All Forum Posts by: Thom H.

Great survey and very interesting results guys. Thanks for bringing it to the site. My next thought is, ok, now how do we get the banks/etc. to understand the nature of our investment power and open the gates to allow more systematic investing? The restrictions are still crazy out there. You would think the banks would be seeking out strong, well established investors with a proven track record, but is certainly doesn't feel like it.

Nigel,
There are a lot of factors to consider and not knowing your market and further pricing and rental rates, it's hard to give much advice here. I have eight 1br / 1ba apartments in my portfolio (I agree with Tim C. above, there's not much difference between a 1br apt and a 1br condo.) Mine stay rented all the time in my market (as there is a shortage of 1 bedroom units in my area). However, recognize there is a tendency to have higher turnover rates with 1 bedrooms in most markets. It really depends on your market and the numbers...

Welcome to BP Paul.

I own both... The multi unit should be a buy and hold strategy in my opinion. Just the nature of a multi unit is a higher priced investment, so you immediately narrow your buyers because it takes more money for someone to buy it from you when you're ready to sell. The are a lot more buyers for SFH's and condos because of price is lower...so many more buyers in that market. If you're looking to flip or sell relatively soon after purchasing go for the SFH over the multi.

On the other side, recognize with a SFH or condo, when you have vacancies or tenants that don't pay, the lost rents tend to hurt a lot more (especially starting out if you have limited resources and need every penny to make mortgage payments.) However, with a multi unit, if one tenant is late or you have a vacancy, it's easier to absorb because the other unit(s) typically can cover the costs for that month.

It all boils down to your objective. I started with a multi unit for the latter reason. I wanted a higher degree of confidence the rents would always cover my expenses and mortgages if there were vacancies. I still own that multi unit (years later) and it's very profitable to this day ( and have no intention of selling it any time soon). I've since bought both more multi units, SFH's and town homes and they are just as profitable, but SFH and town homes are definitely easier to sell if you need to exit. Just my experience...for what it's worth.

Define your overall REI objective, understand your ability to financially cover costs if things don't go as you expect, and your exit strategy will probably define itself. Hope this helps. Good luck!

Steve, Excellent point for others. In his case, he has been with the company 12 yrs, so he's fully vested on both his contributions and company match. No restrictions, but thanks for the reminder. It's a great point that others should be aware of before jumping.

All good points, and I agree on the tax rate point, but it's actually the 10% penalty AND the lost compounding of the taxes paid early.

Wow! Go to the day-job for one day, and look what happens! Great posts folks! Thanks for all the input. I love this web-site! So many knowledgeable people willing to help! It's awesome.

John C.- thanks for the note on Jeff Brown's articles. Jeff's articles are actually what got my friend and me talking about this option. Small world! I plan to read more of Jeff's articles before I make a decision on my 401k future. However, my friend likes Steve's suggestion for his particular situation.

Steve, I'm happy to say, my friend spoke with the plan administrator 20 minutes after I told him about our discussion and found he can pull it out with a few stipulations. But bottom line it is possible. Now he's got me looking into it too! Great suggestion. Thank you. He loved your suggestion.

Joel O.- You were so right! My friend said it took some pulling to get the information about withdrawals from the plan administrator. He said it was obvious the admin did not like the idea and seemed more concerned about losing the fees than the best interest of my friends retirement well being.

Scott W. - Thanks for the "self deal" note. Good point to be aware of on the self directed IRA option.

Michael, Brian, Zachery - all great comments. Thank you.

Terri- best of luck to you and your hubby! Thanks for commenting. Always great to hear others are making it happen. Good for you guys! Best of luck.

Thanks Steven. I will let him know to discuss further with the 401k administrator. Sounds like a very viable option. Great information. Much appreciated.

Steven, Thanks. We discussed this option, but he also plans to continue his current employment situation for another five years or so, and I don't think the company 401k has an option to roll into a self directed Roth (I think the only way he can do this is to leave the company earlier than planned.)

A friend at my "day job" asked me a question this week regarding cashing in his 401k to fund purchasing more rental properties, when he learned that I was in the rental property business. He's a mid-forties corporate type with a couple of duplexes and four SFH's. He was considering cashing in his 401k, taking the Fed tax hit of 10% and the immediate income tax hit on the early distribution. He indicated he had over a half a million dollars in his 401k. He recognized he would net only approximately $300k after taxes and penalty. His plan was to buy rentals and figured he could more than make up the penalty and out perform the lost compounded interest of the 401k. His reasoning was to achieve early retirement. The 401k would not allow him access to income until 59 1/2 yrs old (not withstanding a 72t option). He was looking to leave the corporate world in his early 50's using the residual income from his rentals. His further rationale was fear of a potential downturn in the stock market given the weak economy, and his poor average returns in the stock market over the past decade. His rental experience led him to believe he could make 10% to 15% on rental investments verses his conservative estimates of 5-6% returns in the stock market for the same period. He seems to be completely averse to the stock market based on his recent losses. This guy has owned rentals for over ten years, so he has a pretty good sense for the local rental business. He has reserve funds of six months for his rentals, so he has a pretty solid foundation financially.

I am curious what the opinions are for this type of move. Is he committing financial suicide or making a smart financial decision? I found his logic persuasive myself, but it would concern me to have so many eggs in one basket when conventional wisdom tells us to have financial diversification. I'm hesitant to provide financial advice on this one, so I suggested posting the discussion on BP in hopes of getting a variety of opinions to help him in his decision. I know this is limited information to do a full analysis on his specific situation, but hoping to generate some useful discussion points to share with him...

Great plan Kenneth. Smart moves, sounds like you're on track and found a conservative way that works for you! I use an equity credit line and tend to start like Michael above with at least 30% down on most of the purchases that I've made. Like you, my objective is to pay them off asap and let them work to buy the next. I paid my primary home off years ago and have continued making an extra payment on my rentals every month since (like you). I've never taken a dime out of the business in over eight years, and just let the profits and extra payments buy the next one. I know there are many big leverage REI's out there who would kringe at this philosophy, but to each his own method. This works for me very well and I never had a sleepless night. In fact, I sleep like a baby with 80% of my units free and clear. I will share, that I did break my own rule, and just closed my first owner finance deal this past spring on eight town homes with only 10% down (it was a 20 yr term-10yr balloon deal). I couldn't resist the low fixed interest rate (4.5%) and it's the second purchase from this seller (the first one I bought for cash and wished I known his willingness to finance). The OF deal allowed me to minimize my investment and use his money for a long time (relatively cheaply), while I focus my payments on my equity line so I can free it up sooner to buy my next property. First time for me with that small of a down payment, but great units, with great cash flow, so I bent my rule for the first time in eight years and put down less. But it appears to have been a great decision, and one I'd do again. I'll likely use his money for the full ten year term, and make sure my equity line is emptied in time to pay it off near the end, and then pay the remaining equity line down within two years. In the meantime, I can buy a few more buildings with my equity line and will be at my freedom date in only 3 years. Conservative and sleeping sound!