All Forum Posts by: Paul B.

I searched through the existing discussions as best I could to make sure I wasn't asking a common question...and I just didn't see it. I believe have learned the ins and outs of a Solo 401k. The reason I want to have one is that a typical self-directed IRA is subject to taxes because I intend to use it for passive investments in debt-financed multifamily deals. So a Solo 401k is the way to go for me. But, I have also learned that not just anyone can have one. In fact, I wondered why everyone doesn't do it instead of an SD IRA because there seem to be many advantages. Turns out I need to have some self-employment income, although there does not appear to be strict criteria on what that constitutes. It seems a good rule of thumb is that I am declaring some sort of income on my taxes. Just creating an LLC and calling it a business is not enough.

I work a W-2 job which I do not intend to leave, and it takes up a lot of my time and energy, which is why I am only passively investing in real estate at this time.

So, has anyone taken steps to become self-employed just for the sake of having a Solo 401k, because it has so many advantages over an SD IRA?

I've wondered that myself, since I own a rental condo. When I look at the assessment on the city's website, the entire assessed value is in the structure, and none in the land. So I think I should be calculating depreciation based on my full purchase price, which means I will probably never turn a profit as far as the IRS is concerned. 

It also means I will probably never sell, since the depreciation that would be recaptured is significant. 

I have never run my interpretation by a CPA, but my conscience is clear based on how I read the link that @Andreas W. posted. Thanks.

I agree with the other responses. 1,000 houses is insane. Start with one. See how it goes. If you're not a quitter, then buy another. When you get to your maximum of ten mortgages, make the jump to multifamily. Either keep the ten houses for the cash flow or sell them for a down payment on an apartment complex. If 1,000 doors is still your goal, aim for five or ten 100 to 200 unit complexes. 

 Yes, I'll be there.

Another one you might try is Thomas Wilson. The group is based in the Bay Area but invests in Texas. I haven't bought anything from them myself, but they seem to offer properties that would meet your criteria.

www.tomwilsonproperties.com/

There are many groups in town. Search Meetup.com and start attending real estate events. 

Brad's been doing it about 15 years. Obviously there are folks who have been doing it for longer (after all, he must have learned from someone). It's true that anyone who already has comparable (or more) experience might not find as much value, which would explain why most of his students have five years experience or less (but are already taking down deals with 200+ units).

As for being partners and sharing profits instead of charging for mentorship so you can do your own deals....it sounds like a totally different business model. I am sure it would be a better fit for some people, especially those who already have experience. Brad is geared more to those with little or no multi-family experience, as @Bryan Hancock has said. 

The upfront acquisition fees are generally frowned upon in Brad's group, but they do happen. A passive investor could absolutely find more than enough opportunities with a typical structure where the sponsor gets 1.5% of gross income and 20% of cash flow and capital gains profits, and no acquisition fees. The first component obviously means the sponsor is guaranteed to make something, but it's nowhere near the 20% of profits that he could make if the deal succeeds, so our interests are aligned enough for me.

Brad does about 2 or 3 of his own deals a year. Many of his students do invest with him, but I don't think he really needs to increase his pool of investors at this point.

The idea of joining a small syndicate and working more closely (instead of a large group that charges membership fees) sounds good, but many inexperienced passive investors simply don't have any value to add. If you can find someone willing to take you under your wing, go for it. Alternatively, some investors want to remain passive and don't really want to put any work in, but they want to meet experienced sponsors and learn how to invest wisely. They are not looking for another job. 

@Bryan Hancock

Brad chooses to spend his time on his students who pay for his mentoring. Any time spent allowing others to pick his brain would detract from his paying customers. It's his business model, and he explicitly says so, as you have seen. Some don't agree with it, but it seems to work for him. 

@Summer Whitten

There are a number of other ways to find passive opportunities without joining a program. Many of Brad's students hold Meetups (including in Austin) where you can get to know them for free and decide whether such a program is right for you, or potentially invest with them without joining if you are already a sophisticated investor. You definitely want to attend local REIA meetings where you could meet other syndicators outside of Brad's program if you decide it's not a good fit. Whatever you do, make sure you understand how to evaluate a potential deal and that you have established a trusting relationship with the syndicator before making an investment.

Those who have followed this whole thread can see that I initially had some reservations about joining Brad's program, but eventually decided it was right for me after all. I am now a passive investor in one apartment complex, and am about to get into my second deal.

@David Chapman 

Below is one of the first groups I found when I began this REI journey. They have a program where you can passively invest in single family homes for as little as $5,000. It might be a good way to start out without spending a lot of money or doing any work.

https://www.meetup.com/dallasreig/

I have since decided to focus on multi-family, where the typical passive investment starts around $50,000. Most of the REIAs in DFW are primarily single family. You might still check them out if you consider yourself a beginner. I think you can learn so much by reading this site, but it's good to get some local knowledge too. Aside from the group above, search for NTAREI, DFW REIA and DFW Investors.

If you decide multi-family is a better fit, there are quite a few groups in town, and usually you can find a meeting nearly every week, but they appear to have slowed down for the holiday season. Go to Meetup.com and search for "Apartment Investor Mastery." There are several groups in the area using that title run by students of Brad Sumrok. Also search Meetup for MINNT (Multifamily Investors Networking of North Texas). Any of those are good places to meet some other investors to get some tips, as well as deal sponsors that you may decide to invest with, after building a relationship. 

I was in your position only about a year or so ago, so feel free to PM me if I can answer any more questions.

Don't spend it all in one place, or at the same time. I began studying REI a little over a year ago and have since decided to focus on passive investing in multi-family properties. The people who put these deals together typically set a minimum investment of $50,000 to $100,000, so you could diversify over 5-10 different properties in different locations. But take your time, as many others have suggested. There are deal sponsors in California who specialize in markets that are better suited for investing, such as Texas. Get to know some of them, but don't be in a hurry to jump on a deal until you are sure you are comfortable. There is always another opportunity around the corner.