All Forum Posts by: Nick Gray

@Dmitriy Fomichenko @Greg Scott Does voluntary departure from a job count as termination of employment? Could one simply change jobs and withdraw 401k funds without penalty?

Hey, @Axel Ragnarsson. Thanks for reaching out to me and congrats on your RE success to date. I already have an agent for this purchase, but I will certainly keep you in mind for future deals! Hopefully we'll meet in person sometime soon. 

The subject line says it all. Where do you invest capital between real estate deals? Individual stocks? Short-term bonds? Mutual funds? Index funds? The dreaded savings account?

I joined the full-time workforce in January and I have begun to contribute to my company's Roth 401k, in large part because I am enticed by the concept of tax-free earnings and a corporate match (a standard 60% of the first 6% of salary contributed). However, I wish that I had access to this money for investments in real estate, which I view as my primary path to financial freedom. I have heard that one can invest in real estate through IRAs, but still I would like access to my properties' positive cash flows and equity gains earlier in life.

To those who have access to such 401k plans, do you contribute? If not, where do you invest or park money between real estate deals?

My main impetus for jumping into the real estate investing game is the potential for (near) passive income and the financial freedom that it brings. Thus, I am only interested in deals that cash flow positively. However, I am currently looking for a duplex to house hack on an FHA loan (3.5% down) and I recognize that the 96.5% LTV and PMI will make positive cash flow, even when I eventually move out and rent both units, more difficult than if I had a conventional mortgage.

The more cash flow the better of course, but is it likely that I can find a positive cash flow deal with such low money down? Should I instead be satisfied with deals that, under FHA loans, are break-even from a cash perspective and then, once re-financed into conventional mortgages with 78% LTV, cash flow positive? In case it is relevant to this discussion, I live in a semi-expensive Northeast market (Seacoast New Hampshire).

Thanks @Jeshua Patrick. I have already been pre-approved by some credit unions, many of which are offering me first-time homebuyer, 5% down, 3/1 ARMs with interest rates as low as 2.8% and no PMI. Would you consider this or is an ARM during a time of rising interest rates something to run away from? I do save a good deal of money from my W2 job and I could easily pay down the loan to 75%-80% LTV and re-fi out before the ARM's rate changes in 3 years. At the same time, ARMs hurt a lot of folks back in 2007-2008 and should be approached with caution.

@Ben Leybovich I'm intending to use the BRRR strategy on a house hacked duplex. For example, I would buy a poorly maintained duplex worth $250k after $20k of rehab at the appropriate discount ($230k or lower), paying 3.5% or ~$10k down and funding the rehab from other personal savings and loans from family. Then I would occupy one unit for the loan's 12 month seasoning period while renting out the other side.

You are right that, by the 12 month mark, the forced appreciation of $20k and measly scheduled principal payment of ~$2k would get me to only ~86% LTV. However, I do save a good deal of money from my W2 job and I could easily make early principal payments to get to 75% or 80% LTV. Doing so would let me re-fi and jump to another FHA deal at 12 months to repeat the process.

A broader question is whether this is even a viable strategy. What do you think? As a recent college grad, I have a high monthly savings rate but limited capital at the moment, so an FHA loan is my only way to a deal in 2017 without a partner. If this is a viable strategy, I want to make sure that the deal purchased with an FHA loan makes sense when it is re-financed into a conventional mortgage, hence my original question.

Having tenants buy properties for you is always better than sitting on the sidelines, even with a slight negative cash flow. However, think of it this way. How many negative cash flow properties can one afford? As many properties as one's savings from W2 work can subsidize. How many positive cash flow properties can one afford. In theory, infinity. 

In short, properties with slight negative cash flows can help you build wealth if you're okay working a regular job until they are paid off and if you only want to acquire a small portfolio. But only positive cash flow properties lead to financial freedom and exponential wealth. 

@Ben Leybovich After the FHA loan's seasoning period, I would want to re-finance into a conventional mortgage to a) remove my PMI and b) allow myself to jump to another house hack with a new FHA loan, renting out all units in the initial property. My question is whether or not I should value the property with a conventional mortgage and full rent, even if I plan to at first occupy one unit myself and have a lower down payment with PMI. A "live for free" house hack might not translate into a good deal when fully rented and, conversely, a good rental might not provide cheap living for the year when I am occupying a unit.

@Ben Wilkins

Hey @Brendan Phelan, thanks for reaching out. I'd love to connect sometime. I'll DM you with my contact info.