All Forum Posts by: Carter J.

Thank you, everyone, for your thorough and detailed comments. I really appreciate it. This has given me a lot to consider. I had no idea there were ways to get to retirement money prior to the age of 59.5. I really appreciate everyone taking the time to share info. It's been really helpful.

Hi all :) I'm considering liquidating my 401k to buy rental properties. I currently have 4 and they're cash flowing quite well.

I've been reviewing a few discussions here on BP that discuss the benefits and disadvantages of withdrawing money from a 401k, using self-directed 401ks, matching/not matching employer 401k contributions, and a whole bunch of other options. All sides appear to have great points.

The thing that is nagging me while I'm reading them all is this: 401ks/Roth IRAs/whatever fancy retirement savings plan all force you to retire at a particular age: 59.5, and if I understand the implication here: you can't use any of the money until you're that old. Yes, you can use it to reinvest it into whatever retirement plan you have, but the moment you take any of that money out to go buy dinner, you get penalized. If I understand correctly, you can't actually do anything with it to improve your life before the age of 59.5.

Maybe it's just me, but I'd rather retire way before that. I love my job, but I love my family more. I'd rather spend time with them than work. Let's say I get my rentals cash flowing to an amount that pays my living expenses plus whatever extra I would want for luxuries/vacations/whatever. Simply put, let's say I get all the cash flow I need to live a comfortable life (and cover rising health costs/cost of living increases/whatever). Assume it's just raining money from all the rentals.

If I'm able to do that by 40 or 50, why would I bother contributing anything to a retirement account that I have to wait to utilize? It's great that name-your-favorite-retirement-approach can save you all this money with tax advantages, but I genuinely don't see the benefit if I have to wait to use money I won't need. If I have what I need/want way before 59.5, then all the tax savings in the world don't appear to actually provide anything of value to me.

Is there something I'm missing?

@Laura Williams, thanks for the words of warning regarding the more risky type neighborhoods. That's definitely not within my risk threshold. Thanks for the examples you provided.

Solid point. The areas I'd been looking at had increased marginally over the years, so your examples of recovering money via appreciation are making me think a bit more.

@Melissa Kirchhoff, thanks for the follow-up.

Thank you!

Yeah, I can see how my wording would make it sound like that. I plan on buying multiple SFHs to diversify my risk.

The more properties we buy, in addition to my W2 job, yes, I should be able to cover it. I'd be very surprised if something exceedingly expensive happened that wasn't covered by the property insurance I'll be getting for these rentals.

Yeah, thankfully my industry is thriving right now; hence why I'm not really looking to make real estate my primary income right away, but rather slowly transition into it over the long term via compounding passive income.

That will require a lot more overhead than I care to deal with. My W2 job is demanding enough, so I really don't have the time to build up and invest in a rehab team that I trust. Plus, my personal risk tolerance for doing rehabs requires that (for me, not speaking for others) I'd like to only do rehabs where they are local. I'm sure it's possible to make a fortune with rehabs out of my local area, but that's just a lot of headache that I'd rather not deal with.

Yeah, that's the funny part about all this. I've done a ton of research and analysis. But knowing my luck, I'll end up totally changing strategies within a few years. Guess we'll see!

@Gordon Starr, thanks for the follow up.

Yeah, I ran the numbers on this and given the rent prices in our area, it just doesn't make sense.

That's why we're taking the HELOC approach, though technically it's not cash since it's leveraged. With that said, our house has increased in value by 20% since we purchased it 3 years ago, so the local market is only going up. Holding onto it and utilizing that equity seems to make the most sense for us. I'm sure different strategies such as selling and renting would work far better in other areas.

@Lane Kawaoka, thanks for your words of caution. I can imagine the eviction process would be a massive headache (and costly as well). That's one of the reasons I'm looking for upper B neighborhoods if possible. My cash flow will be reduced, but statistically I expect on average there will be fewer headaches. No idea if that'll actually be the case or not, but I guess I'll find out.

@Mike D'Arrigo, thanks for your insights and confirmation about my risk estimates. It's been somewhat difficult to balance the right amount of risk to take vs the payoff, and what to value in the beginning stages vs as I get more experienced. I appreciate your thoughts on this.

