All Forum Posts by: Tyler Kress

For long term buy and hold, you can definitely find better than 11% COC in the Quad Cities - I would target 20%+ (and more than $4k/yr per door depending if you self manage or not). Feel free to DM me with any questions

 What's holding you back from self managing? 

Thanks for the reply, John, good points! That is one thing I’m most scared of, if the market happens to be in a valley at age 60 I’m stuck waiting for it to rebound or start pulling and accepting those lower returns. I never even thought about the lost opportunity to 1031 exchange at a high point if the market is at a high point or an excited buyer comes along. I’ll add it to the list of pros to share with our CFP haha

Hi Robert - Don't know your area and without digging into your calculator I do have 1 piece of advice after my wife and I bought our first house hack - get some good contractors in the area (look them up or use local REI group for recommendations) and ask them to take a look at the property during the inspection period prior to closing. I am talking specific people like a roofing company to make sure you are water tight and have attic ventilation, an electrician, GC or handyman etc - whatever projects you are thinking. They may point out things you would have never thought of and they can provide very specific price tags that you can plug into your analysis before closing.

Hi All!

I've seen a few videos recently on the opportunity with the CARES act to pull 401k $ for real estate investing. Basically in this analysis we assume we can withdraw our 401k balance with no penalty, and deducting the income tax due immediately from potential REI. My wife and I wanted a deep dive on the numbers and general financial advice so we hired a CFP with no skin in the stock game or products to sell. I was convinced when we looked at the numbers and described our goal to replace my office income with cash flow income (within the next 10 years) the 401k withdrawal to put towards a property would be a no brainer. But after he runs the numbers he advises us to not touch our 401k or at most only take half of the balance. Without doing a deep dive on his reports yet, I put together a rough spreadsheet isolating the performance of our 401k balance over the next 30 years (when I hit 60) vs. an owner occupied 4-plex using a 3.5% down FHA loan.

Please feel free to poke holes in my numbers or remind me of something I'm not considering... otherwise the decision seems pretty clear to me that we'd want to withdraw our 401k!

401k Balance: $45k

401k Performance over 30 years: CFP assumes 9% growth over 30 years. Pre-Tax Balance: $597,046

Balance unlocked at age 60 after 22% fed income tax reduction:$465,696

4-Plex Investment: $35k (FHA 3.5% Down + Repairs/Renovations)

4-Plex Purchase Price: $200k (typical for my area)

Cash flow over 30 years assuming $200/door = $800 * 12 * 30 = $288,000

Appreciation gains over 30 years assuming 2% appreciation = $162,272

4-Plex Cash Flow + Appreciation after 30 years = $450,272

Notes- cash flow is still $800/mo since we will rent out the current unit we are living in at $200/mo (acquiring 4 rental units). We have been through enough with our first duplex rental property that should help minimize risk of buying a bad deal or not doing enough thorough inspections/background checks/etc. 

There are also the intangible benefits like how you don't just get the lump sum of 401k at age 60 without paying more taxes, tax rates likely to be higher in 30 years, cash flow now will help us reach our cash flow goals/retire earlier, less eggs in the market basket, etc.

Thanks for the feedback!

Hey again to anyone who is still following this thread, I wanted to say thank you again for your encouraging comments and constructive feedback/insights for us to keep in mind as we get started. We have continued to educate ourselves and network over the past month, and I am happy to say we are very close to signing our first purchase agreement for a duplex in our area (Moline, IL)! Our current house has been on the market for a week (HOA- No renting), and we are going through the steps on a private sale with a fellow experienced investor in the local monthly meetup group. The great thing about this deal is he has agreed to make the closing contingent upon our house closing and he is helping with all of the newbie questions.

To close up the thread on my dad's cousin - he gave me another call a few days ago to see how things were going. I told him where we were at and why it was a good fit for us and he kept his negative comments to himself this time - he has been forwarding us random commercial opportunities which are reminiscent of the AOL days when I would see chain mail a few times a day (lol). In all fairness I told him we are not just shunning all commercial opportunities (for down the road), we are still just starting to learn at this stage. I explained for us a simple house hack at 5% down and managing one tenant was our way of dipping our toe in the investing world in something that seems relatively easy to grasp and manage- we do not want to creatively finance and become the owner of a $600K glass company or a $2M gas station right now. And he was cool with that and said to let him know if we were ever interested in learning that side of things. So while his and my parent's approval wasn't needed (and we moved on without it), it is nice to not hear such strong naysaying on the other side of the phone :)

Now that we are close to completing our first deal I am already thinking of ways to get the 2nd. The last meetup this past week was a pretty inspiring one with other people that were in our same position back in March completing their first deals (or getting close like us). A couple guys are into the buy and holds and a couple are stronger at the wholesaling/flipping side, it was a great mix and open discussion/networking. Always walking away learning something new or getting some good books/apps/etc recommendations.

