Identifiying the best strategy for long term wealth creation...

17 Replies

I've been following this forum, as well as the BP Podcast for quite some time and have been toying with the idae of doing real estate investing since well before the 08' crash. 

Some background:

- I am 32 years old
- Live on Long Island, NY
- Business Owner
- Bought existing home 2 years ago for $430k, and it was appraised at $550k earlier this year. We have tapped a $50k HELOC to do renovations.
- Married with a 15 month old daughter

I am looking to accumulate wealth over the course of several years by leveraging my retirement savings. I currently have 50-55k in my IRA, and my wife has another 17k or so in her old 401K.

- Build a portfollio of rentals so I have over $1,000,000 in assets as a retirement plan. As a small business owner, I need to make sure that we have assets that we can leverage in the future as we don't get a 401k. 

- Grow cashflow on properties so we eventually have $10,000 + per month in income.

- In addition to buy / hold, we'd also like to do several flips  per year to build wealth and also pay down debt (student loans, etc). I figure once these flips paydown existing debt we can then begin to  leverage the profit from flips to speed up the process of aquiring buy/hold properties. 

I'd like to also build my portfolio in my remote area so I can monitor and stay on top of  the properties.  The home prices have a floor of around $300k in the area for a 3bd, 2 bath. 

With all of this being said, what is the best strategy to accomplish my goals if the only assets available to invest are the retirement funds that we have accumulated.  If I use 5% for a down payment on a $300,000 house that produces $200 a month in cashflow, how do I get from point A to B without burning all of my available cash for investing? How do I continually add more money to the pot in order to grow my portfolio?

Thoughts? Opinions? 

Hi, Jason,

Lookup someone who can help you set up a 401(k) for yourself in your existing business or modify your business entity structure to include an entity which can offer it to you. If you need someone, I can refer you.

As for burning through your funds, you'll want to learn how to acquire properties such that you can fix-up, then refinance to get your initial investment back. This should work well on cashflow properties. Again, if you need someone for that, I can refer you. One of my mentors does this quite successfully.

Thank you for taking the time to respond. I actually have $6000(each) saved for me and my business partner that we plan on putting into our IRAs.

In addition, I like the idea of refinancing and getting money back for the next investment. However for a second home, will I be required to come up with 20% down payment? If so, that will cap the purchase price of the home I can buy and may make it harder to cash flow or to buy in a desirable area.

If I could buy a rental for cheap and add equity to it by making improvements. Then rent it out for cash flow, and finally cash out refi for my next property. That would be ideal. My concern as stated earlier is the amount of capital required to make it work in my location.


@Jason Stephens  

Since you appear to be self-employed with no common-law-employees, the self-directed solo 401k plan may be a good fit as it will allow you to invest in real estate. However, if you plan to flip real-estate using your retirement funds, look into the ROBS 401k as flipping can be done without having to pay unrelated business taxable income (UBIT).

Mark Nolan thanks!

I plan on scheduling a meeting with my accountant regarding preparing my funds for use. My questions lie more in the actual strategy needed to accomplish my goals in a market like mine.

I'd like to have a 1 million dollar real estate nest egg for retirement as well as 10k in positive cash flow that I can use as income from here until retirement.

Anyone have ideas on how to parlay my funds into investments that can make this strategy work?

4 green houses, 1 red hotel. Be a sleuth for buying a house below market value that will cash-flow either off the bat or with some value-add.  Let everyone know you are looking to buy a rental.   When driving around, look for tired properties with high grass and/or for rent signs. Jot down the address, (or just call if a sign) look up the owner online at your county assessor's site and send them a quick note or postcard.  If vacant, leave a note on the door.   

Just a couple ideas.  Entire books are written to answer your question.  Good luck there @Jason Stephens !

@Jason Stephens Welcome to the world of property investing. I assume based on your comments that this is all relatively new to you. You appear to have some goals that you want to achieve but don't know how to achieve them. I would suggest you start the way you would start any business venture and that is with a "real" business plan. I would initially start with your SWOT analysis to identify what you are working with and what is working against you at present.

After you have prepared a business plan have your accountant go over your numbers to verify that you have them done correctly. This is a very important step, especially if you are talking about investing with your intended retirement income.

Next step is to learn some of the things that can only be learned in this business by actually doing what is required. To start I would suggest you find a JV partner on BP who will help you learn the ropes and make you some money along the way. It appears easy on the outside to make money in this business but reality is that there is more to it than meets the eye. So I suggest spending as much time as is necessary learning with JV partners until you are totally confident you know what you are doing.

