First job out of college. Start IRA or save up for first RE deal?

Question

Hey everyone,

My name is Toby and, as the title states, I am currently starting my first job out of college. My question revolves around peoples' opinions on how to best prepare myself to invest in income producing properties in the next 3-4 years in regards to 401K v IRA v highly liquid personal stock portfolio.

I have read many posts on here referring to using self-directed traditional or roth IRA's as the vehicle through which to invest in real estate, but I am curious if I have not yet started a roth would it be better to start a post-tax savings/ investment account so that I can be ready to jump on a deal nearly immediately if one presents itself? I also read that when using an IRA, all expenses must come out of that account. I am not sure how this would work as a down payment may run the account pretty dry.

To give a few more details, my employer provides a generous match to my 401k so I plan to contribute the full matchable amount there. After that though, I am budgeting that I should be able to save ~$10k my first year (and hopefully increase that over the following few years) between either a roth or alternative investment options. As I am starting with a clean slate, how would you all attack my situation if you were in my shoes?

Thank you in advance for any help and I look forward to learning more from everyone on BP!

Jacob Vincent · Answer

Always take free money (i.e. max out the company match - but don't go over).

Pick the Roth option for your IRA.

Speak with someone (even if you have to pay a reasonable fee) who is an expert in Roth withdrawals and/or IRA investing so you can be aware of your liquidity options.

If you live in ATL and can save $10K in cash per year after maxing out your Roth contribution, then HOUSE HACK!

FHA the nicest multi-unit house that you can afford, or buy the biggest and most Boss/Pimpin/Baller single-family home that you can afford, and charge your roommates (or AirBNB guests) enough so that you don't have to come out of pocket for your PITI payments.

Then keep saving $10K per year, and rinse, wash, repeat.

Good luck!

Steven Segal · Answer

If your goals have something to do with cash flow to live off of, save up and invest. Get in the hustle!

Toby Coons · Answer

Thank you everyone for the feedback and the congratulations. It sounds like my goals in the short term will be as follows:

1) Small (but growing) emergency fund

2) 401k full match

3) Max out roth IRA

Beyond that I will either contribute more to savings or 401k, depending on how everything starts to pan out. Thanks again for all the advice! This thread was a great welcome to the boards and I look forward to learning much more from all of you.

Justin Windham · Answer

Congrats on being off to such a great start. As others have said, contribute enough to your employer's 401k to get the full employer match.

Roth IRAs can provide some especially good tax benefits, but once your funds are in a Roth IRA, they can't be transferred to other retirement account types. I mention this because many people eventually discover the Solo 401k (which can have a Roth account) and are disappointed to learn they cannot transfer their Roth IRA to the Roth 401k. If you start with the Roth 401k, you can transfer to other Roth 401ks or a Roth IRA.

Elizabeth Colegrove · Answer

Congratulations on your first job!

Do both! Always max, otherwise that is money left on the table. Plus as you get further in the game you are going to want reserve funds.

We bought our first house with a VA loan 0% down. Our next personal was with the other half of VA loan 0% down and than 3rd 5% etc! My husband moves alot for his work so we rent out our house when he is transferred. We had roommates when we were renting and it allowed us to save up a bunch. Personals are much easier to qualifier for so its a great way to get your foot in the door.

In your situation you could buy a great future rental, and use it now as a primary. Rent out the rooms, living rent free. Savings the retirement money (basket 1), the house (basket 2) and than start growing your down payment for your next rental.

Mark Nolan · Answer

@Toby Coons

Consider opening a Roth IRA and invest in tax liens until a grows to an amount where you can invest it in real estate.

Jeff McCaskey · Answer

@Toby Coons

Hey congrats on the job right out of school! That has been difficult for many the last several years. So you're on the right track so far!

So listen, I'm not near as knowledgeable about stocks etc etc etc as some other members would be, but...... I do have some knowledge and life experience.

If I were in your position or similar to, I would first make sure I keep the job first off (lol) but you need a savings account so make that a priority because sh.. Does happen out here after school lets out (not saying you were unaware, just being honest). So make sure you get a few thousand saved up first while making some contribution to Roth/IRA vehicle you want to position yourself to use at some REI point in the future.

Then decide what your role will be in your yet to be formed company. You will want to basically practice being that guy in any and all ways possible.  However, you will also need to know what you're actually doing - so I would recommend that you (people say find a mentor) but go get involved with someone who is doing things the way you want to run your business some day as well as get involved with the guys doing the actual work that you will soon ask others to do.

For example: this week I am having a new kitchen installed in my current flip project. Package ran almost 5k for material right. Ok. Now to install them. Well, I ordered one step up from basic cabinets for a slightly better look right. Ok, no problem. We unpack boxes to find out that although they look great the side panels are particle board with a laminate veneer over lay. No problem right, ok. Trouble is, at top and bottom edges there is splintering of the material, most of which is easily fixed with  a dark stain touch up or wood putty. However a few cabinets had a busted edge in places. Thankfully for me those were all hidden when butted up to adjacent cabinets. - so I've discussed with my contractor how to solve that from becoming a real problem in the future. After much debate and conversation he says, "what you should do is have all outward facing sides built with plywood not particle board and that would prevent this from being an issue in the future". So had I not been there and been involved, this likely would have taken me longer and more $ to learn. Now I can make that decision from my office and others like it.

- this one of possibly thousands of small mechanical steps that go into the decision making process during renovation and flip projects. You will need to be informed enough to know who to hire and who not to hire. What a good job looks like and what it doesn't, when to stop work because of bad craftsmanship etc etc. When someone lies on a ticket about what the real costs were to complete said work etc etc. You will be earning a new education to the one you just completed.

Anyway, depending on your strategy you will need to learn quite a bit about the path you will take. Get good at the learned part as you prepare to start. Depending as well on strategy you will also likely need some capital at some point so begin to make connections there as well. Later you can use your own when you have built your Roth/IRA as well as private and bank money.

But do these things and you will be on a solid path and of course you will need to find your own way and make those mostly minor and occasionally major adjustments of your own - as well as use BP as a great tool to learn and move forward.

Good luck!

PS. - I have 2 degrees, this is more fun!!

First job out of college. Start IRA or save up for first RE deal?

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