All Forum Posts by: James Nosack

@Aaron K.

Appreciate the collaboration! Here are my thoughts...

1) My understanding is that I am able to space out the taxes I owe over three years with this program. If I choose to only deploy 20k, this is roughly 5k in taxes at my tax bracket over three years.

On the conservative side of my original post, if I reduced my expenses by $700/mo by buying down the loan $20k, in three years, that’s $25k to the good from reduced expenses. Not including the increased principal that my tenants would pay off with the reduced interest rate. Subtract the 5k in taxes and three years from now I’m sitting at roughly 20k earned by moving the funds from 401k to the property.

2) By moving the funds from my 401k, I lose on having to pay 5k in taxes, and the anticipated 6-9% return on the 401k as it sits in the fund. Paying the taxes definitely hurts.

Turning the 20k into 40k through my 401k isn’t realistic in 3 years - then again I’m not sure what the long term effect of losing out on the compounding interest would be. Maybe I’m not looking far enough down the road?

@Aaron K.

Hi Aaron, thanks for your input -

The 2-3% interest rates are based off what a couple of lenders I work with thought I could buy the rate down to sometime in the June time range. I’m not married to the rates panning out. Agreed, hitting that low on an investment property sounds unbelievable but I guess I will see in the coming weeks.

My number that rates would have to get below in order for me to justify pulling from my 401k is 4.5%, which I believe to be realistic.

Would love to hear opinions and/or advice of this mode of shuffling funds from 401k to real estate. Not a common topic among my peers, hence asking the BP family!

@Connor Anderson

Hi Connor - didn’t see the notification from your reply.

As I understand from the firm managing our retirement portfolio, I do qualify... however I will run with this and make sure it is confirmed.

It was explained to me as each plan holder has the option to waive the 10% ding if they choose to participate in the program.

I’ll let you know if I find out that I cannot!

Hi BP Family,

I am kicking around the idea of drawing $20-25k from my 401k to buy down one of my loans on a duplex and refinance.

I purchased the property on an FHA two years ago. Although it is possible that my appraisal reaches the LTV required for me to walk into a 75LTV Fannie R&T, I am trying to come up with strategies if it does not appraise.

What I have decided is that I could pay down my loan $20k if I receive a conservative appraisal. This goes against the strategy of having my tenants pay down my loan for me.

The upside of following through with this means that if rates fall in the 2-3% range (what I am being told is possible) I would be saving $800-1,000 / mo. This increases my cashflow from 400/mo to 1200-1400/mo still budgeted all expenses.

This seems like a no-brainer to me but am curious on feedback. I don’t really have the bandwidth currently to pay this down with cash on hand. The updated 401k program for COVID waives the 10% penalty for early withdrawal. Also, if the dispersement is paid back to the account within 3 years it will remain tax exempt. I would not normally consider this strategy.

Thanks!

@Fabian Marrufo

I agree with @JD Martin - If you CAN rent this place for $950, it makes sense to hold the asset.

Based on others in the discussion, $950 rent is a lofty expectation. If your game plan going into the investment was to hold long term, your numbers are accurate, and the location you picked is expected to live up to your long-term game plan, this is worth more than $40k right now (my opinion).

On the flip side you certainly don't lose realizing your return early. Re-deploying your earnings into your next buy-hold puts you in a stronger starting position than your last go-around.

What's your strategy? I like to keep up-to-date numbers I would sell at to take the emotion out of an offer when it does come around.

@Mike Marino 

1) Once you find a location you would like to invest, I suggest seeing if any of your contacts have relationships with contractors that you can reach out to. Contractors understand they will give estimates for more work than they receive. If you have (even a small) relationship with a contractor and can show them you want to build a team-relationship my experience is they will gladly help provide a ROM. If you have a number you are trying to hit, understand that you may have to sacrifice on quality of materials to make it possible. You get what you pay for.

2) To other folk's points a lot of the private money is standing by for a little while. In my opinion (also as a relatively new investor) now is not the time to reach and overextend yourself. Personally I have encountered quite a few seller-financing options with decent terms recently. Just remember this pandemic will pass and looking back on your investing career it will likely just be a blip on the radar. Maybe use the additional time for more research and fine-tuning your plan of attack?

Out of town investor looking to get some referrals to property management companies in the Indianapolis area, please share! 

@Blake Billups

Blake, sent you an invite, would like to connect with you and talk about Indy.

@Evan Liu

Myself and my business partner have done a few multi family deals in King and Pierce county. We are now looking very seriously at Indy. Both of us live in Seattle, let’s connect.

Investment Info:

Other buy & hold investment in Bellevue.

Purchase price: $400,000
Cash invested: $100,000

Downtown Bellevue condo - 1016SF 2BD/2BA - neighbors to Microsoft world headquarters and very near Amazon future expansion.

Myself and some contractor buddies were able to renovate the floors, bathroom, bedrooms, and paint all in about three weeks before getting it up for rent. Renovation cost was roughly $12k and based on nearby comps we believe the value increased roughly $75k from our improvements.