San Diego, CA · Member since 2018 · 5 posts · 14 votes
Hey BP Community!
I just finished reading Rich Dad Poor Dad, and I’m more motivated than an ever to make my first purchase. I’m looking for my next book now!
So this month I’ll be debt free, and I’ve been thinking about how I’m going to save money for my first purchase. I’m planning to save about 2,000 a month for one year. Now my question is, is there some sort of way that I can save money, and that money can somehow grow? If there’s a book that’ll assist with this, please mention it!
Thank you!
@Kristian A moreno I personally invest in delinquent mortgage notes, on both sides of the coin. In my business, I find note deals, then others fund the deals. After the deal is done, we split the profits. I likewise use my IRA and solo 401(k) to fund deals others find. Again, when the deal is complete, we split the profits. A good win for me, for my retirement accounts, and for my investors.
@Kristian A moreno I personally invest in delinquent mortgage notes, on both sides of the coin. In my business, I find note deals, then others fund the deals. After the deal is done, we split the profits. I likewise use my IRA and solo 401(k) to fund deals others find. Again, when the deal is complete, we split the profits. A good win for me, for my retirement accounts, and for my investors.
I agree with @Joe Tomko about using retirement accounts. Depending on your goals and income needs, many investors use their self-directed IRA's and 401(k)'s to invest in real estate or notes. Using an account like an SDIRA allows for the investor to have more control over their retirement accounts, while also building wealth for the future. As with all things financial, there are some rules associated with how you invest in these accounts, and who you invest with. Do some research, if you have some questions along the way, I would be happy to connect and help!
A self-directed IRA or Solo 401k can be great ways to save money (tax-deferred) and invest those funds into real estate. There are prohibited transaction rules that apply to retirement accounts. This means you cannot use the money in your own interest, so these accounts will likely be a good supplement to investing you do outside of retirement funds, not a replacement for it. If you're self-employed, the Solo 401k will provide many benefits over a self-directed IRA:
Compared to an IRA, Solo 401k contributions limits are roughly ten times higher.
There is no custodial requirement for the 401k.
You don't need the additional expense and administration of an LLC to have checkbook control.
There is a built in-Roth component whereas IRAs are either traditional or Roth, not both.
A spouse can also participate in the same Solo 401k plan.
The Solo 401k has additional tax benefits over an IRA when investing into real estate using leverage.
The penalties for prohibited transactions are less severe, though it's best not to utilize this benefit :)
There are multiple outcomes and exit strategies. While my goal is to keep the borrower in their home (which happens to be themost lucrative), but that isn't always how it works out. It may need to go to foreclosure. They may decide to fight it. They may reset the clock by making a single payment. They may trash it when they leave. You may miss something in your due diligence. There are a lot of potential risks, however, the good deals are good enough to cover the bad ones. I'd be happy to discuss if you want to. Send me a PM.
@Kristian A moreno I am not sure I give a right advise, but it seems that the methods to grow you money would be outside of RE, as even 20k saved in a year would not do much. I heard that there are many reselling techniques that people do on ebay and that brings them extra income. Also you can take a second job to increase those 2k savings, or grow inside the job you already have.
@Kate J. $20k is plenty of money to get started in REI. I just closed on a note deal where the joint venture investor put up $19k and we expect a pretty good return when we exit the deal. I frequently find deals in this price range. PM to learn more.
I dont work in this price range. And in the cities I know nothing can be bought in this price range. If you issue a note, there is a risk unless it is the first lien position. It is very rare that anyone would need this amount of money to borrow, as once again nothing can be bought for 20k.
@Kristian A moreno depending on when you started this process you could do a short term note.. If not I would just keep saving till you have a 50k to work with.
@Kate J The note I closed last week has an UPB of $37k, the house value is just under $50k, and I paid much less than $20k for the note. While this deal could possibly be exited early next year, a typical deal timeframe is 8-18 months.
You very well may not be able to find a property in your markets, but real estate investing is so much more than just buying rentals in one market. Since there is no tone of voice in written word, please understand this is not a criticism at all, just simply stating that there are many REI avenues behind rentals. There are other investments with a much lower point of entry than a property would require. I wish you good success with your model.
@Caleb Heimsoth Thre is no such thing as a high interest savings account and a CD won't beat inflation. There are lots of investment options that can take less than a year and offer a good return. Loaning to a hard money lender is surely one of those options. I'm not currently doing so, but have in the past.
@Joe Tomko. That’s bad financial advice for money he will need in a year. If the market tanks or the borrower (in your example) defaults he could lose it all.
For long term investing any number of options are fine and available, but short term you need to take the “guaranteed” return. If you want a slightly higher return invest in T bills but that’s it if it’s only for a year
@Justin Windham I have a 401k through my federal job. Are you talking about taking a loan against the money I’ve put into it?
It's true, many 401k plans allow for loans and you might be able to take one to help finance some real estate investments. What I was referring to though, is transferring existing retirement assets to a self-directed IRA or Solo 401k that will allow you to invest the retirement funds into real estate as well. You'll likely need to leave your employment before you can access the 401k funds. Also, while the Solo 401k allows for loans too, you'll need to have some self-employment activity to be eligible. The self-directed IRA does not have eligibility requirements, but you cannot take loans from it.
@Kate J The note I closed last week has an UPB of $37k, the house value is just under $50k, and I paid much less than $20k for the note. While this deal could possibly be exited early next year, a typical deal timeframe is 8-18 months.
You very well may not be able to find a property in your markets, but real estate investing is so much more than just buying rentals in one market. Since there is no tone of voice in written word, please understand this is not a criticism at all, just simply stating that there are many REI avenues behind rentals. There are other investments with a much lower point of entry than a property would require. I wish you good success with your model.
I understand you can get many possibilities outside of a particular area. However, I minimize my risks, and can do lending only in case I can drive by the house or I feel that the market is strong.
@Kristian A moreno Put your cash to work in deals that are safe use the cash for earnest money to put properties under control with a 30-day due diligence structure where your money gets refunded if you can't find find someone to assign the deal to. If you find someone they will pay you in assignment fee on top of reimbursing your earnest money. That is the best way to double your cash every month
Who would let you tie up their property for 30 days due diligence period ? Even if they would I don’t think it would be the right thing to do just because you can’t find a buyer.
@Kristian A moreno as @Joe Tomko mentioned there are options in notes to invest in lower value options. However, as @Caleb Heimsoth mentioned it isn't risk free. You mentioned you're highly motivated to make your first purchase. Do you know what that purchase is? That may help drive your decision as to what to do with the money you're saving in the meantime.