Translation: "Whoops, I got found out. Still open to soliciting suckers though, here's another thing I just made up. Byeeeee"
Well put. Couldn't have said it better (or longer) myself!
@Account Closed
My fault, I thought you said paychecks in the title when you merely said checks. But they're sort of synonymous terms, so much so that I didn't even see the difference, especially when you use them in the context of getting paid every month. Ok, so again, where are these checks coming from? How are you receiving them? And how are you avoiding early penalty withdrawals from you 401K and income tax?
@Account Closed
Well, I was being mindful of manners, hoping to engage in a meaningful discussion about the far-reaching effects of the topic you brought up because it is intriguing. You instead chose to not only not read every word I said, but you read almost no words. Hence why I decided that you are a con man, a charlatan, and are attempting to obtain leads. So manners went out the window when I realized that. Offense intended.
And as for you chart, yes, I never once disputed that. But anyone with half a brain knows that the market goes up, the market goes down, but as a general rule of thumb it heads upward when you look at it on a long enough timeline. The one you provided is 20 years, and even in that span it's gone up. Will it go down again? No doubt. If people are close to retirement and want to maintain their nest egg if they need to use it in the next couple years then maybe they should think about alternative strategies or going more bond heavy. But the 4% rule takes all this into account, most everyone here knows about it, so again you're preaching to the choir. And the people that don't have enough money in retirement accounts still won't have enough, regardless of which way they go. Maybe if they have their very own Mike Wright, the paragon of virtue, to guide their way they'll be A-OK though.
And again, you did not answer my question still. You were the one that used the word paycheck. That means a very specific thing. It means a weekly, bi-weekly, monthly, or annual payment. I'm not twisting your words, you were the one that phrased it that way and implied that you'd be getting a steady paycheck by using your method. When the fact is that you can't, and won't, without first paying early withdrawal penalties and income tax on those withdrawals. Whereas the alternative, traditional buy & hold real estate actually DOES provide something that would be described as a paycheck, the first of every month, usually in conjunction with significant tax benefits and no income tax due. Is there merit to your plan? Absolutely, I never said there wasn't. But it's not the end all be all. And it's not even the most immediately beneficial way to invest in real estate. Will you increase your net worth if you successfully use your strategy and build on that? Yep. But real estate drops too. It comes back around eventually. But let's not act like real estate and the stock market are all that much different in valuation over long stretches of time. In fact, in the area I'm investing in, the properties were worth sometimes twice as much as they are now in 2007. They haven't recovered in nearly the way the stock market has. So does that mean I'm 100% right and you're 100% wrong. No. It means that there's room for all means of investing. But poo-poo'ing anyone's style or claiming that they're unsophisticated and scared of change is just proof positive that you're a flim-flam man. And I ain't selling anything to anyone. Believe that.
@Account Closed
No, you dunce. I like both, I do both currently already, so I'm partaking in a little white and a little Rye AKA diversifying. You didn't read anything I said, if you had you'd have seen I have twice the exposure in real estate that I do in my 401K. But I'm not foolishly neglecting to max out my tax advantaged space like you're suggesting. I just happen to be fortunate enough to be able to do both things, max 401K and invest heavily in long term buy & hold real estate. Money & tax benefits for later, money a& tax benefits for now. I'm choosing to not have 100% exposure in real estate by also holding it in my 401K because it's un-diversified that way and I don't get the additional tax benefits of holding it in a traditional manner. And for the record, I didn't ask a question about the SEC hack. I read it already, big deal. I said you're saying "Here's why X is bad, what if I told you I had a better way" It's goofy TV infomercial logic and you're transparent. Or you're just a conspiracy theorist. Either way, I didn't ask about it. I asked about how your 401K scheme gives anyone an actual, physical, spendable paycheck in 2017 without first being subject to taxes and early withdrawal penalties. But you weren't interested in answering that question apparently. Anyway, carry on. Good luck fishing...
It is for the *Lurkers* who don't know that this is a real option. The transaction isn't a "one off". I've done many of these with people and their 401ks and more to do. It isn't uncommon to double the money on a Subject To in a very short period of time.
I realize that it is *painful* to look at things differently than what we've been taught is *good* investing. But, I look at the results and at 65 it is awfully hard to buy groceries saving through a 401k. That to me is *more* painful.
I can find these properties and transactions in most states. Maybe not California (though to be clear I haven't tried there) and that means others can find them too. They just need to learn how. Thinking differently is the part most people find to be painful.