@Ali Boone, thanks for sharing! It's funny you share that link. I had read that very blog post that you wrote prior to me starting this forum thread. It was actually a major part of what inspired me to seriously consider doing turnkeys. Thank you for writing it and sharing your thoughts! I really appreciate it.

@Nicole Hoss, thanks for your response.

Lots of cash flow. I'd like to build up enough to be able to entirely replace and surpass my W2 earnings. Appreciation and equity are not major factors for me. If there is appreciation, great. But I am not basing my future investment goals off of any appreciation whatsoever.

@Jeff Schechter, thanks for that excellent explanation. It's really helpful.

This is my approach. While I would love to get great deals (in terms of equity/value), I think I'm a bit inexperienced to be able to manage finding a great equity/value deal while also getting a good cash flow deal, all the while maintaining my normal W2 job.

This is really good to know. This is also what I've been looking at, but only because I'm not really familiar with anything else. This is a great point regarding a benefit of SFHs.

I never thought of it this way. Great point!

This is my strategy. I know I'll get a few bad equity/value deals. I've accepted that. As long as the sum total of all my investments are averaging good cash returns, I'll be happy.

This is what I've heard. Thank you for the confirmation.

@Ryan Mullin, thanks for sharing your thoughts. I really appreciate it.

This is a great point. I'll bear this in mind and make sure that the value of the home makes sense for the purchase price point. I certainly don't want to get sold an overpriced house just because its cash flow looks good.

@Gordon Starr, that's really interesting. Thanks for posting that.

@Jabari Long, thanks for the warning about maintence costs. It's something I'm trying to be wary of and bake into my numbers when evaluating deals. Solid point.

@Account Closed, you bring up some great points. Thanks for the warnings. Much appreciated.

@Stephanie Medellin, thanks for your insights! I was hoping someone using a complete opposite strategy would jump in and share their thoughts. I really appreciate it.

Yeah, I agree. I investigated the BRRRR strategy and/or doing rehabs and selling (no rental). I think in the long term, I'm willing to take that hit to the equity gain and accept that I really won't be getting great deals. For me, this is the trade-off for the convenience of not needing to manage rehabs. I totally agree that it is highly unlikely that I'll find better deals with turnkey than with doing rehabs. I think this is one of the downsides of turnkey investing that I have to accept if I go this route.

These are really good points. I can't really think of any mitigations for them. I think if anything, this is a risk I need to consciously accept when choosing the turnkey route.

Agreed. I think this is probably the biggest risk factor for me. Hence why I'm trying to do a bunch of due diligence with the turnkey providers I choose. Additionally, I'll be starting off with a small amount of properties and then slowly building out the portfolio as I gain confidence that the providers I've chosen are trustworthy and provide good packaged deals.

Neither. I'll be requesting detailed photos and video walkthroughs from both the provider and an independent contractor/assessor. If the I am not satisfied with what I see or if the provider's walkthrough/pictures looks deceptively better than the contractor/assessor, then those are some pretty big red flags.

@Patrick Britton you raise a very good point. Thanks for sharing your thoughts.

Agreed, and that's good to know that the appraiser will likely appraise it at less than what the turnkey provider will assess it. I hadn't really considered that as something to prepare for.

@Gordon Starr thanks for taking the time to respond. I really appreciate it.

Yes, that's correct.

That's a really good point. I haven't really seriously considered that.

From what I understand, regarding buy & holds, the money is made during the buy. So if I only make offers (and stick to them, rather than becoming emotionally attached and giving in) for purchases that make the numbers work, I would think it would negate that risk. Am I missing something?

Regarding turnover, I have baked in 10% vacancy into my estimates. From the properties I have evaluated, a bunch of them (a minority, not the majority) meet my requirements for cash flow. Given that they are 1% properties, it seemed like 10% was a good number to choose. Would others disagree? I don't want to fool myself into using bad numbers when evaluating a property's potential cash flow.

Regarding repairs, this is a big unknown that I'm still trying to figure out. I would assume that my capital expenditures are going to be rare, but cost a lot. Therefore, I was imagining that I would need to keep a certain percentage per property saved up in the bank in liquid funds ready to spend on the repairs. Knowing my luck, I would get 20 properties, and they would all have some massive expense at the same time that isn't covered by the insurance I had purchased for the properties. I was considering baking in saving up 10% of the home value into an emergency account for each property. So in other words, let's say I have 20 properties, each valued at $100k. I would aim to have $200k (20 x 10% of $100k) set aside, ready to go at any point in the bank, to handle capital expenditures. Does 10% sound like enough?

