All Forum Posts by: Jon Martin

All fair questions and yes, there are far too many variables to say with any sort of certainty. Here is how I look at it:

If you have $125K in a Roth 401K that will earn tax free earning at just under 10% per year, you will get a doubling every 4 years based on the rule of 72, making that $125K worth $2M in 30 years. That $2M would be worth $100K on a safe 5% withdrawal rate at that time. Very significant, and demostrates the power of compounding interest. 

Now, if you pull out that $125K and pay the tax penalties, that would get knocked down to ~$100K after fees and taxes (rough numbers for easy math sake). Given that some of that would be your contributions that were paid with after tax income, especially after other REI tax benefits offsetting the blow, the cash eaten by taxes/fees wouldn't be as bad as the back of the envelope math suggests. Either way, you would be left with roughly enough to put 10% down on a $400-600K property and still have cash leftover for closing costs, furnishings and minor touch up renovations.

At 4% appreciation, that home would be worth $1.35M and be paid off by the end of 30 years which yes, is significantly less than $2M. However, if you can profit $1K/month off of that property and cycle that cash flow back into something that makes the same return as your boring 401K, that will net you another $1.8M in 30 years, pushing you well over $3M. That's without figuring in tax benefits, increasing revenue per year with inflation, picking a market with more appreciation potential, making more than $1K/month profit (very doable) etc that could supercharge those numbers even more. 

That's how pulling money from a retirement fund can net you far more in the end if you do it right. 

Cleaner is paid a fixed rate for a specific job, you are paid a % of revenue. My smaller property averages $450 per stay (3 nights) and the cleaners charge $90, so they make more than a property manager would. My larger property scales up similarly. Work on raising revenue so that you can pay yourself more.

Plus if you have good systems in place, you should be spending much less time on each booking than what your cleaner spends cleaning it. 

Self managing is easy money with tech and systems. I do relatively well in my day job by today's standards but my hourly rate for self managing is closer to that of a surgeon. 

I have partnerships where I take a management fee off of topline and split profits from bottom line. Partners are happy because I don't charge an exorbitant fee and do a much better job. If I scale to a point where I no longer have time and have to outsource, that line item is already accounted for and the property will still be profitable. 

The work to connect the water line is minimal, plus it will make ice for you. You will spend far less on that work than the cost of filters and bottled water, plus you do it once at the jump instead of constantly restocking over time

I'm going to be the devil on your shoulder here. If you are rolling the funds into an appreciating asset that also cash flows, you can make far more money over time than what a retirement fund will do. If in 20 years the house you purchased is worth 2-3X what you paid for it, and has been paying you cash flow per month that is equivalent (or better) than what the principal would generate for you, are you even going to care that you had a bigger tax bill one year 2 decades ago?

If it is a Roth 401K or IRA, you should be able to withdraw the principal tax free. Roth 401K will still have a 10% penalty on your own contributions but no taxes IIRC. Plus, if you self manage you could wipe much of those taxes out with depreciation.

That said I would like at other options first- can you pull cash out of any of your existing properties, either through a cash out refi or heloc? Or can you do a 401K loan to yourself? 

With the exception of 1 bedroom units, you basically have 2 options:

-Oversized/commercial machines (potentially multiple sets)

-Off site cleaning with clean spares on site

The latter is almost always the most efficient and basically what hotels do at scale. If your cleaners are trying to clean multiple units between 11 and 3pm, that is likely the only way it's possible. Most cleaners are willing to do this, so you shouldn't have to deal with a 3rd party commercial laundry service. 

Agreed with above- kitchen & baths only. Only exception would be if you have a game room or extra living area that is far from the kitchen, then it would be a good idea. 

Keep in mind that someone has to change the trash bags each turnover. 

I don't know your market but it looks like a lot of thought went into the design and layout.  Well done!

Not a fan of single nights because they invariably prevent quality (ie longer) bookings because they punch holes in your calendar. I personally don't have the bandwidth for them and don't need them. 

That said I could see a strategy where you open single nights closer to the date, but even then I would only do them for weekdays. 

This. We aren't talking about appraisals and permitting here. 

That said you should make it clear in the listing.