A quandary about path to retirement

6 Replies


I have read some stories on the subject for retirement with real estate and from what I can tell it is an individual perception or choice on how.

I have ~6 years to 65. My wife 13 years to 65. We both have low end 6 figure incomes in non-real estate careers.

We have 10 rentals 9 of which are still financed, net cash of about ~$4200 per month. We both have decent savings in our 401k's. Also have some multi-family investments with partners that we expect to be sold over the next 3-5 years. 1031's would be used for dispurse of equity.

I expect to roll out my 401k to a self-directed at the end of this year and populate it with rentals also. I anticipate using withdrawals after 59-1/2 to also help pay down rentals.

We are at the real estate level where Fannie/Freddie will only finance up to 75% ARV.

I have no problem with access to hard money 10% no points/1yr term.


I am in income preparation mode for retirement and in a bit of a quandary about how best to reach our cash flow goals. Finally the question posed.

Does it make sense to pay off each of the current properties or save that same amount and pay cash for a new one as we reach a purchase amount. Due to FNMA rules we could purchase more with larger down payments creating a larger cash flow. At best(saving) we could only purchase or pay off 1 every 18 months. After retirement I would become qualified under IRS rules as full time investor.

Our goal 20 properties paid in full at retirement.

Have I thought this out correctly? Just not sure we can get to 20 paid off unless we change our strategy.

You realize that there is bank on every corner and many of them lend on investment properties and hold the notes for their own portfolio right?

FHA and FNMA aren't even in the vocabulary of guys who own tons of rental houses. Small banks can do so much more for you.

Without actual figures it's not really possible to answer your question. (Values of houses, amt of mortgage, other obligations, current salaries, how much in 401k etc...) I wouldn't expect you'd want to lay your entire financial life out on a forum, but do you have a CPA or a tax advisor who knows investment real estate- not just an accountant, but a tax/retirement/investment strategy planner person? If not, you might ask around for some recommendations.

Some people will tell you to pay off as fast as you can, others will say to maintain the leverage because you've got "cheap money" working for you... It's a matter of your comfort level and the math. And I think you really need a tax person to help you with the math, because that could be a big part of the picture.

I will consult with an accountant.

Here in Texas we are limited in investor banks. That being said, the few we do have, their investor products are asking 1-3-5yr ARMS at 7-9% or some variant with 15yr terms. They too will only finance up to 70-75%ARV. But their ARMS create a variable % landmine that you don't get with a 30yr fixed fannie freddie. Another issue due to my time constraints I am limited to REO's, wholesalers, on-line auction companies. Lately its rare I can get a deal low enough with rehab to make it a cash flowing property without leaving 15-25k in rehab costs in equity on the table after refinance. Wholesalers tend to have some rose color glasses with actual rehab costs.

I suppose if I could dedicate enough money to be able to payoff investor loans I could avoid the %rate hikes in the future.

Personally when I'm in your place, I would be decreasing debt. I do like the idea of saving and buying new with cash. You said you could buy one every 18 months. That would be the case for the first one but after that you could add the cash flow from it so that you build your war chest faster.

Buying with other peoples money tends to lull us to pay more and get less than if we use our own hard earned cash. I understand your desire to build but at your stage in life the risk of leverage would be something to I would suggest you avoid. What happens if you get to retirement age and only have 15 paid for? Nothing really maybe you work a bit longer or live a little more frugally. If for some reason everything falls a part and you are holding 9-19 mortgages and you loose those properties you are left with lots less to live on. I think most advise should be to play it very safe if you want to keep it all.

Be very careful what financial advisors you listen too. People that sell stocks and bonds recommend stocks and bonds and mutual funds. People that have real estate recommend real estate. I have not found an advisor that does both so you will ultimately have to guide your own ship along with your wife.

Since your goal is to start investing in real estate around age 59 1/2 in a Self Directed IRA, don't forget you're going to have to start taking Required Minimum Distributions (RMD) at age 70 1/2 on the Total Value of the SDIRA every year. Others have more experience with that than I do, but it sounds like a nightmare to value and distribute annually to me. Especially if your plan is to fully invest in rentals. I think you would want to be out of physical properties and into more liquid & easily valued assets by 70 1/2. Or at least have plenty of other assets in IRAs to fund the RMDs if rentals are a minority of your qualified assets.

Have you thought about refinancing some of your highest interest deals with long terms left into shorter terms, say 10/15 years? You might negative cash flow short term on those properties but from the sounds of it you'd cover that with the others properties and have your personal income as backup.

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