Real Estate Investor · Saratoga, CA · Member since 2010 · 100 posts · 14 votes
Hello,
I am from Bay Area and a complete newbie to real estate investing....had saved money for downpayment of our primary home but ended up purchasing 5 fourplexes in the last 4 months since the cash flow calculations showed net cash flow of 25% or more (after expenses and mortgage)....our goal is to be financially free in five years...i.e replace both our incomes from cash flow...besides buying rental properties....what other investment strategies should i look into within the real estate arena..... we may be able to make downpayments for 2 more rental properties....before depleting all our savings and ira investments....but as we replenish our savings and make additional purchases, i want to understand what else should be look into...currently all our properties are in east bay and i am seriously looking into diversifying to stockton or sacramento and eventually arizona once i identify property managers thr
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Originally posted by Jak Dadi:
...
regarding the ira.....we are rolling that over to a C-Corp and then investing in real estate..this way i do not have to take a distribution....
Sounds like this my end up being considered a prohibited transaction, which would end up making it a distribution after all. Seek advice from experts in this area so as not to end up in a bad position. More reading:
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
15y
Well, first off, welcome to the most amazing site and resource on the net for exactly what you're doing.
My first thought was 'Whoa!!! This guy needs to slow down'.
Before you go in deplete your savings, step back a minute and gain more education about exactly what you're doing right, wrong and plan ahead accordingly.
There are gobs of info already on this site that might(more like, absolutely will) open your eyes to things you could have, would have or should already be doing. Get used to the search function as most of your questions have probably already been answered.
That doesn't mean you should ask, it just might save some space ya know?
If you do ask questions, please remember to get the best answers available from multiple experienced/successful investors, its best to include as much info as possible(exclude address, names, phone #'s etc....). Otherwise you'll get a bunch of vague responses from people who've been here on this site from 6 months to a year but seem to respond to every post as if they were an expert in all fields just to up their post/influence count.
This way, those with the better, non-space filling responders will get noticed and you'll be able to make better decisions based on better responses.
Hope my long @ss response helped. Again, welcome! and stick around, you might learn a thing or two and we might learn from you.
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
15y
Jak,
Cash flowing 25%......I'd stick to the East Bay area! Just curious…how much down on each 4-plex did you go? When I do a pro-forma I always figure it at 100% financed. You have to make a return on your cash down, too! I would also take it a bit easy to see how things go for a few months. Nick's right, don't deplete your cash. IRA's are expensive $$$ and should be used only for a last resort! Look around Bigger Pockets and see what options are out there and ask questions. That will give you a good idea of what other options you may be interested in.
Sounds like you are off to a good start and doing well. Welcome to BP!
Bill
Real Estate Investor · Saratoga, CA · Member since 2010 · 100 posts · 14 votes
15y
Thanks motiv....i have been asking myself repeatedly if i am going too fast.....if i am making the right choices...i am comfy with my analysis but i want to make sure i keep my eyes and some resources for other opportunities..
regarding the ira.....we are rolling that over to a C-Corp and then investing in real estate..this way i do not have to take a distribution....i am trying to understand the double taxation effect of a C Corp...i read on this site that an LLC is a better option...not sure if tht option is available for ira funds....if anyone knows pls advise....
bill....all these are conventional loans...so need to put down 25%..for e.g.i bought a vacant studio plex for 133k, put down 25% and spent another 2.5k on appliances and repairs....for a total outlay of 40k incl closing costs, rented each of the 4 units for 600(rem. these are studios), used 28% expense ratio, and i get annual cash flow (before tax) of 14k.
i want to get another 5 properties next year...and hence want be a bit wiser before i buy the next batch over a year...
what shd my next move be? the same as above or something else?
Real Estate Investor · Dallas, TX · Member since 2010 · 449 posts · 173 votes
15y
Hey Jak,
Welcome to BP! We are in a similar position, just started this year, though we only have two properties (a duplex and SFH). This site has been a godsend for me - I have learned so much in only a few months that I've been visiting here. Best of luck with your investing!
Real Estate Investor · Saratoga, CA · Member since 2010 · 100 posts · 14 votes
15y
Thank you Harry :-) I am afraid i am going to be glued to the site for the next few days as I read up everything i possibly can. the info here is amazing!
Real Estate Investor · BROOKLYN, NY · Member since 2010 · 60 posts · 4 votes
15y
welcome Jak and congratulations you seam to have come out the gate running.The smart thing is that slowed down to ask questions
that's good ,you are in the right place.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Originally posted by Jak Dadi:
...
regarding the ira.....we are rolling that over to a C-Corp and then investing in real estate..this way i do not have to take a distribution....
Sounds like this my end up being considered a prohibited transaction, which would end up making it a distribution after all. Seek advice from experts in this area so as not to end up in a bad position. More reading:
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
Steve,
Unless I am mistaken, the OG poster is talking about self-directing teh IRA and investing in RE and if that is the case, no distribution, no early withdrawal penalties.
IF you plan to self-direct your IRA to invest in RE, be aware of ALL the prohibited transactions & disqualified party rules goverend by the IRS. Also be aware of the disadvantages to OWNING RE inside an IRA. In my opinion, IRA's are better served making loans on RE rather than owning teh RE due to several negatives, of which include, but not limited to, no depreciation deductions inside an IRA, all the handcufss from the IRS restrictions, the managerial aspects (hands on it takes) for the IRA which can get complicated, and the lack of ability to use leverage.
If you do self direct, you will want to use an LLC for checkbook control and not a C corp. (This is my opinion from experience, but you should consult with your qualified CPA/tax attorney)
Real Estate Investor · Saratoga, CA · Member since 2010 · 100 posts · 14 votes
15y
apparently there are 2 ways to treat your IRA funds- one is to self direct the IRA and i was advised against it because of the higher number of restrictions and the other is the roll off the funds into a C Corp within the IRA. the caveat is that the directors have to contribute to a 401K, can also take compensation and pretty much engage in any legal business....no early distribution or penalties or tax implications if u do that....still stays within the IRA domain....here is the correspondence from our guidant advisor
real estate can be acquired with the same 401k structure we discussed before and allow you to purchase rental properties; buy, rehab and resell foreclosed homes; or even a real estate business like a hotel or a campground. Almost any business will work, it can even be a combination of a real estate business and another type of business. The fee will be the same regardless of how may accounts are rolled or how many businesses you decide to operate. Typically everything can be done in a 3-4 week timeline from start to finish.
Real Estate Investor · Saratoga, CA · Member since 2010 · 100 posts · 14 votes
15y
i must confess i have not compared this with other products or services as yet....and no..i do not work for guidant or any other financial services organisation...but the link below speaks of the 401k small business financing program
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
15y
Welcome to BP, Jak.
Sounds like you are off to a roaring start. I hope that you have considered all your expenses in your cash flow analysis. New investors often miss things like capital expenditures or trust proformas provided by listing agents.
Look forward to getting to know you better and hearing about your experiences along the way. I would suggest using the forums to ask questions and gain insight.