Starting out. Looking to leverage 401k. Input?

10 Replies

Good day BP community!

First, I would like to thank you in advance for reading my discussion, and for any words of wisdom you are willing to share.

I am a Southern California homeowner looking to invest out of the state. Thus far, these are some of the issues on my jot pad:

  • Capital
    • 10k Cash, with the ability to take a loan against my 401K for 15k. This would be at a 4.5% rate back to myself.
    • I only have 20% equity in my home, so I don't believe that would be a viable option just yet.
  • Strategy
    • BRRRR-My concern is if I would have enough capital to support the rehab portion of a purchase.
    • Single Family home
  • Markets
    • Thinking the 100k range in cities that are situated around small town colleges, or other potential sources of consistent renters. 
    • Some places I've researched include:
      • Statesboro 
      • Winston Salem
      • Tulsa
      • Grand Rapids
      • Portland 
      • Sparks
  • Building a team-I understand that this is one of the MOST important components of any successful investment venture.

I would genuinely appreciate any advice, critique, or words of wisdom.

THANKYOU! 

Tony

You probably don’t have enough capital. I recommend getting 20-30k on your own, and not taking a loan against your 401k

Thank you for the reply @Caleb Heimsoth. Would you recommend, or do you know of alternative options that would support my situation? Either a cheaper market, or an alternative strategy?

Originally posted by @Caleb Heimsoth :

If you want cheap and still decent areas Cleveland is among the cheapest I’ve seen

 Do you currently own in Cleveland? Any experience with management companies or contractors?

@Anthony O. So you have 25K which is enough to get you into a hard money to perm loan on a 100k property provided that the ARV is high enough. Lubbock, TX is one of the best growing markets in Texas at that price range plus its a college town with an increasing number of students looking for student housing. You might wanna check it out! Hope this helps!

Originally posted by @Aaron Beauchamp :

@Anthony O. So you have 25K which is enough to get you into a hard money to perm loan on a 100k property provided that the ARV is high enough. Lubbock, TX is one of the best growing markets in Texas at that price range plus its a college town with an increasing number of students looking for student housing. You might wanna check it out! Hope this helps!

Thanx for the Tip Aaron. Coming from a state with a limit on the amount property tax can be raised, I have a concern about property tax in Texas. I understand that it can rapidly increase. Is this an issue you’ve dealt with? 

@Anthony O. Yes, taxes can rise roughly by 10% a year max, but at your price point I don't see that being a serious problem. However its a problem in the higher price points where values can shoot up causing an extra $1,000 in taxes. Your price point is relatively safe from drastic changes in your taxes.

@Anthony O. I would think you need more than $10K working capital before making an Investment Purchase. 

Based on your posted comments - I don't perceive you have experience in rehabbing or managing rehabs as part of your background. 

And, based on those perceptions, I would suggest you lean more to buying something essentially "ready to rent" rather needing serious work. 

A "ready to rent" property will cost you more upfront. But Rehabs, regardless of the quality of your Pre-Purchase Inspection or the Contractor you hire to do the work always seem to need more extensive (costly) work once you start tearing things out.   

Originally posted by @Jim Cummings :

@Anthony O. I would think you need more than $10K working capital before making an Investment Purchase. 

Based on your posted comments - I don't perceive you have experience in rehabbing or managing rehabs as part of your background. 

And, based on those perceptions, I would suggest you lean more to buying something essentially "ready to rent" rather needing serious work. 

A "ready to rent" property will cost you more upfront. But Rehabs, regardless of the quality of your Pre-Purchase Inspection or the Contractor you hire to do the work always seem to need more extensive (costly) work once you start tearing things out.   

 Thank you Jim,

Things are starting to point that direction. I did have a question regarding cap rates.. when you calculate your total income are you deducting the cost of your mortgage from that number?