All Forum Posts by: Brandt Smith

@Dakoda Spencer what is the debt being used for? Is it to buy toys? Then I agree with Dave. Is it earning you money (ie...real estate)? Then use the leverage to make more money.

@Lane Kawaoka I would bite the bullet. You will make more money in the long term cashing out. As for the taxes, you will pay this one way or the other.

@Rob Smith as long as you are making more money on your rentals than you are paying on your mortgage...buy more rentals.

@Keenon Moorman It feels like passing a kidney stone! But you really aren't paying 20% + 10%. You will pay 20% taxes no matter when you pull the money. The 20% is sunken cost. The big question is the 10% and whether you overcome it investing outside the IRA. Considering your gains in the IRA are taxed as ordinary income and your buy and hold are pretty much tax free, from my perspective you come out way ahead.

@Brian Eastman I agree that there are long term consequences, and those can either be good or bad depending on your situation. 

Like I said in my previous post, IRAs typically are only beneficial to protect the growth of taxable investments. Most real estate income isn't taxable, and if you grow it in an IRA you take a tax free investment and turn your gains into taxable income when withdrawn. I personally would prefer to take the tax hit on a small amount than take a massive hit down the road, especially since I would have paid minimal taxed outside an IRA.

I am not a CPA or an investment advisor. Then again, I also am not an advisor who sells clients self directed IRAs. I have no personal stake whether @Keenon Moorman invests inside an IRA or cashes out and takes the tax hit now when it is minimal.

@Rudy Jauregui less than 5 units and it goes off comps. You need access to the MLS.

@Kevin Wood most HOAs are pretty reasonable. The board members are homeowners who care about their neighborhood and just want to maintain it at the proper level.

That being said, some are ridiculous. Some are power hungry. Some are crazy.

I'd go to a meeting or two to meet the board. Do you maintain your properties? If you took a home that was an eyesore when you bought it and turned it into one of the prettiest on the block, be sure to show that off. In other words, you aren't an evil slum lord, you are the savior that is making their home values go up.

Also, this should be your tenant's responsibility. In SF homes, you are responsible to maintain the "capital" items (ie...roof) while the tenant is responsible for everything else.

@Virginia Jones what is your tolerance for the rent base? I personally won't do it but I have close friends that made themselves millionaires on mobile homes.

Mobile homes often cash flow like crazy. The problem is the tenant base. They are often the lowest of the lowest. Few will pass any kind of tenant screening. Many are felons. Be prepared to always be paid late. Expect them to skip out in the middle of the night leaving your property trashed. Plan on having to do a complete overhaul of the property each time you move a tenant our.

That being said, the stories I hear about my friends' tenants are crazy and entertaining. Me? I personally prefer my real estate investments to be passive and less exciting!

@Keenon Moorman you should look at cashing out. You take a painful hit up front, but in the long run is often the best answer.

• You are investing a tax sheltered investment in a tax sheltered investment.
• It is more difficult to invest in a retirement account
• When you withdrawal the money it will be taxed as normal income. This essentially turns a tax free investment into taxable income.
• You will pay taxes on this either way, now or when you withdrawal the money. This is a sunken cost. 
• You can more than make up for the 10% penalty with the added flexibility.

@Joe Jackson my first piece of advice is to get highly educated. It is possible to accidentally make money in real estate, but it is also possible to lose money if you don't know what you are doing. Even if you make a profit you often find you left a lot of money on the table.

I'm a big fan of buy and hold but it sounds like you own the properties free and clear. One of the big advantages of real estate is leverage. You use little of your own money to control a property. For ~20% down, you get passive cashflow. This allows you to put your money into other properties.

The best way to determine how much leverage to use is to analyze your investments. Some people use cash on cash, but I prefer to use IRR (internal rate of return) which is more sofisticated and takes into consideration the time value of money and all your cash flows in and out of the deal. Whatever gives you the best return is the best investment. Hint...it usually is the least amount of your own money in the property.