I'll be honest, from the way you're writing it and the title of your post, seem to me like you're trying to drum up business for yourself. "I've done this for lots of people, hint hint, ask me how." Coupled with the fact that you're gearing it towards lurkers who may not know any better, plus sowing seeds of doubt about the SEC itself, it seems like a ploy. I used to be a salesman, I know a pitch when I see one. I already told you that I looked into this, in fact it was what made me start to think about wanting to get into real estate to begin with. But I decided, as many have, that it remains better to invest in a diversified way. Standard, old fashioned 401K for way, way down the line if/when you need it, and for tax benefits now. And then real estate for cashflow and tax benefits now. It's not an either/or as you pose, it's both. Nothing you've said here is earth-shattering or new information to me, or to most people.
As I said, for people that aren't fortunate enough to max out their tax advantaged retirement savings accounts yearly, it's going to be a tough slog in retirement any way you slice it. Can you double their investment with your method? Maybe. But that also requires them to have that amount in their retirement account accessible and be willing to take the gamble. You can run numbers and show your results all day long. But if someone has a grand total of $30K in their retirement account after working for 30 years, and struggling to save that much, I very much doubt they'll be compelled to take a flyer on 20% of it. And for those of us that have many hundreds of thousands of dollars in our retirement accounts, we've all in this very thread, said that what you're saying makes sense on a baseline level but that it makes way more sense to take the tax benefits from maxing out traditional retirement accounts now and also invest in real estate. If we can replace our income through real estate then the 401K just becomes the bonus money, rather than having to rely on it to fund our retirements like many have to. None of this is painful to look at, I'm all for alternate modes of investing and maximizing returns. I'm someone who has sold close to a million dollars of used clothing, at 70% margins, as a home based business. Nobody taught me how to do that, I don't remember the section in my Econ class where they talked about where to find old t-shirts.
So none of what you're saying is challenging to me, or scary to me, or new to me. I've already looked into it, some of it has merit, but I decided that I'd rather not put everything in one basket so I do both. But I take umbrage with how you're discussing it as if anyone with a dime in 401K that isn't in real estate is an idiot that isn't thinking about their future. Yes, there are people out there, most of America that are woefully underprepared for retirement. But this isn't their salvation. The only thing that will save them is to live a more frugal lifestyle, increase their savings, increase their income, and do the math about how much they'll realistically need in retirement and then reverse engineer it to tick all the boxes I mentioned. Can what you're proposing be an element of it? Sure, why not. But to act like it's the end-all-be-all and to diminish the positive aspects of other forms of investing, sounds like a sales pitch to me. And again, your method, if I'm understanding it correctly still doesn't provide an actual paycheck that can be spent in the here and now. It bolsters your 401K account and you can further invest with that method. But it's still essentially sitting there until 59 1/2, and if you need it prior you still have to pay early withdrawal penalties and taxes. Whereas with normal buy & hold investing you pay basically no tax on the cash flow due to paper losses, but you DO get an actual, physical, spendable paycheck every month. Nobody's saying investing within a 401K is impossible. We're just saying that it's not the only way, and often times isn't the most intelligent way to deploy capital depending on everyone's unique situations. Treating your idea like a cure-all is where you lost most of us. But maybe some lurkers took the bait, fair play to you if they did.
@Account Closed
Right, I get it, it was one good deal for you and your friend. Still didn't answer any of my questions at all. Also you're still only talking about a tiny sliver of people that have 401K accounts. The vast majority of people who have employee sponsored plans would not be able to do this, nor would they be able to move their accounts to different brokerages to allow them to do it so the point is moot. To do what you're saying they have to have it in a self-directed Solo 401K where they're able to invest in alternative vehicles themselves. And unless you're over 59.5 you're still not able to pull a paycheck from the proceeds out of your 401K without paying taxes and the early withdrawal penalty. So that's where I'm failing to see your point. Because you don't get a paycheck from it anyway. Sure, you bolster the money in your account by profiting from the flip, but I fail to see a major advantage. Holding a property in a 401K minimizes the benefits of real estate, depreciation, tax benefits, etc. I get that this seems to have been a good idea for your friend, and maybe I'm misunderstanding the type of account they have or they're already of retirement age, but this type of idea simply isn't good for everyone. And you admittedly said you did most of the heavy lifting. The chances of the average Joe to have a Mike Wright in their lives that can hold their hand and do all the work and know the process in an out, is slim. Also having $30K in a 401K account is generally going to be reserved for somewhat high income individuals. It's not a lot of money, but you yourself provided the average retirement holdings of people and we know most people have very little even at retirement age, let alone any sooner.
