What creative financing method would you use in my situation?

Question

I just turned 50, I've worked a great W2 for 26 years in tech sales/mgmt and managed to save $3M across 401k ($2M) and Stocks ($1M). I want out of the W2 world but the golden handcuffs (and 3 teenagers) keep me tethered. My wife and I bought our first STR in April (Smokies) and it's going well but we realize we want to start focusing on single or multi-family. I've spoken with my financial advisor and ran the numbers where spending 5 more years in my W2 sets us up for the future but it's taking all my attention and I can't focus on real estate, plus I'm miserable. So, I'm now considering working 1 more year and during that time, ramping up into several multi-families and eventually owning 10 doors over the next 3 years. I know we won't come close to covering our living expenses of around $130k per year initially but I need to make a change. I want to avoid dipping into my retirement because I've run the numbers and even just pulling out $500k for down payments absolutely kills the compound interest and makes a material impact on future net worth.

So if you were in my position, how would you use creative financing to build up to 10 properties in the next 3 years and not sell stock or touch retirement?

Matthew Paul · Answer

Thats simple , sell the teenagers .

Brandon Croucier · Answer

Andrew, honestly just keep going.

You'll be worth 8 figures soon.

Not many people love their jobs, but it puts food on the table and you are clearly good at it if you've been doing it so long.

Use some extra income to start getting into RE investing.

If you get a seller to carry 15% in 2nd position, you just need a 10% down payment.

Its tough to do but everything in life takes sacrifice.

Gino Barbaro · Answer

@Andrew Montgomery

Not sure if you can access some of your 401k and roll it into a self directed IRA to start  investing as a passive investor in someone else's deal, to learn while you earn.

You are looking at it linearly. If you pull out 500k, and invest in a deal that will generate tax benefits, future appreciation, cash flow, and is one step closer to leaving your job, then in my opinion it' worth it.

Creative financing works if you understand the business, and aren't only looking for seller finance deals. You are going to have to deploy equity, whether your own, or investor capital at some point to generate cash flow.

Greg Kasmer · Answer

@Andrew Montgomery - If you're goal is get to 10 properties in 3 years you'll need to figure out how to "recycle" your money that you invest in real estate, mainly by either BRRRRing single families or doing something similar with multifamily. I would suggest you consider the following ideas:

- Can you put a HELOC on your primary house and pull out some cash ($100-300k) in funds to invest in BRRRR properties?

- Would you be willing to sell a portion of your stocks to pull out some funds, OR, can you get a line of credit against your stock portfolio?

Overall, I think you'll need a way to pull out a few hundred thousand via what I mentioned above or another mechanism. Then, I would consider your strategy for investing, which might be:

- Do 2-3 single family BRRRS each year for the next few years.

- Invest in 1-2 smaller mulitfamilies (2-10 units) and drive up the value so you can pull out your cash and find another similar mulitfamily property.

- Co-GP or partner on a larger syndication or JV purchase of a large multifamily. That typically is a longer (3-5+ years).

Whatever strategy you use you'll want to make sure you can make investments, drive up the value of the property and then refinance to pull out all/most of your initial cash. Difficult, but possible to do.

Let me know if you want to discuss. Trying to do something similar myself!

Good Luck!

Tanner Lewis · Answer

Hey Andrew - if you want to leave your W2 now, you can still qualify for financing on deals. Don't see that as a barrier to quit a job you hate! DSCR and hard money makes this pretty easy, but you would still be expecting to put down 20% on DSCR and a bit less on hard money.

Rick Pozos · Answer

Hey Andrew,

It sounds like you are doing pretty well. You put money aside for retirement, live the good life, kids get pretty much whatever they want, spouse gets new stuff all the time. That is all great.

I really dont believe people need to sacrifice. I think you might need to have a serious heart to heart talk with the spouse and teenagers. Let them know that they are going to have to start paying for things themselves. Expenses are going to have to be cut, just a little, maybe 10%, 15%. Put the 401k money from now on into real estate. Instead of contributing to retirement at work, put that money into the next house. Keep it up.

Keep the car until it hits 100k miles instead of 40k miles before you get a new one.

If a man has 10 pairs of shoes in the closet, thats plenty, women 30. My wife had over 50. I just told her, "I am not trying to control you, and I would never say that you can NOT buy something. Just really think about what you are doing and do you really, absolutely need that next pair?"

Just be a little more frugal in life.

ps I dont think you need to be creative, just cut back "un poquito"

V.G Jason · Answer

Someone just needs to tell you what it is.

Just work the W2, and quit bitching. You're literally forcing instant gratification when you're at the 20 yard line. Either lower your expectations, or keep the same inputs. You're not going to get vastly different outputs without escalating risk and you're old enough to not want to do that.

The biggest crime to your outputs by disrupting the inputs is interrupting the compounding interest. Be careful with your impatience.

Matt Ruttenberg · Answer

If you or your husband open up a business, you can roll your 401k into a self-directed solo 401k.  I'm a 401k administrator if you want to jump on a call with your advisor and I to go over that option.

What creative financing method would you use in my situation?

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