All Forum Posts by: Douglas B.

( a sub30kclub topic)

Does anyone out there have experience, good or bad, in renting units to section8 tenants in the city? We are thinking of buying a discount urban duplex and seeking stable, ideally longer term, section8 tenants.

I'd like to hear what you have to say about the ins and outs of renting to urban section8 tenants.

(Also, is my photo rotated properly now? It always looked fine to me but people told me it was 90degrees off to them)

@Greg W. Do you mean that once under lease with a section 8 tenant, you can't just choose to not renew the lease?

As a new investor, I'm planning to target section 8 renters and I recall reading that I have to give 3 months notice to renew the lease prior to the end. So I assumed that if I didn't give that 3 months notice, the lease would just expire.

I have a 401k with my current employer. How do I get the money into a SELF DIRECTED 401k so I can use the funds to buy rentals?

(Sharing this with the keyword: sub30kclub)

There's the old saying "a bird on the hand is worth two in the bush".

Some people are willing to wait and hope that their 401k might be around for them to retire with. Not me. I'll take my predictable cashflow now AND later.

that's excellent news!

I'll be handling the management myself although I'll contract out repair work. Even doing that I'm guessing I'd still net at over $100/h+ ,even showing the place and such.

Eventually I hope to hire my own in-house employee to be my personal PM and train him or her to run the units the way we want. That'll likely net me $400/hr+ at that point.

But I need to get the experience of handling the day to day early on.

@Lisa Phillips how do you calculate repair costs? How much renovation have you had to put into your units?

@Mark Graffagnino

@Mark Graffagnino were you intending to pay back that 50k or was that a withdrawal? I plan to borrow 30k against my 401k and pay it back with the cash flow of the property, thereby accelerating the payback to hopefully 3 years or so. Then, I'll repeat the process again and again, hopefully buying one rental duplex a year for the first 3-5 years. At that point, the rental income should begin to snowball and allow me to use the rental income to accumulate more than one a year, which is convenient because I should be more experienced at that point and know what I'm doing a little better.

Maximum projected rental income is 12k per duplex per year. I'm planning on pulling 5k net per year per duplex. That should allow for repairs and lost rent and other various expenses. From there it's simply a matter of buying enough duplexes and running them efficiently enough to develop a solid passive cash flow stream. In my area there's an abundance of 30k duplexes that will rent for 500/month. This is doable.

Now, compare that with keeping my money in the 401k. I'd have to continue working for YEARS to generate enough of a nest egg to retire and draw income on. I think that's what Mark is saying. I'm with him. He and I are both young enough that we can take a calculated risk where, if we've planned well enough, should allow us to retire by 50. And if not...we just keep working and we still have time to bounce back and recover from our mistake. Not to mention that real estate will still be able to be sold and allow at least 50% recovery of the funds used to buy in.

There's also the issue of the value of living ones dream. What price tag can you out on the thrill of being your own man and daring to step out on your own and embracing one of the greatest freedoms available to us as Americans: to own our own business and land without the tyranny of oppression. I'd happily earn less money and be my own boss! For me that DREAM is priceless. It's filled me with hope and energy as I've prepared to begin buying for the last few years.

There's also the issue of tax sheltering and savings by owning a business. There are significant savings available to business owners that aren't available to us as traditional employees. It's too much to list here, but it's easy to find using a simple google search.

I respect @Duncan Taylor for his wisdom on the number crunching. But I think there's more to it than the simple fact that you're just outpacing the S&P by a few percent each year. I'll be chasing my own dream, actively building my own personal cash flow business, planning for and hopefully retiring at 50, enjoying special tax breaks, stimulating my mind....and the list goes on and on.

It's a calculated risk. When done carefully the risk is quite low but the highly probable reward is great. If borrowing from your 401k won't sink you, then I say, KUDOS! Don't be foolish, but also don't be afraid to think outside the box and take life by the horns!

I'm in the same boat, planning our first purchase in a few weeks. We will either borrow from my 401k and repay over 2 years or use a guy who seems interested in holding the note on the property he wants to sell. We just haven't seen the place yet, but that seems like a good option if everything else goes well.

I think the above advice is all solid but really no one can tell you what's best for you. For example, maybe your wife has a guaranteed pension and you don't need your 401k money for retirement. Only you know what level of risk you can tolerate but I'd strongly encourage you to be very careful and don't overextend yourself.

In my case, we don't really NEED my 401k money (although we don't want to lose it if possible). So for us, a calculated risk of borrowing against the 401k is tolerable for us. If we lost it all we could walk away and not be devastated. But we believe the very likely returns in real estate are higher and more predictable than the way it's currently invested in stocks. Our goal is to transition to cash flow income over the next 10 years. So we are willing to take that small risk for the likely benefit of solid cash flow for many many years to come. Small risk, big likely benefit.

If your situation seems similar, then go for it! If yours is: large risk, possible decent benefit, then I'd say that I personally wouldn't be comfortable with it. But that's me.

zero.

We are are preparing to buy our first duplex in the next few months.

Why?

@Sharon Tzib I think your car example is excellent. I drive regularly but I'm Licenced, insured, vehicle is inspected and well maintained. I drive safely and obey traffic laws. I don't drink and drive or text and drive. I have snow tires. I've done all the things I can think of to reduce my liability as a driver. That's what I mean by running a tight ship.

I know that many landlords do the absolute bare minimum required to keep generating rent. Those guys are running fast and loose. And they also don't have a leg to stand on if they get sued.

I'm not saying I won't get sued. I very likely will. But that person will have to make a very strong case because I'm going to be following the letter and spirit of the law as well as running safe and well maintained properties.

My day job is in the medical field. It's the same here too. Some nurses and doctors play by the book and follow the rules. Others don't. I'm sure it's the same in every field. So, each person must decide what level of risk he or she is comfortable with. I'm very conservative regarding risk. I don't take risks very often at all. I do make decisions that others consider "risky" sometimes: take real estate for example. I view it as a calculated risk. I have a lot of personal control and I can mitigate a great amount of the risk. At that point it seems like an obviously excellent investment option. I'm surprised that my "risky" friends are so against real estate investing!