All Forum Posts by: Todd Magin

If the rental numbers work, then it would be OK, but your margin for error would be low.  How much better would those numbers be if you got the property (or one like it) at a discount?  Don't fall in love with the property, fall in love with the deal.  My advice would be to move on.

@Lee Lockhart 

I agree with @Kevin Siedlecki.  The cautionary tale here is definitely the vacancy rate. The property is currently running a whopping 33% vacancy rate but Kevin's numbers reflect both a 10% vacancy rate and increased rental rates going forward, so you need to be sure of the underlying cause for the vacancies and have a plan to bring them in line.

Run the numbers using the BP calculators with some more conservative values, say $900 avg rent and 17% vacancy (one vacancy year round) to make sure there's not an alligator in them thar waters. :)

@Justin Windham

Perhaps I should READ your post ... sorry . I see that it is the "qualified plan"

@Justin Windham

In the IRS chart you provided, which entity represents the Solo 401k?

I'm sure I'm preaching to the choir, but what follows is more for those following this thread who are still not convinced that converting your IRA(s) to a self-directed IRA which invests in real estate is a good idea.

Unlike many of the other alternatives that one could invest in, real estate offers more consistent cash flow so it is much better to have in an IRA portfolio. Let's say you have $1M in your IRA and want to pull out $50K every year to live on. Therefore, you need a CONSISTENT 5% return so your funds will never be depleted. If the IRA was invested in stocks, bonds, mutual funds, you could certainly AVERAGE that over a number of years, but there may (will) be years where you actually lose money in the markets. What do you do those years? Live in a crate and eat dog food? With real estate, you get much more consistent returns (and much higher if you manage properly) so that you can comfortably pull that yearly "salary" out of the IRA while still growing it (at a lower rate because of your distributions).

@Brian Eastman

I had not considered that side of the tax consequences. If I'm following you properly, there is a negative to holding properties within an IRA in that you don't get the same write-offs (mainly depreciation) that you would get outside the IRA. Of course, you still get to defer ALL taxes within the IRA, so I look at that as a major advantage as one's available funds for investing can grow much faster if the tax man is not eating into the profits.

It is true that the IRA could invest in other more standard investments (stocks, bonds, mutual funds, etc) and the investment property must beat the pants off of these other avenues to make it worth it, but there is another thing to consider when approaching this ... YOU are in control rather than a mutual fund manager or CEO of some Fortune 500 company.

I'm not following your cautionary point. The property investment, whether funded by the IRA or by cold hard cash needs to stand on its own and deliver stellar returns. Are you trying to make the point that there are additional overhead costs involved with funding the investment within the IRA and these should be factored into your analysis of the property?

@Sonny Ruckstuhl Thanks for the warm welcome. I should probably let the experts speak, but all the research that I've done indicates that any 401k or IRA can be rolled into a SOLO401k. If this is not true, it's a complete non-starter for me.

I also just read that a SOLO401k can have a sub-Roth IRA account contained within (funds kept separate, of course). Any funds that go into the Roth portion need to be post-tax, and funds that go into the main 401k portion are pre-tax. Perhaps the experts can weigh in on this topic as well.

I missed Justin's comments above before hitting "Post".  You guys are FAST!!

@Brian Eastman @Daniel Dietz  WOW, I've been on BiggerPockets for one day and it's already paid for itself ... oh right, it was free!! :)  Seriously, thanks for the input.  You have confirmed my hopes, alerted me to dangers, and guided me to other avenues to explore.

Educate me, what is a SOLO401k and where can I find more info on it?

What a great forum!!