All Forum Posts by: Adam Williams

Thank you everyone for all of the responses! This has been so helpful.

@Janice S.that's super helpful! Thank you for the detailed response. 

This is a question for my primary home. We are considering moving to Colorado. The two areas that are of interest to us are Colorado Springs (specifically Wolf Ranch or Banning Lewis) and Erie (specifically Colliers Hill). I'd love to hear from any Colorado real estate agents on which area they recommend from a pure appreciation standpoint. We'd likely be in the home for 10-15 years. Thank you!

If a private lender, a friend or relative for example, lends me money for a property or rehab and I pay them interest, do I need to issue them a 1099 or other tax doc at the end of the year? It seems like I'd need to report that income to the IRS, but not sure how I'd do that. Thanks!

Hey John, I'm looking to use a 401k loan to get going as well. Based on my research and conversations with others, here's my two cents.

First, make sure to use a loan and not a disbursement. You probably already know this, but with a disbursement, you'll be hit with taxes and a 10% penalty. But with a loan, as long as your plan allows it, there are no taxes or penalties as long as you pay it back.

Second, if you are going to use the BRRRR method, then it can make a lot of sense because you are acting as your own hard money lender. Basically, you'll just be pulling the money out of your 401k for a few months and paying yourself 6.5% interest. Whereas if you use hard money, then you'll pay someone else 10-12% plus a few thousand dollars in points and fees. So if you believe that you can successfully execute a BRRRR transaction and pay the loan back within a few months, then why not pay yourself the interest and save on the thousands more that a hard money lender costs!

Last, if you are not planning to refinance the property, then I'd be very hesitant to use a 401k loan. In this situation, your monthly 401k contributions are going to pay back the loan rather than increase the size of your 401k. And if you are missing out on adding principal to your 401k for years, then you are risking your retirement.

And just in case you haven't come across this info yet, you can only borrow up to $50k or %50 of your 401k, whichever is less.

I hope that helps and good luck!

@George Blower thanks for the detailed info!

@Carlos M. thank you! I love how you positioned it as me being my own hard money lender. And yes, it would definitely be a loan rather than a disbursement.

We're just starting out, and I'm considering using a 401k loan to help buy BRRRR properties. We'd be paying it back within a few months once we refinance. There's obviously some risk. And we'd bringing some of our own cash as well to the deal.

Have any of you used a 401k loan to buy rental properties? What'd you think? Would you recommend it?

Thanks!

Very helpful! Thank you both.

I've been running the numbers on a bunch of places and the cash flow after all expenses often comes out to be between $50-100/mo. Since I'm targeting $200+ in cash flow, the deals don't seem to work. However, in my expenses, I'm setting aside money for vacancy and capital reserves. If I include those dollars, then the cash flow will raise to above $200. At times, it's $300-400.

So, when considering the cash flow for a property, would you take a deal that cash flows let's say $75 knowing that with the vacancy and capital reserves, the deal actually cash flows $200-400?

Thanks!