Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
First, some context. I just recently left a good stable job for a job that appeared to be an opportunity for professional growth. I was upfront on my current skill level and abilities and was offered a temp to hire position with the company with a 90 day upfront contract period. Today was two weeks from the end of my contract period and despite feeling like I did everything asked of me they said I wasn‘t working out and terminated my contract.
So to my point, I have a 401k from my previous job worth $80k, $50k after tax, plus about $20k in cash and at least $30k in available credit. I have a couple potential leads on properties I could possibly flip. If I could get one under contract at a price that makes sense would it be worth taking the tax hit, assuming I could make back the loss in taxes of course? Obviously an SDIRA is out of the question for a flip. Go...
Without a job your chances of success is likely very low. Get your career back on track first then consider risking all your saving in real estate investing.
No job means no safety net so when the flip hits the skids you will not recover. You are looking at a extreamly high risk gamble regardless of your past experience.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
8y
The question you need to ask yourself is are you willing to risk all of your retirement savings on a flip? Something I'm guessing you've never done before. I know I wouldn't.
Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
8y
@Aaron Klatt it so happens that I’m not a complete noob but not an expert either. I just sold a house last year that we did a major remodel on, I know an extremely good realtor, and I know a foundation guy whose company also does some flips so I am better prepared than many. I would also be willing to partner with someone if the right partner in the Charlotte area came along but not sure rushing into a partnership is the best idea either.
Rental Property Investor · Austin, TX · Member since 2018 · 76 posts · 46 votes
8y
I personally wouldn’t. That’s a too risky position for me, but if you feel reasonably comfortable in your ability to flip, then you could always give it a go.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
8y
Unless you think you can make a 60% profit return on your $50k you will come out in the red. Just keep that in mind when doing your calculations. In most markets that is two or three flips at least. You may be well prepared but retirement savings is generally something most people don't want to mess with.
Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
8y
@Jeshua Patrick, in my opinion it all comes down to a combination of things.
How desperate are you for a new start that may change your life? How sure are you of your capabilities and skills to pull this off? How determined are you to bridge the gap between your actual abilities and success -- because there is most likely a bridge that exists between what you think is going to happen and reality. Lastly, what do you fear more? The chance that you risk it all, lose, and have to start over at whatever age you are in life? Or the fact that if you do nothing that you can pretty much write down now how the rest of your life will proceed?
Not knowing all the facts, but guessing between the lines, I would give it a shot. You look young enough to me to rebuild again the small hill you had built up. However, if you succeed, you'll but much further ahead in five years than you might hope to be in fifteen years if you stick with the sure and steady. Nothing ventured, nothing gained.
But, I'm not you, and your situation is not the same as mine was. Tough decision. It usually always is ... the first time ... the second time, a little lesser tough, but still tough. So tough to make the decision to make a go of it. So tough. Almost as tough as actually making a go of it. Almost.
Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
8y
@Brian M Sweeney the $20k is my emergency fund specifically for situations like this. I was hoping not to have to dip into it but here I am. I have not had an opportunity to network for money partners yet due to working full time and going to school; however, at least for the short term, work is out of the picture and I am starting my last semester of school in two weeks.
Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
8y
@Randy E. you make a lot of good points. As you suspected, I have been spinning my wheels in my career gaining ground slowly and only recently have I made any significant gains in my “market value”. None of these gains have been significant enough to allow me to begin investing on my own terms yet. It would definitely be a risk; however, I have the tools and know how to do a lot of the work and feel confident I can find the people I need to help with work I can’t or don’t have time to do in the desired timeline.
Without a job your chances of success is likely very low. Get your career back on track first then consider risking all your saving in real estate investing.
No job means no safety net so when the flip hits the skids you will not recover. You are looking at a extreamly high risk gamble regardless of your past experience.
MBA, CFP®, EA · Columbus, OH · Member since 2018 · 175 posts · 207 votes
8y
@Jeshua Patrick you honestly might just want to wait and not take the risk. There is moving guaranteed in real estate. If you were experienced and had the financial backing this would be a different story. Keep ur cash. The market is hot right now. There will be plenty more opportunities.
Real Estate Agent · Santa Rosa, CA · Member since 2018 · 84 posts · 105 votes
8y
@Jeshua Patrick with this overheated market it sounds risky to take the tax hit and have all of your eggs in one basket. The market will turn for the worst at some point and this would be a large risk in my eyes.
Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
8y
@Chaz Mathias I agree that the market is overheated which is why I would be budgeting to be able to list below market value for a quick sale. I do agree that it is a huge risk and not for the faint of heart which is why I’m taking a temperature on here of whether experienced investors feel I would simply be taking a risk which requires certain considerations and precautions or about to do something completely stupid.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
@Jeshua Patrick
I wouldn’t do a flip at all. I’d go find another job. I wouldn’t have the risk tolerance for it. You basically front all this money and then hope you can sell it high enough to make a profit.
If everything goes perfectly it takes you 3 months.
Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
8y
@Bryan A. someone please correct me if I am wrong but the only two ways I know of to do that is to either get a new job or to move into a SoloK which requires an existing, qualifying LLC or corporate entity controlled by me. Was definitely planning to do that but it may take time.
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
8y
I feel like you know what you want to do and putting it in here to either get confirmation of your decision or back out.
Think and pray on it, always trust in your abilities and go at it with confidence if that is your decision. As far as financial advice, it would be best to consult with a professional in regards to this situation. I wish you well and look forward to you completing your degree. God bless!
Investor · New Haven, CT · Member since 2012 · 285 posts · 175 votes
8y
I thought this was a real estate blog! Who would you trust with your retirement money. I’d bet on my abilities any day over leaving my money with Wall Street to handle. Take the money, work the flip and never look back.
Real Estate Investor · North Ridgeville, OH · Member since 2016 · 97 posts · 81 votes
8y
Hi. I did something similar to this a couple of years ago. Had about $85k in a pension fund that was at risk of paying me nothing when I retired except my $85k in contributions. Unlike you I already owned three rentals, and had them for about 9 years. I was very experienced and felt confident that if I pulled the money out and paid the taxes and penalties I could make back the taxes and penalties pretty quickly. I did end up pulling the money out, but I ended up paying about 40% in taxes and penalties. There was one serious side effect I didn't anticipate. Pulling the money out pushed me into the next tax bracket and I lost all of my rental deductions. I paid about $25k in Federal income taxes alone on the money. However I did end up buying a SFH, a condo, and a duplex and paid cash for them with no mortgage. The gross rent rolls from the three properties is a little more than $2500 a month. My total investment in all three is about $101k with all repairs. Net income from the properties is $1675 after all expenses. I could have rolled the money over into an IRA, but I wanted the cash to take advantage of a down real estate market here. I have absolutely no regrets about doing it. My only advice is no matter what the 401k custodian says make sure you consult with a tax professional so you withhold the proper amount. Personally I wouldn't flip a property with money like this it seems too risky to me. Buy and hold will pay off tremendously in the long run. I was 41 when I decided to do it and had an emergency fund. My spouse also has a full-time job and we have no children. I worked very very hard to get the properties fixed up and rented out. I am almost finished fixing up the duplex. The downstairs of the duplex is rented, and the upstairs will be rented next month. If you have a wife/significant other make sure they are on board. My wife supported me because I explained the math to her. Of the $85k I took out I have already made over $40k back in 28 months. So we should be back to the same level of money after another 2-2.5 years and we will still own the properties and have the income from them.
Chicago, IL · Member since 2016 · 30 posts · 17 votes
8y
There are always unexpected things that happen with remodels, I have not heard of one flip that was finished on time and on budget. If you're willing to risk everything you have, go for it. You will not know if you do not try. I like to have options so I'd get another job before taking on a flip knowing that anything can happen.
Real Estate Investor · North Ridgeville, OH · Member since 2016 · 97 posts · 81 votes
8y
@Izabella W. I would have to agree about getting another job before starting. When I withdrew the money I was working as a contractor, but found a full-time job within a month.
The question you need to ask yourself is are you willing to risk all of your retirement savings on a flip? Something I'm guessing you've never done before. I know I wouldn't.
Exactly. To even ask this question is strange to me. You left a secure job for a 90 day temp to hire job? Then you got laid off and now you want to blow what little money you've saved on something most people lose money on their first time, just as the economy heads into a recession? Do the smart thing and find a new job, don't invest the money until you have a better understanding of the fundamentals.
Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
8y
@Jack B. the job change thing was complicated and unfortunately sometimes in life to move forward you have to take risk. I would do it again based on the information provided to me. Unfortunately there was never any chance of me obtaining the information I needed that would have changed my mind until it was too late.
Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
8y
@Bill Pate it’s good to hear how you took a similar situation and worked it to your advantage. Interesting take on the rental approach. I will definitely consider that. Will definitely have to look at tax implications also.
@Izabella W. I am definitely looking for a new job also but if there is an opportunity to pick up and rehab a deal while I am otherwise unoccupied it would feel good to be doing something positive for myself and my family. Wife is onboard with doing something, as long as it’s positive.