All Forum Posts by: Kevin S.

@Polo Vazquez first off, you'll need to check and see if your 401k plan has adopted the new CARES-Act 401k options, they are not automatic. Each plan may choose to adopt some/all/none of them and last article I saw (its been a few weeks) they were projecting only about 50% of all plans would end up adopting the CARES-Act 401k options.

Second, just because you can doesn't mean you should. You'd be taking a distribution on a retirement account that has probably lost somewhere between 10-40% of it's value (depending on your investment spread). Unless you have a negative long-term view of the market, which I personally don't, to me it doesn't make a lot of sense to take a distribution when you're down unless you absolutely have to. If you want to use the money to buy properties, why not consider a 401k loan (assuming your plan allows them)? With a loan you have to make payments that include interest, but the interest you are paying is being paid to your retirement account - i.e. you are paying yourself interest.

Finally, if your company provides a match you may not be fully vested in it all currently (it depends on how your plan is written) and if you aren't fully vested and take a distribution on employer contributions then you will lose some portion of that money.

Overall my personal opinion is no, it's not a great idea to take a taxable distribution from your 401k.

@Tom Thompson it depends. The Cares Act allows for 401k plans to adopt the new measures such as waiving the penalty on withdrawls due to Covid-19, but it does not requires plans to adopt these measures. If you're plan has not adopted them (and you can find out by asking your HR rep or rep at the place holding your retirement plan money) then you will still have to pay the 10% penalty. 

@Sergio A. There's no real way to answer this with the zero amount of info you provided. Someone could give you a quick answer of $1M or $2M but we don't know anything about your life and what it costs. You need to account for all living expenses (rent/mortgage, food, gas, repairs, etc.) that you currently pay, plus expenses that might come up in the future (do you have kids? What about medical costs as you get older?). Then estimate how long you think you'll live after 40, tack on inflation each year and that might get you a vague estimate of how much you'll need.

The better question is, do you truly want to be retired at 40? And by retired I mean making no income. If you look into the whole FIRE (financial independence, retire early) movement you'll see that a lot of those that do it end up starting some other business after they "retire" whether it's blogging, photography, or some other business that they enjoy but also provides additional income. I've read several blogs where the authors admit that they got bored pretty quickly after retiring and had to find something new to focus on.

TLDR: Depending on how much you spend per year and how long you'll live after 40, you need anywhere from $1M - $5M (maybe/probably/who knows?)

@Jason Debono I'm not advocating taking 401k loans/distributions, but I'm pretty sure you're response doesn't take into account the CARES Act which allows for up to $100k or 100% of the value of your 401k to be taken as a loan (though it must be repaid over a 3 year period I believe, which is shorter than traditional 401k loan periods). Additionally I believe they have waived the penalty, so yes @Nicole Heasley Beitenman you will still owe taxes on the distribution if you take that rather than a loan, but you will not incur the 10% additional taxes on top of your regular taxes that they tack on as a penalty.

Just a reminder to everyone that not all 401k plans allow for loans, it is an option that plans can allow but is not required. If you aren't sure if you can or not, your HR rep or the company that holds your 401k funds will be able to tell you.

@Tyler Hodgson it would be a pass for me. Like others have stated when you factor in setting aside money for R&M, CapX, Vacancy, and management (which should be included in the calc even if you self-manage) with both sides rented @ the market rate of $1700 per side per month he's losing money each month. And I don't know that he's really saving that much in rent, if he lives in one side and rents the other out at $1700 and sets aside 30% of that for R&M, CapX, Vacancy, and management each month that means the true amount going toward the mortgage is only $1,190. So he's still responsible for $1730/month himself. Yes, he can get roommates to help mitigate that cost some, but he could also just get an apartment with roommates and not have to worry about tenants, upkeep, etc. (and that's at full market, at $1400/month it's even worse).

Also, don't know this for sure, but I'm betting that the property tax amount you used is the current tax amount. How much is that going to increase in a year or so when they do a new assessment based on the current purchase price. If this was a flip and it had taxes at the old, pre-flip value you can count on a fair increase.

And what if he decides after a year or two or three that he doesn't want to househack anymore or he's tired of roommates or something else changes and he has/chooses to move? He'd start losing money every month. Overall numbers don't lie, this property is too expensive for the current market rent rates. 

@Kyle J. thanks for the screen-shot, that helps even more. I could have sworn that at one point it was located under one of the drop-downs at the top, but maybe I'm just imagining that. 

@Colin Reid I've never used Quickbooks myself, but I'm an accountant so my default is pretty much always "do it in excel". I think with only three properties you could use an excel file like this one and be just fine:

https://www.biggerpockets.com/...

If you had a huge number of properties or were running a professional business, maybe I could see the advantage of setting up accounts and doing double-entry booking, but with just three properties that's overkill. Just take that file and enter in the income and expense for each property and that will tell you your profit each month and year-to-date. Good luck!

@Kyle J. Thanks, that was exactly what I was looking for. I just didn't see it as a drop-down option under Tools or Education or anything. 

BP used to have a whole bunch of excel and word files that members had created and that you could download for free. I'm not seeing that anymore, but I can't tell if I'm just having one of those days and am overlooking them, if they got rid of them, or if that made it a pro perk. Can anyone set me straight? Thanks!

@Beau Fannon while lower mortgage rates are great, I tend to agree with @James Free that celebrating the fact that they will be lower as an effect of the Corona Virus is not a good look.