@Melissa Kirchhoff thank you for your insights, you bring up some concerns I hadn't quite been able to articulate. I appreciate you sharing your thoughts.

Regarding this, I was planning on going through alternate methods of finding highly recommended contractors and/or assessors to independently assess what is wrong with each property before I buy it. Perhaps I'm living in a dream world and this isn't as practical as I would like to think. I know people keep knowledge of good contractors a secret, since they are hard to find. That's why I have to also consider finding independent assessors, though I haven't really heard of this so maybe that's not really a thing people can do. I'm still new to all this. Are there any recommendations you could make for how to independently assess whether or not a property is too good to be true?

I'm planning on saving about 10% of the property's purchase price in an emergency account in case of unexpected capital expenses that insurance doesn't cover. Does that seem like enough or is that unreasonably low?

Honestly, this isn't a big one for me. I plan on buying 40-60 properties over the next 10 years and so if I bake that amount into the numbers I run, I'll learn from the first few deals and be more conservative in the future. I'll certainly have fewer properties that match my numbers, but I believe I can learn from these situations.

In this case, this is where I believe having multiple properties are going to really help. There will be dry months, but the more properties I have, the more the sum total of rentals can offset vacancy of others. With that said, I have baked in about 5% vacancy into each of the properties I have run, just to be safe.

If I lose my job *and* there is vacancy, then similar to the above answer, I'd be able to rely on the extra money brought in by the other non-vacant rentals. Additionally, in order to pay my own mortgage, pay for living expenses (food, utilities, etc.), I have saved up 6 months of expenses in an emergency fund to handle that type of a situation. For my risk threshold, this should give me time to find another job to replace my current income.

I want to build enough passive income to not only meet, but exceed my current W2 income. That way, once I'm comfortable with living off the passive rental income, I can not *have* to work. However, knowing me, I won't stop doing things, but at least if I want to take some time off, I am not forced to work if life throws curve balls at me.

@Jay Hinrichs thanks for sharing your thoughts. I appreciate it.

Yeah, this is what I'm counting on. I've been researching turnkey providers and have found really good recommendations for at least two of them from multiple people across BiggerPockets. I'm also doing thorough research of my own and comparing it to what the providers are saying, because if what they say doesn't match what I have found in my research, then I'm not going to trust them.

This is a really good point. I have built up a bit of an emergency fund that should get me through the tough times. However, that said, your point is still really valid. Given that I have lots of family in the area who I know I can rely on in hard times, I know I'd at least have a place to sleep if we had to sell our house and for some reason couldn't afford to move out of the area and rent an affordable home. I'm mentally/emotionally prepared to lose our house in the worst case scenario. I'd like to avoid that if possible, though, hence why I have about a 6 month emergency fund and a bunch of recruiters I talk to on a regular basis to make sure I can find a job to replace my current income in the event of something like losing my job.

I hadn't considered this. But it makes total sense. Thanks for this recommendation!

Hi everyone, I'm looking to start off in real estate investing. I've done a ton of research on BRRRR, flipping, wholesaling, and a bunch of other various strategies. They all have their various pros & cons. Given that I have a full time job that I don't want to leave (I have no desire to become a real estate agent, flip houses for a living, etc.), and given that I'd like to start off investing in real estate with little overhead, it seems like the best approach is to buy turnkey properties from a provider that I trust (and do all the research on, get reviews from other people, form a relationship with, etc.). I have a decent amount of equity in my primary residence that I can use to make my first few purchase. With my full time job, I can put a decent amount into savings each month such that I can buy multiple properties a year (aiming for ~$75k-$120k properties that would net 1% rent, rather than the 2% approach). I ran a bunch of numbers and it looks very feasible for me to build a decent portfolio over the course of 5-10 years with what appears to be little effort relative to managing rehabs, hunting for deals, etc.

Therefore, I'm pretty sold on the turnkey approach at this point. So I want to ask other people here: given your experience, what reasons can you give for *not* starting off with turnkey real estate? I'd like to know about horror stories, words of caution, things to watch out for, etc.

Thanks in advance!