All Forum Posts by: Bob Lowry

Tom,

Very sage advice. Thanks,

Jeff,

I created a self-directed 401k and then "directed" the funds to be invested in buying the stock of a C-Corp I set up. My 401K owns 95% of the stock and I own the other 5%. This was originally done to buy a franchise which I then sold 18 months later for a 20% gain.

The advantage I have with this vehicle is the the C-Corp can have expenses and working capital that I can personally direct. This allows me to take a payment/salary during the year on the returns of the investments, i.e. generating immediate cash flow, instead of just making passive investments that flow back into the 401K. The exit strategy will be to sell the C-Corp assets and have the proceeds flow back into the 401K as well as annual 401k contributions. It requires strict IRS compliance rules, so if you are interested I suggest you reach out to a CPA or other professional for advice and do not take my perspective as your only perspective.

Also, thanks for the C-Corp funding response. Knowing banks, and that the are risk averse, I can see they want a steady cash flow to pay them regardless of if I ever make $, lol. Guess I will need to build the business cash flow before I seek their capital.

Jon,
Thanks for the reply. Using the 2% rule whether you start from the purchase or from the rental rates the final amount is the same.

If the rentals in the area are going for $1650 then the amount I can pay for the home is only $82,500. Such pricing does not exist in California. If I bought for $82500 and used 2% the rental amount would be $1650 - the numbers are the same either direction.

The question is if the 2% Rule is accurate as I do not think it would ever work in this market, or from what I see in any market.

My question is if anyone is using that rule and if so, in what types of market - geo general.

Thanks,

Kyle, thanks for the sanity check!

I am a real estate investor in California, using a C-Corp as my investment vehicle, funded by my 401K.

I am interested in leveraging my investments by seeing if I can take cash out of a cash positive residential rental property and use that for investment in another property. In checking with Wells Fargo I am being told they will not allow leveraging of investment properties within a C-Corp. If this is industry practice, then it appears that a C-Corp is not able to leverage real property investments (assets) for additional investments. Seems odd to me.

Has anyone else found the same issue and if so, how are you able to overcome it and leverage your funds?

I just read the "Ultimate Beginner Guide" provided by BiggerPockets and noted the investment rule of 2%, and find it may not be realistic in my humble opinion.

If I am correct using the 2% rule, a home that cost $200,000 should rent for $4,000/mth.

In California, the rental I have cost me $200,000 (low for CA) and I am happy to get $1650/mth or about 9% per year gross return per year on my investment. (1650/12=19800/200,000=9.9%). Trying to get $4k/mth is unrealistic, even in CA.

At the same time, homes in a Cleveland OH suburb that are selling for $60,000 should rent for $1200/mth using the rule but in fact according to Trulia they are renting for $550-800/mth.

Can this "2% Rule" be accurate or has someone made an error?
Getting 2%/mth would be 24% per annum and seems unrealistic.

What am I missing?

Great thread, especially for a newbie!

Just getting started in building a real estate portfolio. Have one solid home, just waiting to rent it. Now looking at liens as a means for cash flow and returns and deeds as a means for lower acquisition costs to initially build more cash flow then to hold and rent.

After 30 years of corporate life and trying to be PC, it sure is more relaxed being engaged in your own business, and especially in tangible properties!

Still can use any guidance, learning's, so will be tracking this thread going forward.