New to Real Estate · Sacramento, CA · Member since 2015 · 31 posts · 13 votes
Hello All,
About two years ago I opened a Roth IRA after taking a college class for Personal Money Management since my teacher encouraged diversification and the tax benefits and all that jazz. Well since then, I have learned a lot about investing, taxes and what financial direction I want to pursue in life. REI to be specific. So I have been wondering lately whether it is even advantageous to keep my Roth IRA since I know that I want real estate to be my sole source of passive income and financial freedom. Also, I have learned that real estate is one of the best tax havens so I feel that it makes no sense to use property assets and paper assets as a tax strategy when I should just focus on using one type in order to maximize benefits and results. Thanks in advance!
Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
9y
I will go against the herd here. I say stop contributing to IRA and start to build up a solid 3 to 6 months emergency fund and everything else start stocking away into your RE investing account. Hoard a lot of cash and start putting down 20-25% down on rental properties and get enough passive tax deferred cash flow to surpass your W2 after tax earnings. Then double your W2 earnings with more tax deferred cash flow. THEN DOUBLE THAT!! THEN BY 35 YEARS OLD GET MARRIED, QUIT YOUR W2 EARNINGS JOB AND PLAY WITH YOUR KIDS, ENJOY FINANCIAL FREEDOM!!
I did not learn this till I was 46 years old. I cashed in my IRA, paid the stupid penalty, refinanced my house and took that money, one rental at a time and became financially free. 2011 first little 1br 1ba condo. Two years later 10 rental condos, two years later 1031 exchange condos for apartment complexes and now 89 front doors, $120,000 tax deferred cash flow per year, 5.5 million in Real Estate, 2 million to 2.5 million in equity after almost 6 years of investing. All you need is 20-25% down on front doors that cash flow $400.00 or more per month, appreciation by buying low and refi or 1031 exchange. Why make other people money, like financial planners, mutual fund managers, expense ratios, 401b fees, plan administrators. When I increase the NOI 1$ on an apartment complex I own, the bank tells me it is worth 10$ more than I paid.
Sooooooo, in a 16 month period, one of my apartment complexes I have increased the NOI by $8,000.00. That means the value of this 15 unit has already risen $80,000. In another 18 months, I expect our NOI to have increased by $15,000. Then, the complex will be worth $150,000 more than I paid. We only put $150,000down. What next? Refi and take entire investment out and keep the 15 unit or 1031 exchange for a 1.2 million property with that $300,000 ($150,000 increased value plus $150,000 down payment). Don't forget the $100,000 in cash flow taken out in those 4 years of holding the property.
That's why I don't have a dime in the stock market anymore. I have control. The stock market is at the peak!!! How much further up can it go. You have NO influence on the price of a stock you invest in. I have a great influence in increasing the NOI of my 6 apartment complexes. I only took out of my IRA the down payment ant about 30% more to pay for the stupid tax for investing in the IRA anyway and the regular taxes too, which we will pay no matter if we sell now or some imaginary date in the future.
Last, let's say you were to achieve success and have 1 million in you retirement IRA when you retire, financial experts say, you can take 3.5% out each year and not out live you money by 88 yrs old. Soooooooo, you can take out $35,000 a year and not outlive your money. Remember, you have to pay taxes on that money too. Unless you paid along the way with a Roth. Still $35,000 doesn't make me excited. Does it make you excited? The financial planners say, you will be in a lower tax bracket when you withdraw and at will be good.
I say hogwash!! They are saying our goal is to be poor. What? You see what I mean?
If you change the way you look at things, the things you look at change right before your eyes!!
New to Real Estate · Sacramento, CA · Member since 2015 · 31 posts · 13 votes
9y
Originally posted by @Account Closed:
You should absolutely continue to contribute. If RE investing doesn't go as planned you will have your IRA as a cushion.
What about the fact that I am not supposed to start taking out my earnings till 59 1/2. This is highly discouraging since I want to reap the benefits of passive income now.
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
9y
Jared Samsel - I'm in my 30's. I love my ROTH IRA. I've put about 60k into my Roth IRA (5500 max yearly) and that account is worth almost $200k from the dividend reinvestment growth. (I like MO stock). All that money and compounded gains can be withdrawn without taxes after 59.5.
That means I can worry that much less about maxing out later 401k savings (like $20k/yr) in my 40's when I'm paying for my kids to go to college.