Once you have done some deals with an experienced JV partner then revisit your business plan and see if what you originally wrote down still applies. If it does then you will be good to go, if it doesn't then make the appropriate changes before moving on.

At 32 years of age you have plenty of time to secure your financial future, so don't rush this. Getting it wrong could cost you lots of money.

You mentioned that you have been looking at doing this since 2008. What has held you back, and how have things changed so you feel you can now move forward? Might I suggest that it could be your apparent lack of experience. If this is so, then your issue today is not a plan on how to achieve your goals due to what you think may be limited capital, but rather your lack of knowledge, experience and skill. The greatest asset successful investors invest into their deals is not their money, it is their experience, knowledge and skills. Without the skills necessary for success there will only inevitably be failure.

Learn, learn and learn some more. Then act on your own. BP has a wealth of knowledge for you to access, but none of it replaces practical experience.

Good luck and happy investing!

I just spoke with Wells Fargo (they gave me my mortgage for my primary residence). 

They indicated that I would be looking at the following requirements for an investment home:

- 30 year fixed
- 4.75% Interest Rate
- 15% Down Payment
- 6 Month Reserve Requirements 
- $140 a month in PMI if we put 15% down on a $300,000 investment, no PMI if we do 20%.

Does this look about right? With $65-70k this is going to get tight on a $300k house. My concern would be trying to build a portfolio once my money is locked up. They indicated a cash-out refi is hard to get on an investment property as I have to show structural improvements that warrant the ARV of the house and typically they'll lend up to 80% of that after a history of rental income is shown.

Thoughts?  How else have people used similar funds to get started with similar scenarios?

Thinking about this more, can anyone jump in with their opinion on doing a flip as my first project in order to build my reserves?  It seems with 65-70k that it will be hard to build a portfolio of rentals.  If I can use the 65-70k and grow that to $150k with flips I would be in a much better position. 

Thoughts on this strategy?

You could do a couple flips initially in the hopes of increasing your war chest.

Another option is to partner with someone with additional funds.

Look into Hard money loans once you get some experience.

I would suggest reading the Gary Kellers books

Millionaire Real Estate Investor



Also J Scott's Book on house flipping is great, best rehab book IMO.

The Keller books are good for a nice overview and strategy of REI.

Your strategy sounds great - I am a huge believer in holding on to rentals to supplement your retirement.  We are buy and hold investors for the long term, and love how it diversifies our portfolio.  Regarding flipping: Just be cautious and know that flipping has risks.   Always have a plan B.  If I were in your shoes, I would only flip a house that would make sense to turn into a long term rental in the event it doesn't sell for a profit.  

Are you sure you can get $200/month cash flow on a $300k house with only 5% down? Even if you can, that is reeeeeally low cash flow on that kind of purchase price. You may not have other options in your area, but worth noting. And be sure that $200/month value is after all expenses are accounted for.

The more I think about this, the more I realize that I need to create a war chest by doing flips prior to doing rentals.  I am trying to come up with a plan of how I can borrow money from a private lender (father) in order to start this.  The goal would be to do flips until I have $300-$400k in cash reserves so I can buy homes in Cash and not have to use a private lender.  Once I build the reserves even further then I can divest and park some of the money in rentals. 

I have rentals now but my main plan going forward is to do rehabs to build capital and use the capital to fund more rehabs and simultaneously buy rentals for cash.

Rehabbing is a business more than investing so build up the income and have more money to put into rentals back into rehabs, more rentals more cash flow and you can start building even faster.

If someone could build up the income and sell on rehab a month over 5 years I think you could have a substantial portfolio of rentals and a solid rehab business. That's my goal anyways. The on to commercial properties :)

Originally posted by @Jason Stephens :

The more I think about this, the more I realize that I need to create a war chest by doing flips prior to doing rentals.  I am trying to come up with a plan of how I can borrow money from a private lender (father) in order to start this.  The goal would be to do flips until I have $300-$400k in cash reserves so I can buy homes in Cash and not have to use a private lender.  Once I build the reserves even further then I can divest and park some of the money in rentals. 

I'd question the wisdom of that, Jason.

In the first place, private lenders need us to help them rebuild what Wall Street stole from them.

In the second place, equity produces no income. So, as a "wealth" building strategy, it's questionable, at best.

Locate a small book called, "The Richest Man in Babylon". It's a quick read. The way to build TRUE wealth is to have your money at work making money not tied up in dead equity, ebbing and flowing with the economic tide. Study up on "arbitrage", also.

Here's what one of my mentors does: he uses private money and his corporate credit lines to acquire and fix-up properties, then refinances into a traditional loan to pay off his investors and credit lines as well as extracting part of his profit. Then, he either sells or rents it out.