All Forum Posts by: Kevin S.

Sorry, my original post was supposed to tag @Joshua Herald

@Stephen Gonzalez yes, on your first pic in the right-hand column there is a "Rental Income Increase (%)" (4th from the bottom) set at 4.0% which is telling the calculator that each year you're raising your rent by 4%. If you change this to 0 then your gross scheduled income would stay the same each year.

@Cole Hagen my feedback would be:

1) don't commit income tax fraud by purposefully under-reporting your income, I may be wrong, but I'm pretty sure the IRS rule is that other/misc. income in excess of $600 must be reported, and

2) if you ignore 1) and do chose to not report it, it's probably not a great idea to post about the fact that you're considering doing so on a site where you have your full name posted, how easy would it be for a Google search to turn that info up or for someone to report you to the IRS based on this post?

@Account Closed Congrats on the awesome deal!

@Alexander Johnosn There are really only a few ways to get your money out from a 401k plan before you reach the retirement age stated by your plan.

1) You leave the company, which creates a distributable event, allowing you to withdraw the money if you so choose, but you must pay a 10% tax penalty if you withdraw the money before age 59 1/2 PLUS normal taxes.

The next two options are ONLY viable if your 401k Plan allows it, some plans do and some don't, check with HR or read your Plan Document to find out if they are available.

2) 401k Loan - if your Plan allows, you can take a loan from your 401k up to a maximum of the lesser of a) 50% of your balance or b) $50,000. The benefit here is that typical fees for loans are $50-$100 (depending on your plan) and all the interest you pay on the loan is going straight back to your own 401k account, so you're basically just paying yourself interest. You also don't have to pay taxes on the loan, HOWEVER if you ever stop making payments or leave the company and take your money out of the plan then it becomes a distribution and you'll owe taxes on it if the loan isn't paid back.

3) Hardship distribution - some plans allow for hardship distributions, which are distributions for certain reasons (medical, eviction, etc.) and one of the allowed reason is for the purchase of a primary residence. However, if you aren't going to live there then this doesn't apply. It waives the 10% penalty fee, however you'll still have to pay normal taxes on the distribution.

Hope this info helps!

@Joshua Dorkin I'd go with the 401k loan if it were me. As @Upen Patel there are restrictions on what funds can be used for downpayments (i.e. no unsecured funds). Plus, with a 401k loan all the interest you're paying on the loan is doing directly back to yourself, and the fees to take a 401k loan are typically $50-$100 total. As long as you continue to pay on the loan and don't try and take a full distribution from your 401k, you won't have a distributable event and therefore won't have to pay taxes, distribution fees, etc.

Also, one thing to double-check is if your 401k plan allows loans, almost all plans do however I have seen a few plans that don't allow them.

@Wendy Fate I'd bump vacancy up to at least 8% (1/12 = 8.33%, so you'd have a month's rent saved up in a year). Also, I know it says recently renovated, but 2% seems pretty low for CapX, even if everything is brand new (roof, HVAC, etc.) I'd still do at least 5%. Finally, even though you may be planning to self-manage, it's always a good idea to put in management fee, typically 10% is used. Good luck!

@Katie Huynh Like @Austin Youmans said you didn't budget anything for CapX or repairs. I'd probably go 10% for CapX and 5% for repairs, but it all depends on the condition of the property. Also your vacancy rate is low, you probably want that at around 8% since 1/12 = 8.33% (so you'd have one months rent set aside ever year). Your management fee seems a bit low as well, typically those are closer to 10% but can depend on the company.

And yes, $220k on a $270k home is low, but that's the game we play. That's why you have to make so many offers, you are purposefully coming in low in order to try and get a good deal and those don't come around too often. Good luck!

@Aaron Arnold So is your plan to live in this property long-term? If not, then not sure if this is a great buy. You don't go into detail, but I'm assuming the $1,400 rent would apply to the 3-bed house, not the 1-bed guest house, is that correct? Basically in order to really make a recommendation we need a bit more info. What would be the rent on the place if both the main and guest houses were rented out? In order for it to be a good buy you want total rent for both to cover the mortgage PLUS vacancy (8%), CapX (10%), repairs (5%), and management fees (10%) (all percentages are just general, you can tweak as needed). If we assume (since you're doing FHA) that you're making a 3.5% down payment on a $250k property with mortgage interest of 5% (not sure what the current rate is, that's just a guess) you'd have a mortgage payment of $1,295.08 then add in PMI, taxes, and insurance and you're probably in the ballpark of $1,950/month. Then, let's assume you could rent the 3-bed for $1400 and the 1-bed for $900. Vacancy would be $184 ($2300 rent * 8%), CapX would be $230, repairs would be $115, and management fees would be $230, giving you $759 in additional expenses. So you're monthly break-even for the property is $2,709 each month and you'd only be making $2,300 in rent each month (assuming it's fully rented out). That's a net loss of $409/month, i.e. not a good buy. HOWEVER all these numbers are (for the most part) just estimates I've quickly done. You should use the BP calculator and really dig into the numbers for every property you look at to see if they work. Good luck!

@Marcy Leonard welcome to BP Forums from a fellow Oklahoman!