I'm expecting to be in a higher tax bracket when I'm in my 60's because of accumulated investments.
Real Estate Agent / Investor · Houston, TX · Member since 2016 · 73 posts · 36 votes
9y
From what I've learned, you can do alot with a self-directed roth Ira. It can be used for tax benefits when using it for real estate investments. You can also do private lending to others and grow the Ira with the interest from short/long term loans.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Yes ... keep contributing ... and btw it is not an either Roth IRA or REI decision ... you can do both. For example, I created a Roth IRA LLC, bought up a bunch of SFR rentals in Phoenix in 2010-2011. Sold last year for triple what I paid, all tax free. I would not do it out of state again (another story), but you can invest locally in REI with your Roth IRA once you build it up, or invest in REITs with it, or just keep it in stocks/bonds to diversify as mentioned already ... all very good options ... Solo Roth 401k is an even better option if you qualify (if you have self employment earned income from a side or primary business)...
MANCHESTER, CT · Member since 2016 · 6 posts · 1 vote
9y
Yes, keep the Roth IRA going. You can create another income stream by purchasing Mutual Funds or ETF's that provide monthly income via dividend, buy dividing growing stocks (and reinvesting the dividends), or just buy stocks that are trading at a discount. Aside from the actual investments, tax benefits are crucial, if anything, you'll be withdrawing (after 59.5 years), tax free. Not many people pay attention to taxes and how much it can impact your overall financial portfolio.
As others have pointed, diversification is very important, so don't put all of your eggs in one basket.
Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
9y
I will go against the herd here. I say stop contributing to IRA and start to build up a solid 3 to 6 months emergency fund and everything else start stocking away into your RE investing account. Hoard a lot of cash and start putting down 20-25% down on rental properties and get enough passive tax deferred cash flow to surpass your W2 after tax earnings. Then double your W2 earnings with more tax deferred cash flow. THEN DOUBLE THAT!! THEN BY 35 YEARS OLD GET MARRIED, QUIT YOUR W2 EARNINGS JOB AND PLAY WITH YOUR KIDS, ENJOY FINANCIAL FREEDOM!!
I did not learn this till I was 46 years old. I cashed in my IRA, paid the stupid penalty, refinanced my house and took that money, one rental at a time and became financially free. 2011 first little 1br 1ba condo. Two years later 10 rental condos, two years later 1031 exchange condos for apartment complexes and now 89 front doors, $120,000 tax deferred cash flow per year, 5.5 million in Real Estate, 2 million to 2.5 million in equity after almost 6 years of investing. All you need is 20-25% down on front doors that cash flow $400.00 or more per month, appreciation by buying low and refi or 1031 exchange. Why make other people money, like financial planners, mutual fund managers, expense ratios, 401b fees, plan administrators. When I increase the NOI 1$ on an apartment complex I own, the bank tells me it is worth 10$ more than I paid.
Sooooooo, in a 16 month period, one of my apartment complexes I have increased the NOI by $8,000.00. That means the value of this 15 unit has already risen $80,000. In another 18 months, I expect our NOI to have increased by $15,000. Then, the complex will be worth $150,000 more than I paid. We only put $150,000down. What next? Refi and take entire investment out and keep the 15 unit or 1031 exchange for a 1.2 million property with that $300,000 ($150,000 increased value plus $150,000 down payment). Don't forget the $100,000 in cash flow taken out in those 4 years of holding the property.
That's why I don't have a dime in the stock market anymore. I have control. The stock market is at the peak!!! How much further up can it go. You have NO influence on the price of a stock you invest in. I have a great influence in increasing the NOI of my 6 apartment complexes. I only took out of my IRA the down payment ant about 30% more to pay for the stupid tax for investing in the IRA anyway and the regular taxes too, which we will pay no matter if we sell now or some imaginary date in the future.
Last, let's say you were to achieve success and have 1 million in you retirement IRA when you retire, financial experts say, you can take 3.5% out each year and not out live you money by 88 yrs old. Soooooooo, you can take out $35,000 a year and not outlive your money. Remember, you have to pay taxes on that money too. Unless you paid along the way with a Roth. Still $35,000 doesn't make me excited. Does it make you excited? The financial planners say, you will be in a lower tax bracket when you withdraw and at will be good.
I say hogwash!! They are saying our goal is to be poor. What? You see what I mean?
