All Forum Posts by: Chris Haydis

@Brian Eastman

I like your post, I understand the points that you are making and I know you are very knowledgeable, as this is your area of expertise. That is primarily why I wanted to reply and understand further.

I know that one of the biggest problems with 401k loans is job security, as the note will become due within 90 days of a job change, or the balance will be treated as an unqualified distribution (and taxed and penalized).

My question is regarding the double taxation issue; I think 401k loans are generally considered last resort options because the money is paid back with after tax dollars. However, in the event that a person is planning on getting a loan regardless, every loan will be paid with after tax dollars. With a 401k loan, however, while the borrowed money won't be appreciating (or depreciating for the matter) in the market, it will be getting the interest that you pay yourself, rather than some other finance company.

I'm sure there is a factor that I'm not considering, but seeing as the OP is probably going to get a loan anyway, I think that a 401k loan might be one of the best avenues, with the stipulation that he considers his occupation within the company very secure. I eagerly await your thoughts.

Chris Haydis

Dan,

Thank you very much for your input. I know that it will take her awhile to qualify for a mortgage, and I will not do a contract sale or seller carry loan or something like that...My biggest thing is that I would definitely like to keep the property, but I know that the tenant is happy and I'm afraid that dynamic might change if I say no. The good thing is that there is plenty of time. 

I guess in a perfect world, I would sell and do a 1031 exchange into a better producing property; this one has very low maintenance, but rents for about $150 more than PITI, so I would think most investors would consider that breaking even because of long term repairs and maintenance that will come up eventually.

Thanks again for your advice Mr. Bosak

I currently have one investment property that I bought 2 years ago, with the intention of buying and holding for a long period of time. It has been rented to the same renter for the duration, who is Section 8, and I haven't had any issues with the tenant. We just re-signed the lease the 1st of November, but now she just called me and wanted to know if I wanted to sell because she is going back to work soon so won't qualify next year.

I bought the brought below market value, PP $69,000 and appraised at 90,000. I told her I wanted to keep the property for a long time, so I wasn't going to sell below market, she said okay. If she can and will buy, should I deviate from my plan for a nice short term profit, or just stick to the plan of buying and holding.

Thanks in advance for all your valuable advice!

Thank you very much to all for your valuable advice, I listened to every bit of it. I put the listing on postlets and got immediate attention! I garnered many phone calls and was able to get it rented by the 1st...I'm very excited for that, as on the first of October I hadn't even started moving out yet! I converted the property to county water from well water, moved out, clean it and painted it and rented it in 31 days! Oh yea, I also had to replace the two toilets because the well water was so hard that it rendered the old ones practically useless, which is saying a lot considering that it was built in 2008! 

Again, thank you very much all for your input!

Let the games begin...less than 3 weeks ago I moved out of my private residence to put it up for rent, and I have already emptied it out, cleaned it, painted the interior that needed to be painted, and even hooked it up to county water (was on well, and was very hard water)!

Just finished putting up the first ad (Craigslist) and put up my first "For Rent" sign ever earlier today. Now I'm ready for the phone to ring!

@Joseph Morell Congratulations on the first year under your belt! Sounds like your doing great, and regarding your rent situation I think @Scott Nipp hit the nail on the head in that you should only raise your rent if you are at or below comps in the area. It wouldn't be worth the hassle to lose a tenant over 3% of HOA.

Regarding the finance of your next property, a couple of things that I would consider is what you family situation is and what your job situation is. I would not use my 401(k) to finance the whole property, but I would strongly consider using it for 20% down. Any money you take out isn't in the market (which only matters depending to the extent that you're bullish in the market). The other reason is, heaven forbid, you have to leave your job for whatever reason, you will probably have about 60 days to repay any loans you have outstanding. Anything that you don't pay back will be subject to both ordinary income tax rates, and the early withdrawal penalty.

If you want, you can also buy it as an OOP and live in it for a year (a general requirement for buying it as an OOP) and then move out and possibly do it again, because owner occupied properties are easier to finance. The benefits to this are amplified if you have not owned a principal residence in the last 3 years, then you would be considered a first-time home buyer and can get financing for very little down.

Great job and keep up the good work!

Chris Haydis

@Gary Gibson 

Another important thing to remember about passive losses is that it is allowed to be carried forward but it is also first carried back two years by default, so you have to go back in the last two years and see if you can write off the passive losses against any passive gains. That is the default tax treatment for passive losses, but you can elect to forego the carryback period and only carry it forward if you elect to do so in the first year. Passive losses can be carried forward for up to 20 years so if you waited 30 years to sell the house you would only benefit from the last 20 years of passive losses.

I hope this helps at all, the tax code is not easy by any means. Also @Bill Exeter I hope all of this information is correct, I'm not a tax professional (yet, I'm in my third year of an Accounting Degree) but this is what I understand of passive losses that hasn't been mentioned yet.

Good luck!

Chris Haydis

@Nana K. 

Congratulations on your first deal! 

If you're serious about the next deal, you will have to post it to the marketplace, but I might wait a couple of months until your current place is off the ground, you are doing a great job though! I am especially impressed by your numbers, getting Homepath down 25% on purchase price, sounds like you got a great deal right there! I had no idea they were flexible so that's very encouraging because I am looking to finance a Homepath in about a year if I can find the right property. I just want to make sure I don't force it because of the smaller number of properties available, I don't want to mess up on the first property I buy specifically as an IPP.

Good luck and keep it up, sounds like you are doing a fantastic job!

Good evening William,

Don't worry, you can absolutely roll your 401(k) into a self directed IRA! The problem would finding one that allows you to use it towards real estate investing like it sounds like your plan is. Any money that you roll into the IRA (don't be confused between IRA and Roth IRA) will not be taxed, but a word of caution; if you have taken out a loan from your 401(k) any amount that you haven't paid back will be subject to taxes and an early withdrawal penalty. A Roth IRA, if you're interested, is like an IRA in that the earnings are not taxed, but the money you put in is taxed when you put it in. After that, the taxes are finished! Even when you (or your heirs) take it out a long way down the road, Uncle Sam (currently) can't touch it, and there is no requirement to start withdrawing. If you will be in a lower tax bracket this year than when you plan on retiring, it would be worth it to look into (always do your research in many places) converting it to a Roth.

Keep in mind also, that you can roll a 401(k) into an IRA, but not vice-versa, so if your new job has one it might be worth it to wait and roll it into that one. You usually have time to do that, the only change is that if you are not employed by the employer the plan is at, the expenses will be slightly higher because the employer won't pay any (they pay some employee expenses normally, but not all of them). Good luck!

Chris Haydis from Mississippi

@Jay Whitfield

Thank you very much for the welcome, and good luck with the current rehab! I am from the west coast also, and insurance is definitely a scary quote to get. My insurance is 1900 and that's only with a 125000 replacement value. My house is literally only a couple of miles from the water, but it's actually not in a flood zone (350/yr premium flood figured in the 1900). When I look at potential expenses for a new property, I budget 200/month for insurance, and if it's less then that's just gravy. Good luck again!