The entire reason I started looking into real estate was because I had heard about using self-directed IRAs to invest in real estate. I thought, that's amazing, I can use my holdings that are locked up in retirement accounts to invest in real estate. But then I read the fine print. I can't personally benefit from the income, I don't get the benefits of the depreciation or tax deductions, I still can't pull the money out without penalty and paying taxes on it. After that I saw that it wasn't as great an idea as it seemed on the surface. And I'm more than happy with the 10% tax-free growth I'm receiving in my 401K accounts. And I choose to play with my own actual cash in real estate, leveraging as I can and picking up properties at a good clip. And I'm fine letting my 401K "just sit there" gaining value every day without me having to do any work at all. As everyone has said, it's good for diversification to have multiple vehicles, and multiple streams of income for later in life. Putting all your eggs in one basket is what causes financial crises, I'd rather avoid that. And I'm someone that understands real estate investing and I still wouldn't recommend putting everything into one basket. Even 50/50 makes me somewhat leery but that's where I'm at for now, I may choose to diversify further. But I'm certainly not going to diversify less. What you're posing worked for your friend, and the numbers look appealing. But he could have just as easily done that with hard money or private lending and gotten close to the same returns. Just because you can use money from your 401K doesn't mean that you should. If he was using the money as a line of credit from his account rather than pulling it out of the market, that's a different story. But as I said, people that can do that are few and far between, and you're not able to do that in retirement accounts in general. Even I, as someone with a Solo 401K, could move my account to somewhere that allowed to self direct for this purposes but I choose not to. To me I'd much rather let the 401K be what it was intended for rather than co-opting it for this purpose. It's supposed to be a paycheck for much, much later and not now. It's an investment vehicle, so you could technically invest in anything including real estate, but to me I'd rather do it with my own cash so I can get the additional benefits. Otherwise I'd think I'd be better off just doing a REIT.
@Account Closed
I mean, yes, in theory you're right. But it's certainly not an either/or scenario. Although most people do choose only 401K because they don't have enough disposable to income to even max out their 401K let alone think about putting it elsewhere. The high income earners are generally the ones that are able to use both real estate and 401K and de-prioritize the 401K side of things somewhat. Not maxing out your tax advantaged investment vehicles if you're able to is dumb for anyone, in my opinion. Because I'm 1099 my max 401K tax advantaged contribution is upwards of $50K/year. Unless I get really tricky with my numbers there's no way Uncle Sam isn't going to get a huge chunk of that money, even if put into real estate due to the limits of passive losses, etc. I continue to max out my tax advantaged accounts every year, and rather than putting the rest in taxable accounts, I put that into real estate. So I'm diversifying by default.
Real estate is great, and I believe in all of the benefits therein. But having a boat load of money in a 401K account growing tax free with very little risk, for 30 years as a hedge of sorts until I need/want it is also a pretty good deal. Am I putting twice as much money every year into real estate endeavors versus what I put into my 401K? Absolutely. But to say that 401Ks serve no purpose or are a foolish use of money is kinda ridiculous and is divorced from reality somewhat. For many that's the only kind of savings they're able to do, and even then they can only wrap their head around it because they get the added benefit of employer match and tax benefits. That's unfortunate, yes. But not everyone is making six figures. I think everyone should own some real estate. But if you're making $30K and have two kids as a single mom, I'm not going to poo-poo you for putting a couple grand a year in a 401K rather than dabbling in real estate, since the 401K is zero-effort and all reward. Long term would real estate yield greater dividends and immediate access to those funds? Potentially. But the 401K is for later, much later.
And I think that's the heart of your misunderstanding. People are planning to use 401Ks for retirement specifically. As in, they plan to work till normal retirement age and sock away as much as they potentially can. Lots of us here aren't planning to work till traditional retirement ages hence the real estate and focus on cashflow. But even I, as a high income individual, am not willing to forego the benefits and hedge aspect of the 401K contributions every year. My game plan is to retire at or around 40 with enough rental cashflow to pay my expenses and live a reasonable low-cost lifestyle. And to keep contributing to my 401K since there will be a benefit to doing so tax-wise. But by the time I'm 59 1/2 I may find that I won't need that money at all for myself. Which would be great. Will I kick myself for not dumping every dime into real estate when I had the chance? Maybe, maybe not. But I doubt it. Because I'll be sitting there, financially independent, with a million or more (having grown tax free from a few hundred thousand) in retirement accounts that I can choose to use or not use. Or to pass down to family. Again, I see your point and that's why we're all here, we like real estate for what it offers. But that doesn't negate the benefits of what a 401K offers. And especially to those that aren't as fortunate as us to have enough income to invest in real estate. I choose to take the best of both investment vehicles because luckily I have that option.
