opposite. The seller retains ownership of the property and become a landlord.

Firstly, sellers will need to be comfortable with becoming a landlord. But once that hurdle is overcome, these are great deals. It starts with the seller signing a master lease with the investor. A master lease is one where the tenant (in this case, the investor) can “sub-lease” the property to a standard tenant in a standard lease who will actually occupy the home. Normally, there is a spread in the monthly rent where the investor is making some cash flow.

This takes responsibility for maintaining the property off the hands of the seller, which is the reason most sellers go for this deal. It also provides some cash flow to them, and may defer taxes in some situations.

The second half of this deal is the option to purchase. The option agreement gives the investor the right, through an option fee, to purchase the home sometime in the future. This can lock down a good price in an appreciating market.

A lease option “sandwich” is a deal where once the investor has a master lease and option, he then subleases the property and assigns the option agreement to the tena
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Last week we discussed a situation in which an investor partners with the seller on the project, which is one way to have the seller help “finance” the deal. In this blog, I’m going to explain what I call “Traditional” seller-financing because it’s the more common way to structure seller-financing deals.

 Traditional seller-financing is any situation where the investor actually buys the house and takes ownership through a closing. Then, in some way, the seller is helping to finance that purchase. I break traditional seller-financing into 3 sub-categories. Note: These descriptions are how I speak about them. Other investors may use different terminology. I separate them because, structurally, they are different.

The important point to distinguish traditional seller-financing from the others is that the buyer will actually own the property! And, anytime a mortgage is staying in place, there will be due on sale clause risks.

• True Seller-Financing: This is a deal in which the seller owns the property outright with no mortgage. In this situation, the seller simply becomes a bank and “carries” a note and deed (mortgage) by exchanging his equity for the promissory note. The money doesn’t change hands as it’s all on paper. The seller earns some extra money on the interest. The investor gets a better rate than other lenders. All y
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