Value Added Opportunity

Our client, David G., as always, was looking for a value added opportunity and found a single family home with an extra acre of land which was surveyed off.

David’s original idea was to fix the home and hold it for cash flow.

Transaction Structure

David G. decided to partner his Roth IRA with a Solo 401 (K):

• David G. Roth IRA – 50%
  • Profits grow tax free and there are not taxes at distribution.
• A Solo 401(k) – 50%
  • Profits grow tax free and are taxed at distribution.

Deposit Breakdown

David G. and his partner placed a $500 deposit down on the property. Since they are partnering at 50%, this meant both David G.’s Roth and his partner’s Solo 401(k) paid $250 each toward the deposit.

Fix and Hold Strategy takes Flight

A rehabber approached David G. and his partner about purchasing the contract from them.

Even though David’s original intent was to fix and hold the property, David G. and his partner agreed to assign the contract for a fee of $38,000 for the house only.

David G. and his partner also found a buyer for the one acre lot and agreed to 100% owner finance the one acre lot.

• Sale price $20,000
• Loan terms:
  • 10 years
  • 10% interest fully amortized
  • Payments of $264.00 per month
  • Total payments in 10 years = $31,680 ($264 * 10 years * 12 months)

This is a great deal for David and his partner as the current 10 year T-Bill is around 2%. Agreeing to the owner financing locked up a 10% return for 10 years.

Profit Breakdown

Since David G.’s Roth and his partner’s Solo 401(k) each own 50%, the profits must be split evenly between them.