 Oh I am still reading LOL I was not expecting this amount of discussion and encouragement but it is great! At this moment my dad's cousin wants me to call him back to talk more about commercial ideas he has but I am dreading another hour long bashing of small rentals... I will probably take the advice of comments here and ask him what exactly his numbers look like and what he is thinking a week later with the hopes that maybe I can get a piece of his rentals or maybe he's willing to offer some free equity for input. Either way my wife and I still fully plan on doing our sell/move in duplex no matter what he throws at it but now I know to just nod my head and let the blanket criticism go on by. 

By the way I also appreciate the comments advising to make sure my wife is 100% on board. We have had our share of long conversations and she is fully supportive + ready to be a part of it. She has always been a huge advocate of saving+investing in general and said she has always been interested in the real estate world (HGTV probably helped lol). We know it will probably be more work than we are expecting and we are prepared for that. Luckily with our planned first step we are only managing one tenant, and even then inheriting a lease that goes through May so hopefully that makes the transition very smooth. She loves to write and a BP podcast reminded me about BP blogs, maybe she will be Journaling our experience :) 

I can barely keep up with the comments but keep them coming! Thank you for reading the post and your feedback/supportive replies! It is great to read about everyone's experiences and the support is super inspiring :) 

For those saying we should build more reserves, technically our bank is about 23k, we just figure with the sale of our house at 12k and expected up front cost of the prospective first duplex being only around 10k we will have enough reserves. Plus we are inheriting "good tenants" who mow the lawn and are professional cleaners, lease goes through May 2020 and they were asking current landlord about a 2 year option which seems encouraging in minimizing vacancy risk in the short term. Also it feels like our reserve is safe since we are going from an expensive mortgage to a cheaper one, so we can afford it even if we didn't have tenants at all. Last, this duplex is a private offer from a friend I've made at the local meetup. He is doing all the needed reno/repair and offering a 1 year warranty to ensure that we are really minimizing any extra upfront cost outside of down payment and closing. So it is an exciting prospect. With his schedule we have about 3 months to sell our house which seems to be perfect timing to get things lined up and ready. 

Hi all,

Since early March I have been learning as much as I can about rental property investing through BP articles, forums, podcasts, and local meetup groups. I have started to establish relationships with local lenders, realtors, property management companies, contractors, and fellow investors through the meetup group. 

Just as a brief intro my wife and I are in our late 20's, we bought our first house 4 years ago but the property taxes and HOA fee has increased significantly since we first bought in (including insurance/taxes in escrow it is roughly $1,200 per month). Luckily the market value for our house has gone up to the point that if we were to sell today, even with the realtor fees we would gain about $12,000 from the sale. Due to HOA we can't rent it out, and the timing seems right to sell for us.

We also at this moment have about $10,000 in our bank account we are willing to invest. In the search for something to invest in, I stumbled on BP and was hooked on the idea of REI since. For our situation, it seems like selling our current house and using a low downpayment (3.5% FHA or 5% conventional) on a 2-4 plex is the perfect first investment. Not only are we dramatically reducing our monthly house expenses with a cheaper mortgage, but we can bring in more income on the side. Of course, I am doing everything I can to make sure we are prepared prior to closing our first deal (how to analyze deals, landlord forms, managing properties, legal, CPA, etc.).

As I'm sure most of you do I started telling all of my family and friends about the exciting plan my wife and I have to get started in real estate investing. My parents told me to reach out to my dad's cousin, who rents out a couple SFH houses on the U of Wisconsin (Madison) campus to ask him about his experience. I called him up and 5 seconds into my REI 5 year plan he says "Let me stop you right there" and proceeds to go on a 45 minute tirade of why we should not waste another second on rental property investing. Mostly just complaining about when tenants decide not to pay or want to move out and maintenance/capex items. Telling me over the years they have learned to only to rent to junior-senior students, never adults, never younger partying students. He assured me also his cousin who also has a couple rental properties loathes it just as much as he does. His conclusion essentially was to save up to invest in large, commercial properties/businesses. He also owns a car wash and FedEx routes today.

Besides general story telling there were 3 points for this post I was hoping you could help me with...

1. Other than just proving my success later on, how do you think I can convince my family we are prepared and this is the right move for us?

2. Probably not the most unbiased forum online, but which concerns should I give weight to and which could be chalked up to my dad's uncle's lack of preparedness/management/bad apples/etc? In other words, what are some of the things which pose the greatest danger for those like me about to get into their first house hack/rental investment? I have been trying to learn about all of the pitfalls and instead of saying "I can't" say "How can I" overcome them.

3.  Any other beginner investment vehicles worth pursuing that could yield a similar opportunity for return for my wife and I? For our specific residence situation unless we rented a place we would be getting a new mortgage anyways, it seems to make sense to house hack instead of following the traditional path of 'moving up' to a larger house and a larger mortgage. But I'm curious to hear everyone's thoughts...

 LOL Keep It Simple Stupid :)