All Forum Posts by: Steven Bishop

@Austin Green gotcha! It certainly could be worth it depending on the exact return of the multi family. As some others have mentioned, perhaps using a self-direct IRA for the real estate deal may also give you a good option that avoids the taxes and penalties. That would probably be better than cashing out, in my opinion. There's also the issue of asset protection to consider--the funds inside your 401k are protected.

@Elijah F., Devin is right, there's no increase on the loan for the property "donating" the equity.  The bank takes a 2nd lien on the donor property and the "cash" from that lien is funneled into the new property to provide the equity infusion needed.  Generally, this is probably only going to work when the same bank owns both the 1st and 2nd liens.   

Yes, I'm doing something similar as well with a SFR I'm putting in a bid on. The bank takes a second deed of trust against property #1 to "cover" your downpayment and then loans you the full amount (or close to it) for the purchase of property #2. In theory, as long as their is sufficient equity and cash flow, you could continue to daisy-chain the properties this way.

I'm not a financial professional but just a few thoughts:

1. You need to see if you are even able to cash out the 401k.  Many places will not allow "in service" distributions, meaning you have to leave that job before you can access the cash.

2. The money you take out will be taxed at your marginal rate.  Perhaps that is the 30% you are referring to, but just be aware it may be higher than that, especially if the distribution bumps you up to the next tax bracket.

3. Any employer match represents a risk-free 100% return on your money.  You can't beat that anywhere.

4. The 401k could earn 8-12% yearly, tax free, depending on how it is invested.  

5. Why not suspend your future contributions, save up the down-payment and get the best of both worlds?

I will leave it to others to dig further into the mathematics of it all, but those are some initial things to consider.

I agree with Bob above, given that the house is titled in your name, you will have a hard time changing it into the LLC's name. The property would have to be owned by the LLC in order for the LLC to "protect" you. Given that it is only one property, the simplest answer is probably to go out and get adequate umbrella insurance coverage that includes rental/landlord coverage....a $1M or $2M policy would probably cost less than the LLC filing, depending on your state.

Also, don't forget to contact your homeowner's insurance company and let them know you are renting it out!  This will change the insurance coverage, costs, etc. but will ensure you are covered if something happens while the tenant is occupying the home.

Hey @Khari Harper, BRRR stands for buy-rehab-rent-refinance (& repeat). Check out this podcast: https://www.biggerpockets.com/renewsblog/2016/06/0...

I was able to find a local bank (Bank of McKenney) here in Virginia that acts as a portfolio lender for rentals.  They also don't have a seasoning period on the properties as long as I do "significant" improvements.   I've done two deals with this bank and am planning to do several more.

You could keep the medical payments if you're more comfortable, that's a small contributor to your premium.  I second everything Barry said above, get the coverages reduced to more appropriate levels and I suspect the insurance costs will come way down.

What sort of strategy are you considering? You might want to just keep the $15K cash for reserves and attempt the BRRR strategy with minimal cash in.