From 1 Flip to a $3M Property my 3rd Year In !!!

15 Replies

I would've never imagined that in my third year into real estate investing that I would have been involved in purchasing a $1.4M commercial property. A quick transition from just flipping one SFR in 2016. The bigger pockets podcast has been monumental in learning and motivating to commit to action instead of just "dreaming" about it. Thanks for everything BP ! Go big or go home in 2019 !!!

Year 1 : 1 SFR

Year 2 : 5 SFRs

Year 3 : 26 Residential Lots and a 72,000 soft retail shopping center. 

All started with confidence in myself and liquidating my stagnant IRA.

@Andrej Petrovski

Congratulations, can you shed light on the process you took on liquidating your IRA? This has crossed my mind, but I haven't taken action.

Did did you liquidate your IRA or did you self direct your IRA? as in, did you take the tax hit to your IRA to convert it into after-tax cash or are you just self-directing an existing IRA without the tax it?

Be warned that if you are flipping in a self directed IRA there is the risk that this is a taxable event subject to UBIT. Flipping is considered operating income, not investment income. Rules are fuzzy and not many CPA's want to opine on this issue. Not only is this income taxable to the IRA but then it is taxable a second time when you withdraw it from the IRA! Yikes!

So you utilized your IRA to flip a single family, then used the proceeds from that the next year to do the same for five more? What did the process look like and how much did you grow your team to make year three possible?

Each institution has their own process to follow when liquidating (cashing out).  I had mine at T.Rowe Price and just called them and requested an early Cash out.  My accountant, my friends, my family, most conditioned people thought I was crazy.  

Bottom line is that numbers in real estate don't lie.  And if you know how to analyze deals, you will make your money grow.  

@Khaled Helmi -> I have my own opinion on using a self directed IRA. It's not a terrible idea. I just took the penalty on my initial withdrawal and started growing it. Sure, the intention of using the self directed IRA and other tools like 1031 exchanges is to protect against taxation, so each person can decided if those tools are a good fit for them. I just like to have full control of my money when I need it. don't want to get permission from my custodian or go through a process. Ultimately, my goal is cash flow and gains. Whether I get taxed now, or defer it until later, makes no difference to me personally.

BTW, my IRA was close to $50K. After penalties, fed, state taxes, I was left with just over $40K to start my very first flip. I've turned that $40K to $98K from my flips (all of them were 50/50 partnerships). My commercial deal, if goes as planned will add $250,000 to that. All started from me taking a risk and using money that was just sitting there growing slow.

Congrats! That seems like a huge step from year to year, especially year 2 to year 3. I'm curious to hear how your mindset differed from year to year? I'm currently done with my first property and looking for my second, but I cant help but feel like I'm thinking too small. You have obviously unlocked that mindset and overachieved your goals, from what it sounds like. Again, congrats, and looking forward to hearing back.

@Jeremy Lewis Yes. just recycled my profits over and over.  So for example : I started with my $40k, partnered up with a guy who fronted the rest of the acquisition cost and rehab cost.  I did all the work on that one and hired out minimal.  We then took our profit from the first flip ($27k) and I found more.  Repeated it in 2017.  The last two were done in parallel so I sub-contracted the work out (got my builders license).  Hard to do flipping also while having a full time engineering job, so hiring out was essential to doing parallel projects.  2018 was slow with finding SFRs for flipping in my market.  Everyone seemed to have cash on hand and it was almost impossible for a single person operation, such as my self to put in work to find deals.  So, I pivoted and worked on looking for Land to flip, since banks are throwing money at builders in my market.  That worked well.  Just closing on the last batch of lots this month, selling them to a developer.  

Year 3 was a product of persistence.  I've been networking and knocking on the doors of  guys that do commercial projects in my area for 6 years ! That circle is hard to get into sometimes, especially if you don't have capital or other value to bring.  After doing my flips i had more capital on hand.  I have not expanded my team, nor plan on it.  I like small operations that do big things.  In this case, we are 3 partners that purchased a retail shopping center.  The two others are brokers and have experience filling those type of properties.   Small team, big returns. 

@Robb Werner My analysis and approach were similar each year. Analysis and understanding numbers is the common thread in any real estate deal.  My open mind to calculated risk also has always been consistent.  If you don't get excited about rolling dice on any deal, then you just won't get far.  In my case, this 3rd year getting into commercial was the same.  Just more butterflies in the tummy since the numbers went up substantially.  Congrats on your first deal! 

@Andrej Petrovski what a great story! I am learning a lot in order to figure out the direction I want to go soon. I am moving back to Ohio where I am from and I am looking to break into Real Estate within the year. Very exciting, thank you for sharing.

@Andrej Petrovski

That’s incredibly impressive and is something I hope to emulate once I get started. I’d love to ask you a few questions (Just over some of the steps you took and what you learned) over PM if you’d be okay with that? Thanks man and nice work!:)

@Andrej Petrovski how does liquidation work for your IRA? I keeping getting the same response about penalties and taxes?

Do you not have to pay back the account?

Originally posted by @Andrej Petrovski :

Each institution has their own process to follow when liquidating (cashing out).  I had mine at T.Rowe Price and just called them and requested an early Cash out.  My accountant, my friends, my family, most conditioned people thought I was crazy.  

Bottom line is that numbers in real estate don't lie.  And if you know how to analyze deals, you will make your money grow.  

@Khaled Helmi -> I have my own opinion on using a self directed IRA. It's not a terrible idea. I just took the penalty on my initial withdrawal and started growing it. Sure, the intention of using the self directed IRA and other tools like 1031 exchanges is to protect against taxation, so each person can decided if those tools are a good fit for them. I just like to have full control of my money when I need it. don't want to get permission from my custodian or go through a process. Ultimately, my goal is cash flow and gains. Whether I get taxed now, or defer it until later, makes no difference to me personally.

BTW, my IRA was close to $50K. After penalties, fed, state taxes, I was left with just over $40K to start my very first flip. I've turned that $40K to $98K from my flips (all of them were 50/50 partnerships). My commercial deal, if goes as planned will add $250,000 to that. All started from me taking a risk and using money that was just sitting there growing slow.

Actually I'm not criticizing you at all on liquidating your IRA to invest. I think we have a bit of a taboo in our society about touching IRAs, when in fact if you're responsibly investing them it actually may be a MUCH BETTER decision than leaving them in the stock market. If you're making more than you could make in the stock market AND building up your own business & after-tax resources then I'm all for it - and it looks like you are.

Congrats!

@Logan Briggs The penalties for cashing out prior to retirement age are all the same.  10% penalty for cashing out.  Then you have to apply federal and state taxes.   So, not the same as taking a loan against it, which is a good option if you don't want to cash it out completely like I did. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here