Too much knowledge here - how to make a right choice?

Question

Hi everyone, thank you for stepping by!

If you are a George Lucas movies fun, as I am, you probably remember that hilarious episode from 'Indiana Jones and the Temple of Doom:' Indiana Jones [with shoe on fire] Water! Water! Water! Wa... Oh. [sees a flood coming towards him] WATER! - and everything else after that.

That's exactly how I feel right now. I declared 2015 the year when I finally realize my long term dream and start REI. I needed knowledge. I craved knowledge. I attended several seminars, have read some books, and then a week ago I found BP. Yes, it does have knowledge. Plenty of it. Great people give great advice on any topics. Free books, articles and podcasts to help the members to succed. Wonderful offers from different businesses. There is an ocean of knowledge! A waterfall of knowledge! I read, and listen, and read again, but it doesn't make a big difference. There is too much to learn.  It is still me, trying to navigate my new tiny REI boat in this ocean, full of waterfalls. And sharks, probably, though I didn't meet them yet.

So here is my dilemma: I really really really want to go ahead and do my first deal ( I want to start with fix and flips, and already have an agent, who gives me listings, and a team of contractors, ready to start fixing) but so many different financial options on what to do and what not to do in order to accomplish it! I don't think I have analysis paralysis, since I don't have enough knowledge to anylize anything, but rather the fear of doing something wrong because I don't understand how it works yet. Go for hard money? Get 75% from a conventional company and add additional money borrowing from my IRA? Or convert my etrure IRA into REI one?  And I just got this email from BP talking about crowdsourcing! Wow! Two weeks ago I had no idea there are so many different options! Where to start? WATER!!!

Brent Coombs · Answer

@Galina Derevyanko It's probably a good idea for you to hone in on the question: what are my financial goals? If you are thinking you might like to spend some of the profits each time on say, a cruise, then those suggestions of utilising self-managed Retirement Funds might not be permissible? If on the other hand you don't want to use ANY of the profits until retirement age (other than re-investing them), then OK. [No legal advice given].

All other things being equal, I recommend looking at each deal AS IF it was being bought with all borrowed funds (to see if the numbers including repayments still make sense), then, borrow the maximum percentage available at lowest interest rate, trying to have the rest as own cash ie. save as much as you can in the meantime. Cheers...

Bhekizwe M. · Answer

Yes, its EVERYWHERE!! a vision and mission help you to focus.As for the knowledge, keep renewing the mind however take action as there is feedback from there too.

Galina Derevyanko · Answer

@Dmitriy Fomichenko

Thank you for explaining the differences between several types of IRSs and letting me know about SD Solo IRA! It certainly sounds attractive! I will explore It!

Galina

Ned Carey · Answer

@Galina Derevyanko I suggest you check out the free beginners guide. It might help organize your thoughts. Some of teh concepts in real estate investing are simiple but the devil is in the details. - there are a LOT of details.

There are three types of knowledge you need to do REI. I think sometime people get stuck because the have a ton of knowledge but are missing knowledge in a key area

1) you need to know the strategies: Buy and hold, short sales, subject to,  flipping, wholesaling, lease options etc.

2) You need to know how to evaluate a deal

3) You need to know your market

You don't need to know all the strategies just enough to do a deal. Keep in mind there are strategies to find deals; auctions, short sales, foreclosures, direct mail,etc. and there are strategies for what to do with the property once you have it; buy and hold, rehab and flip, wholesaling for example.  We call these latter items"exit" strategies.

The part most new investors fail at is market knowledge. You can't evaluate a deal if you do not know your market. You don't learn your market siting behind a computer. You learn is by going out and looking at deals.

Good luck,

Ned

Victoria Winters · Answer

@Galina Derevyanko

Hi Galina,

Welcome to Bigger Pockets. I loved your post. Yes, there is a lot of information here and a lot of people that can offer help.  The real estate industry as a whole is gigantic. Think about it, real estate is literally everywhere, and investing in real estate can be done in all types of property.  Instead of feeling overwhelmed, decide what you are interested in, and focus on what you want to do. That should help you to gain control of the direction you want to go.

When you decide what you want to focus on, then you can begin to look at options that make sense for your area of interest and tolerance. Not every person wants to start out with a 200 unit multi family apartment building. Even if you have the resources at hand, it is worth taking a look at what you like and setting a goal.

I certainly hope this will help you to get started or at least in control of the direction you want to head. Once you have that figured out, help is always available.

Mark Nolan · Answer

If you are looking to flip houses your best bet may be to open a Rollover as Business Startup (ROBS) 401k as it will not subject the flipping to UBIT. The ROBS 401k can be used to open a real-estate operating company without paying taxes or penalties.

Resources

ROBS: http://www.irs.gov/Retirement-Plans/Employee-Plans-Compliance-Unit-%28EPCU%29-Completed-Projects-Project-with-Summary-Reports-%E2%80%93-Rollovers-as-Business-Start-Ups-%28ROBS%29

UBIT: http://www.irs.gov/Charities-&-Non-Profits/Unrelated-Business-Income-Tax

Dmitriy Fomichenko · Answer

@Galina Derevyanko

when it comes to using retirement accounts you can set up a self-directed IRA and then use IRA to buy the property. In this case the IRA would own a property and all money has to come from your retirement account. You are allowed to use leverage but the loan must be non-recourse. Also portion of the income in this case will be subject to UDFI taxes (type of Unrelated Business Income Tax).

You are not allowed to "borrow" money from an IRA for a down-payment on a property that you intent to buy in your name.

Alternative to SD IRA can be Self-directed Solo 401k. It has several advantages over SD IRA including: no taxes on leveraged real estate and you actually can borrow from your account up to $50,000 tax free and penalty free (loan has to be paid back within 5 years).

Galina Derevyanko · Answer

@Victoria Winters

Victoria,

Thank you for your encouragement! I feel that I joined a society of amazingly friendly and supportive people, now I am wondering why I didn't join it earlier... It is great to be here. Something right is happening here at BP if you all provide newbies like me with this kind of support. The overall experience (in terms of support and friendliness) reminds me posts I read when I browsed my younger son's forums at My Little Pony community (he used to be a Brony when he was at school, if it tells you anything). Friendship is Magic. LOL

Galina Derevyanko · Answer

@Mark Nolan

What a great list of resources! and a valuable advice! Certainly appreciated!

Too much knowledge here - how to make a right choice?

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