If you change the way you look at things, the things you look at change right before your eyes!!
New to Real Estate · Sacramento, CA · Member since 2015 · 31 posts · 13 votes
9y
All really good advice. Thank you for the input!
@Michael Swan Thank you for being the devils advocate. Your story is very inspiring and your strategy was insightful as well. I would like to scale up as fast as you did. My goal is to have financial freedom by age 25 so I gotta get going on this. How do you get tax-deferred cash flow??
Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
9y
Hi @Account Closed
If you have properly leveraged debt, depreciation, insurance, HOA Fees etc.. You defer all your taxes. If you refi, it is tax free. If you 1031 exchange it is tax deferred too. If you do real estate right, you pay little to no taxes. You defer, defer, defer, defer, defer, and die then your kids inherit at a stepped up basis. Eventually, you die with thousands of front doors and more that $1,000,000.00 in cash flow per year. I don't want a large bucket of cash. I want $1,000,000.00 in cash flow or more per year.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
9y
@Account Closed
There is no reason why your self directed Roth IRS or Traditional IRA, or even Solo 401K can't invest in Real Estate. Have the best of both worlds by controlling you real estate investing within the IRA AND doing it tax free (Roth) or tax deferred (traditional).
Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
9y
A tax deferred instrument, like RE should not be held in a tax deferred IRA for any reason. Plus, I really like my tax deferred $120,000 in my bank account, instead of some account I can't touch, until 59 and a half and then pay taxes on that money. Who knows what will happen at 59 or 60 years of age.
It sure feels good having $10,000.00 a month coming in tax deferred. At your age @Account Closed, it is a no brainer to me.
Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
9y
You can withdraw your actual IRA contributions at any time tax free and penalty free. The only thing that has to stay in the Roth IRA is the earnings from the contributions (until the 59 1/2 cutoff )
Monterey Park, CA · Member since 2014 · 157 posts · 80 votes
9y
Jared Samsel
Do you have enough income to contribute to your ROTH IRA and continue investing in your REI? If you can afford it, you should continue to contribute. ROTH is tax free distribution after you turn 59.5, and principle can be withdraw after 5 yrs (pls double check this). Once you build up enough fund, you can set up a self directed ROTH account and do HML or private money loan, notes, or invest in syndication deal, and all return will be tax free. If you invest those from your regular accounts (non-retirement), you will be paying taxes based on your income level.
Good luck figuring it out.
Henry
Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
9y
My advice, based on my own personal experience:
You should absolutely continue to invest in your Roth at this time. All that you know for sure today is that your income today is less than it will be in retirement. I started a Roth when this was the case, but I've stopped putting money in it now that my current income puts me in the highest tax bracket so taking the deduction today doesn't make sense.
When/if you find yourself in that situation, go ahead and stop. There's no sense in making decisions today based on what might happen down the road.
Investor · Statesville, NC · Member since 2015 · 113 posts · 58 votes
9y
STRONGLY urge you to read or download and listen to MONEY:Master the Game by Tony Robbins. Whether your skill set is Real Estate, the stock market, or other investment vehicles, the knowledge from that book will blow your mind. It's written in every day, understandable terms, like only Tony Robbins can do! Best of luck to you.... and instructor is right. Diversification is critical, but so is how you do it!! 😉
Wholesaler · Los Angeles, CA · Member since 2016 · 276 posts · 181 votes
9y
Here's my philosophy:
Most of the people on here, and in life, want you to take the "safe" route. The path others have paved.
A lot of the replies are "if your RE doesn't pan out...take this safe route" I simply refuse to believe that. The only reason things fail is because we let them. We hit a setback and throw in the towel.
If you go into REI, or anything else in life, with a mindset and a backup plan in case you fail, you are setting yourself up for failure. Like most things, real estate is what you make of it.
So sure, set up the cushion "just in case" I don't plan for "just in cases". I make it happen no matter what.
Just my two cents, from an ambitious 17 year old
Rental Property Investor · NC · Member since 2014 · 132 posts · 40 votes
9y
Thank you for this post. I have been meaning to do more research on IRA Roth, but kept pushing back because i got caught up in life. After consulting my CPA and researching, I went ahead and opened up my IRA Roth and planning to deposit last year's and this year's contribution for both my wife and I. I still have enough leftover for REI after contribution, and worst case scenario, i will withdraw basis if I need more cash without paying penalty ---> that reason alone convinced me.