All Forum Posts by: Walt Payne

My lawyer sent a letter accusing the seller and agent of negligence and/or fraud, and said that it was up to the courts to decide who was liable. They talked to their lawyers, their lawyers talked to each other, and they agreed it was best to split the actual costs.

Ahhh, but you see that "first 50k" is really the TOP 50k of your income when you take it out because if you get it out tax free you have $50k less taxable income. So (if taxable) the 401K money is essentially paying taxes of at least the amount you are paying for the highest dollar amount you make that year, even if it doesn't kick you up a bracket.

Do I think I will be in a higher tax bracket? I would love to be. But if not, I will not be in a lower one. I have significant seed money for my investments from years of saving and investing in more than just the stock market, and I am well on my way. That will fund my semi-retirement into full time REI, while still getting significant income from my current employer as a 1099 contractor.

From there, I will make enough to create a truly passive portfolio and retire. My plan is to take that money (which could currently match my income) and get to a point of at least doubling my current income. And that is not including anything from Social Security. As for the $457K/yr ... not yet, but if I get there I want as much of that as possible to be tax free. Even at 30% taxes that is a significant chunk. 

The other thing to consider is that if the IRS or congress changes the rules/laws on Roth accounts, or if you wanted to use the money elsewhere, you can withdraw the full principle amount with no taxes or penalties once the account is 5 yrs. old since you have paid taxes on that money already. Only the earnings need remain in the account until age 59 1/2.

@Account Closed  

I have been involved in such a case. I do not know what liability the agent had in the case, but I know that my lawyer convinced the agent to foot half the bill and the seller paid the other half. The one condition was that I never discuss their involvement. But it involved a significant loss since there was not only DD costs but a dual closing and MY house was sold at that point. I had to get temp accommodations along with storage for furniture.

If you want to settle for that $50K of income, welcome to it. I plan on having that just from my 401k, and a whole lot more than that in taxable income. Not expecting to see a whole lot of SS income, if any. 

My willingness to use the Roth option may be partly colored by how close I am to retirement, and that makes it less likely that changes will happen soon enough to effect me.

@Jeff Wallenius  if you can cash flow the same kind of properties as you flip, and they are in decent neighborhoods then that is an ideal situation. That allows you to get cash flow, and also to create forced appreciation. That appreciation will allow you to cash out the money you have invested at some percentage that keeps you solidly positive, while having all or most of the money you invested available to continue purchasing. Just keep the financing low enough to provide a solid base in case things go sour.

@Nat C.  Sam Leon has some very valid points. 

Warning about paying at the end of a day instead of the end of the job, or end of week. This may seem stereotyping, but many of the people you will get from that kind of ad are unemployed. Not a problem, but they are also frequently unemployed for a reason. One common one is that as soon as they have a wad of cash they go spend it on a bottle ... and you either won't see them the next day, or even worse, you might.

And then there is the issue of licenses and insurance. Not important, until it is ...

@Branden Chhuor  You also have to be careful what techniques they use. They could do you more harm than good, if they are using outdated methods that Google has caught on to.

I absolutely agree about stock investment firms.

A solo 401K is self directed. To qualify you need to meet a few requirements. You need to be the only employee, you need to have earned income, not passive. And any funds from previous employer accounts can be transferred. 

For example how I set it up was doing my renovations out of a separate entity that bills them to my buy and hold entity. That allows me to have a solo 401k, and funnel income into a tax deferred or tax free account. And I control how the money is invested. I have several relatively high yield investments and am planning on doing some not investing soon.

Why not have your cake and eat it too? You can have a solo 401k to invest in what you think best. I agree with others that RE itself may not be the best way to use 401k money, but what if you could get 12-14% tax free and allow that to compound? Notes, HML, etc can get you good yield and do it tax deferred or tax free.

This is only true for an IRA, though. True that you will get a lower LTV and higher interest on a non-recourse loan, but UBIT does not apply on a 401K RE purchase.

I agree that it is better to use other vehicles within a 401k, but UBIT is not a factor.

Also, the ability to borrow up to $50K from your 401K is a nice feature.