All Forum Posts by: Mark Wurtemberg

Do it @Matthew Hite. I like the idea of having control of my money. You give up control dropping it in the Roth. I believe RE is a better investment in the long run. That being said, maybe start by taking out only your contributions, leaving the gains, thus no penalty. Put that money to work. If down the road you need more, then deplete the balance of the Roth. Cheers.

Here's my situation:

I purchased a property in August. The seller had the property inspected by the city just before I purchased it and it passed. Fast forward to October, my tenant was getting utilities in his name with a copy of that inspection, required by city, and the inspection had expired, inspections are only good for 45 days. No big deal. We will just have the inspector go out again, $100. This time a different inspector failed the inspection and has uncovered a ton of issues, $5000+ so far. Plus the inspector that passed the inspection in August is no longer employed with the city. To top it off my tenant backed out as he needed a place ASAP. I connected with the seller who is perplexed about the whole thing saying why would one pass it and another not pass it. 

Do I have any recourse with the city as I purchased the property based on a good inspection?

Ultimately I am not going to let this derail me, but would like to know my options. 

Cheers,

Mark

PS----I hope this doesn't become a money pit. 

@Michael Santiago My quick answers:

1) What does buy and hold investing mean to you? - Buy, till you die, and never sell............unless there is a better opportunity to do so.

2) Have you had any regrets since getting into real estate investing? - No......a million times.....NO

3) Do you recommend hiring a property manager once I begin to invest in more properties? If so, what are some of the things that they take care of for you? - Yes. I want my portfolio to be as passive as possible. The Property Manager (PM) takes care of EVERYTHING and sends you money every month. Your job is to manage your PM. 

4) What are some of the biggest challenges/headaches that you face self-managing your properties? - When I did self manage my first property, it was a just business, not a headache to deal with everything. If there was an issue, I would need to handle it. I often tried to fix things myself (I'm a bit handy) but if I couldn't or didn't have time, I would hire out. 

@Watson Josue Congrats on the deal. 

Do you need to renovate right away? If you can wait, then I would suggest building some reserves from the cash flow (assuming it will cash flow right away) even if the cap rate is lower. 

If you can't wait, then I would suggest the following:

1. Pull in an investor. (Parents, friends, fellow BP member) Offer 8% or so. 

2. Credit Card (Ideally zero percent offers you may receive in the mail. Being careful to understand the terms to pay back in time to avoid interest.) 

3. Borrow against 401(k) if you have one with employer. (There is a fee, plus interest, usually 4%, depends on employer, that is occurred while you have the loan and it must be paid back in a year or so and before you resign from your employer) 

@Jonathan Park .....I agree with @Kristina Heimstaedt (Smile) ....From the buyer's side, I have learned that sellers don't know, or often think, that the deposit is due to the buyer at time of closing. So I like to make sure my offer is excepted prior to confirming this with the seller. This is to potentially avoid the seller rolling in the deposit amount into the purchase price thus paying more for the property. All sellers I have worked with upon learning this have discounted the purchase amount equal to the deposit and prorated rent at closing. 

I had a condo near a college for 10 years with ZERO months vacant. 3 bed 2 bath. Had between 5-6 tenants at a time. Tenants were great. The cost per month to live there was less then campus housing. Plus, mom and dad were paying for it. I was surprised they wanted the place through the summer. Some tenants had classes that ran long, other tenants had classes that started early, other tenants had summer jobs. They also didn’t want to move stuff out then back again two months later. My tenants didn’t trash the place. Some stayed just one year, while others stayed 2 or 3 years. Word always got around to other undergrad students when the place was available due to the current tenants graduating. Didn’t have to advertise they place for rent.

The deposit and prorated rent is yours. I recently received a $1500 discount on the purchase price of a property I purchased that closing the beginning of October. $750 for security deposit and $750 for October’s rent. (The tenant had already paid the seller their October rent)

Is using a loan from my 401(k) to purchase a property a No No? And how would I structure a deal if I have no money in the deal?

A close friend has learned of what I am doing (purchased 4 Single Family Homes this year with great cash flow) and wants to do the same. However, he has no cash. After chatting with him a bit I remembered that he has $100k plus in his 401(k). I proposed that he get a loan from is 401(k). Purchase property with that loan and pay back the loan, at 4%, just as if he was paying a mortgage. This works great for him as he plans to be with his company for 15+ more years therefore avoiding the loan paid in full if not repaid upon leaving the job. Plus the company match is nice. FREE MONEY. Furthermore these homes are in the $35k price range and would be purchased outright, no loan, so the loan from the 401(k) isn't a down-payment on another loan, possibly overextending leverage. 

Questions:

1. What are the pros and cons of this 401(k) loan strategy?

2. My friend also wants to partner with me as he wants to be more hands-off. Yet he would be coming in with all the cash on this next deal. How can I structure the deal so I make money as well as my friend? (Understanding he would make the bulk as his money is in the deal) I have heard of the following structure....Thoughts?

- I receive 2% of the acquisition right off the bat as I am able to obtain these deals

- I receive 2% of the monthly rent (not much in this example, but I like the idea as I scale)

- Partner receives 8% of his investment 

- Partner & I then split the remaining 

- Example: $100k home cash flowing $1000 net per month

- Partner receives the following monthly: $667, 8% on investment + half of remaining (($1000-$667-$20)/2)=$156 for a total of $823

- I receive $2000 off the bat, 2% of acquisition (possibly paid out in installments) Plus the following monthly: $20, 2% of rent + half of the remaining (($1000-$667-$20)/2)=$156 for a total of $176

***Sorry to get nerdy algebra on ya***

I know the net would go up and down due to larger expenses, new A/C, etc. And in the event our net is below the 8% to my partner, I would make the investor whole by making it up the next month(s), thus my remaining payout would be zero. 

I love your strategy @Harrison Smith. I have little cash at the moment and want to scale up with equity partners. I just didn't know how to structure the partnership. This makes sense to me. 

Questions: 

1. How often do you pay out to equity partner? Monthly/Quarterly/Annually? To me it would make sense to pay out quarterly with the first payment to equity being 6 months into the deal then every quarter there after.

2. Do you pay the 8% (in this example) no matter what, even if that period was negative? I have done a few deals and the first month or two is negative due to paying for insurance, minor repairs/cleanup from seller, and fee to property manager to place tenant. 

3. Is there an exit strategy to payback the equity partner in full so that I then solely own the property, or is this partner in on the deal forever?

4. How would you keep track of this deal? A simple spreadsheet? Is there an app for that? Program like QuickBooks? 

Thoughts? And thank you again. 

Thank you @Hunter Johnston & @Bryan Pham