All Forum Posts by: Gabe C.

The way it was framed to me by my attorney was basically "what would you be willing to lose?" Basically fill up an LLC until it contains the limit for what you'd be willing to lose if you were sued, then start another one. Not that the other one couldn't be pierced too, but you up the cost and annoyance to do so. If you're leveraging or buying cheap properties, it might mean a few. If you're paid off or buying expensive homes maybe one. In some cases umbrella insurance is plenty. Totally an individual choice. Worth talking to an attorney.

@James Somers I struggled with that same decision about 6 years ago. I decided then to stop contributing to my 401k and use all that money instead to build a real estate portfolio. I wasn't able to pull the existing money out since I'd have to quit to do so, but it also was a nice benchmark since it was about 10 years worth of contributions. I wanted to see how long it would take to get to the same place via real estate. It made a MASSIVE difference. In less than 2 years I had already accrued as much in real estate value as I had in my 10 years of 401k contributions (even considering mortgage debt). 6 years later, it continues to snowball and I have made many times the 10 year 401k contribution amount. That also factors in a 40% increase in my 401k since I stopped contributing. In 10 years, the gap will be much, much wider, and in the future when the debt falls off (which is, of course, taking care of itself) and the cash flow quadruples, it's going to be a laughable comparison. Or I'll pull out equity to leverage even more. So many options! People have already enumerated the many benefits vs. 401k (leverage, taxes, appreciation, depreciation, cash flow, full access/control, backed by physical asset, etc). 

All I did was redirect money that I would have put into my 401k towards acquiring single family rentals, and reinvest the cashflow. Depending on your aggression and risk profile, you could do a lot better. I'm just going slow and steady and continuing to work a day job that I love, but there is no question that there are better places to put your money to work. The second I have access to my locked up 401k pile, it is going to get redirected to real estate. 

@anu (hmm auto complete isn't working) I think HOAs can be good because they handle the grounds and exterior/roof for a dependable amount. My SFHs come with more costs like gardening, power washing, exterior painting, roof, etc. Not to mention the tracking and management of all that. But on the flip side, it's a pain to keep track of HOAs as they accumulate and, like Dawn mentioned, I have two properties right now where the HOA is trying to force out landlords. It has definitely soured me on them. Like with any choice, there are trade offs.

@Antra M. For your first question, bad idea is relative to your situation. Do you have a lot of cash on hand to deal with repairs that come up (CapEx), or to cover costs when there are vacancies? If so, it could be more of an appreciation play. If not, it's going to be a big drain on your finances. Having cash flow softens those expenses, and if you're lucky it can be totally self sufficient after a while. And if you accumulate more properties and pool the cash flow, it really starts to snowball. While rents might go up, they also might not. Buying with hope is more speculation than investing, and it could bite you. It's worth studying data to make sure you're using real numbers and trends to make that decision. That said, Raleigh has been appreciating like crazy and doesn't show signs of slowing, so while rents might not be keeping pace, a breakeven property can still be a good investment if you have the funds to cover CapEx. A lot of properties have doubled in value in the last 5-6 years.

I personally would do it only after having a few properties that do cash flow, so I can rob Peter to pay Paul. I don't like dipping into my personal funds. If you do decide to take that risk, a good way to keep costs low initially is to consider new(er) construction. You'll have a much lower chance of any crazy expensive roof/HVAC issues for a while (knock wood), and that will give the rental market time to catch up. You may also want to only buy in nicer neighborhoods, so you are attracting tenants that are more likely to take good care of your place, keeping turnover costs lower.

Lastly, just listen to a ton of podcasts and read as many books as you can. A lot of this will just seep into your pores after a while. :)

@Jamie Yan Grats on getting started! Sounds like you’re on the right track. I’m in SF investing in NC, with similar goals and can attest that it’s very doable. Just takes a little time to get the ball rolling. Your #3 will prepare you well so that you know a deal when you see one and have the confidence to act. Keep grinding on that even if it feels pointless sometimes. You will also get to know your market that way. Zip codes, street names, developments, etc. I’d also recommend getting a biz journal sub for that area and keep up with the news. It’s good to know where things are movin and shakin... or stumbling.

I've got some friends that work with larger PM firms around Raleigh and it is working, but lackluster. I've seen them drop rents just to get them filled. Probably more concerned with the fees associated with turnover, or just not really willing to go the extra mile. I have my portfolio with a PM for the last 5+ years that has a lot of integrity and happens to be an agent and a GC as well. Usually wearing so many hats is a recipe for disaster, but it has been nothing but a boon for me. He helps me acquire the place, inspect it, manage it, etc. He's great at finding quality tenants that stay for long periods of time. I'll have to find 3 people to replace him if he decides to get out of the game. I know of at least one other reputable PM as well. Feel free to... PM me... if you want more info. :)

@Dmitriy Fomichenko Agreed! I initially went with the SDIRA for the reasons you specified. I agree that it is superior to a standard IRA, and if I had a different situation, I probably would have stuck with it. The reason I backed out was that I found another way to access the IRA money for the purposes of Real Estate. It's basically an annuity that grows with the stock market that allows you to take metered payments until 59.5 yrs old to pay off real estate, no real restrictions (can even be your primary residence or remodel). It is a setup that only makes sense for someone with a certain amount in the IRA and at a certain age with specific goals. Definitely not a one size fits all solution, and there are some trade-offs (tax benefits, minor penalties). But it is a low overhead, passive way to use the money for the same goal without restrictions. I'm able to enjoy accelerating my investments now without having to wait until I'm 60 to benefit from it tangibly or having to put the profits back into the SDIRA. It works for my situation.

I did it a while back and then undid it. A lot of hoops and restrictions regarding what you can do. Everyone’s situations and goals are different though so I wouldn’t discourage it. Depending on the amount you have there are other less restrictive options out there. Google “lasaii” if you have over $100k, for instance.

You can get an umbrella policy to cover things like that that go wrong above and beyond your normal policy. Check with your insurance provider. Some do this in lieu of the overhead of an LLC. I'd consult a good attorney in that space to properly assess your situation though.

@Matthew Coffey I use 10% for vacancy, 10% for capex and 10% for PM. Figure in PM even if you plan on managing yourself. You may change your mind. If it cash flows still, you’re probably coming out ahead. I’ve never had more than a few days of vacancy in Raleigh, but capex is guaranteed.