But I can certainly understand why many people find real estate a daunting endeavor and would rather throw their money into a 401K, let it grow, and then let that be their paycheck later in life. Whereas a lot of us here are choosing to invest in real estate now to replace our paycheck now and not later. It's a philosophical difference maybe, but neither are wrong necessarily. I agree that everyone should be open to real estate if it's an option for them, but advising against investing in 401K at all for anyone but the most experienced investor is dangerous, in my opinion. I have friends and cousins that make considerably less than I do and know that I'm doing real estate. But I've never once tried to sell them on the idea because our goals and financial situations are all so wildly different. Blanket advice has no purpose in that scenario. And if they're putting money in a 401K I'm certainly not going to dissuade them. Because quite frankly, it's not just "sitting there." The money is working for you, silently, every day, in the background of life, without you being involved. Real estate isn't nearly as passive, of course, and for some that's enough to just choose one path. Will that mean they won't be able to retire early or replace their paycheck with cashflow? Sure. But again, everyone's goals and life experiences are different. But yes, in the highly self-selected group here, if you're a high income individual and you're not at least dabbling in real estate on some level then you're leaving money on the table. But you're preaching to the choir. And you're also missing the benefits of traditional 401K investment vehicles, which I'm sure most of us here still employ at least somewhat in our long term strategies.
And for the people you mention that put money in 401K and won't have enough in retirement at all, I doubt real estate would improve their situation that dramatically. Some people choose to be spenders, and they'll always be spenders. If they make $100, they'll spend $99. Unless they experience a fundamental shift in their line of thinking, they'll never be able to comfortably retire anyway. Having enough for retirement is more than half mind-set and spending habits. If you don't have that part locked down, no investment vehicle is going to be a magic bullet. Now if they only spend $35 of that $100 they earn then they'd have some room to experiment and create additional income streams. But 99% of the world doesn't think that way, and unfortunately that's the way it's been forever. Would I love to gently give them advice for how to improve their station in life and long term goals? Sure, but that's not my place nor is it feasible. You can't change people who don't want to change. So to me, the average Joe that's putting money into a 401K isn't losing out on any opportunity because if they didn't put it in there they'd just find an excuse to spend it on something else more than likely. It's a sad reality. But most of us here have that complexity cornered already, hence why we're here to begin with. For those of us that are not here or don't have healthy saving, spending and investing habits, it's going to be a tough slog any way you slice it. So I'm okay with them thinking 401K is a good idea, because it's not a bad one.
@Michael McKay Very cool, I'm curious to hear more about this. I actually posted about this the other day and didn't get much of a response. Figured it was more of a niche method than most of the usual ones. But I'm in a similar spot to you that I have a Morgan Stanley 401K/IRA account with significant investment in it and I was hoping to leverage that to use for BRRRR purposes some time in the near future. Though someone when I posted said that unlike a HELOC or HML you would not be able to write off the interest paid on the loan since the collateral guaranteeing the loan is not a physical property. I haven't checked with my CPA to confirm or deny but I've seen some conjecture on that point but more than likely it seems like it's true and that would be one detriment to using this method versus the others. Would love to hear your perspective of how you set it up, how long it took, the logic behind what percentage of your holdings they'll offer you as a line, etc. 50% was lower than I'd read about, it seemed more in line with 60-75% depending on the types of holdings I believe. Let me know how the process has gone so far for you and if there are any snags to look out for. Totally agree on giving yourself significant pad to prevent the loan getting called should a significant drop happen. Any notes or perspective would be much appreciative. Thanks!
@Andrew Syrios For sure, I don't see much difference in method at all between cash, HELOC or HML or SBLOC. I think there's arguments for all of them. I was just more curious why SBLOC seemed to not be talked about at all around here or anywhere else seemingly for that matter. Was hoping I'd find someone who had employed that method that could shed light on the pros/cons/potential risks, etc. Ah well, guess I'll have to be the guinea pig and report back.