401k

[Chris Sukala]

Ok so I have now about 25k sitting in a 401 that I do not contribute for about 6 years. Of course it hasn't had much gain. Do I leave it there and forget about it or do I pull it out,take the hit and invest in real estate. I am thinking about pulling but on the other hand it could jut sit for a worst case scenario.

[Michael Swan]

I am really worried about continued postings regarding investing in a tax deferred self directed IRA in a tax deferred instrument like passive tax deferred real estate. The stupid tax (10% penalty) should not prevent you from cashing out your IRA or 401k money for each downpayment on properly leveraged tax deferred real estate. Read below.

Here is an example. I am closing this Monday or Tues on a 12 unit Apartment complex that, based on current leases and rent role will cash flow approximately $18,000-$22,000 right out of the gate each year. The downpayment came from a Condo that I only put down $34,000 four years ago. We purchased this property for $125,000.00. All I did was take out $50,000.00 from my tax deferred IRA to pay the stupid tax (10%) penalty and the taxes to make that down payment. It cash flowed $6,000 a year and had no vacancies since 2011 when we purchased it. Soooooo, we earned $24,000 on let's say $50,000 because of the taxes etc.... We had to pay on that original amount. That was a 50% return right. Much more if we just count the $34,000 down payment. That would be about a 70% return for those 4 years. That is about a 15-20% return on investment per year.

Now for the amazing part. We 1031 are exchanging this one little condo for the 12 unit apartment complex. We sold this little condo for $275,000.00. Remember, the purchase price was $125,000 four years ago. When you do a 1031 exchange, the taxes are deferred. That 50%-70% return (in my pocket by the way and not put in some IRA and taxed later) now gets added to that $150,000 in appreciation and all that money is tax deferred do into the 12 unit apartments complex.

Sooooooooooo, $24,000 in tax deferred cash flow plus $150,000 appreciation = $164,000 on a $34,000 or $50,000 if we are worried about the stupid tax and the reg taxes, which are much lowere than W2 earnings or sale of stocks is approximately approximately a 400-500% return.

It is a no brainer guys!! Now I just increase the NOI on these apartment complexes by raising rents and increasing efficiencies and the bank says in 2-3 years that this apartment complex will be worth about $150,000 more than I paid for it and we either refinance or 1031 exchange into a much larger complex with even more tax deferred cash flow for another 2-3 years and do it again.

You may be saying, What is the catch? It sounds too good to be true. The only way to screw this up is to hire the wrong property manager. You know who that is? That is yourself!!! I don't deal with tenants and I don't have a key to my 57 front doors (4 apartment complexes and 12 single family). I manage my property manager and make sure he keeps my properties at 95% occupancy or higher. Right now we are at 100% occupancy on those 57 front doors. We currently have $100,000 tax deferred cash flow and that is rising. We are currently negotiating to buy a 1.2 mil 21 unit in Shaker Heights, OH. This is the first time I have used private OPM and friends are going in on an equity partnership. If we get this property, we will be cash flowing $40-45,000.00 a year on that one too. I still have four more pricey San Diego Condos to 1031 for more Apartment complexes. I should be a principal in over 150 front doors easy by this time in 2017. $200,000-$300,000 tax deferred cash flow by 2018. What a country!! Our combined W2 jobs only gross $80,000.00 right now working for 30 years.

Finally, the best part ever, after you keep deferring and you die, your kids inherit at a stepped up basis and they can defer, defer, defer, and die too. That is how you get multigenerational wealth.

I love this stuff!!! Anyone can do what I did!!!

Swanny