All Forum Posts by: Doug Underwood

Thanks for the feedback.  I'll make sure to check the numbers.  No properties yet and not touching the money until I find one if I go that route.  

Another thing is that buying through a self directed IRA I can not take a commission (one of the strict rules saying that I can in no way benefit when purchasing the asset through the IRA) , whereas buying if outside of the IRA I can get the commission of 2-3% ($20,000+ depending on the price range) which would offset some of the 10% penalty.

As an appraiser and realtor I can say in the Phoenix Market you will not get back close to what you paid.  Look it like a pool, it may cost you $30-$50,000, however the value added in an area like Gilbert or parts of Phoenix might be half or less than half of that amount.  Solar is the same.  I have appraised homes that the owner spent $50,000 that the market supports a $12,000 increase in value.   People in Phoenix care more about a cheaper price and less about energy efficiency, at least in today's market.  

Does it ever make sense to withdraw your money from an IRA before retirement to invest it in real estate? I know there is a 10% penalty plus it is taxed as income, however I would be able to invest the money in multi-family now and receive the income now rather than wait until retirement which is not for another 25 years. Right now I am torn on whether I should take the penalty to buy multi-family (8-10 units) or go the self directed IRA route buying rentals and not see any of that income for years. One reason I have been even considering this is a friend who did this and purchased many rentals that are now worth significantly more and he gets rental income. Also this is not the only retirement account, my wife and I have a profit sharing plan through my business that we regularly contribute to and would not touch. Any advice would be appreciated.

@Jeff Bethke yes I have had experience with investors buying, then renovating and renting.  In most areas in Phoenix Metro if you are patient you can find a deal on something that needs work and renovate.  The hard part is finding something that needs work in our current market.  Everyone else is looking for those types of properties and bidding them up.  

What are you including in your expenses? $648 a month for expenses is high. You can get a landlord insurance policy for $300-600 a year, property taxes for the year $1200, plus HOA $420 a year. If you use a property manager fees $1554 a year @ 10% rents. Add vacancy and repairs and your still below $7,770 a year. Its not great but prices in AZ have jumped so much. 1-2 years ago you could have bought the same house for $120,000. For a house like that I would rent it out myself and save the $1500.

Those would be 4 bedrooms 2 1/2 bath homes.  

Right now you could buy a 2-story with around 2000 sf in good condition from $179,000 to $193,000 the current rents are from $1095 up to $1295 (with a pool).  There was a recent rental that rented at $1,195 with no pool in very average condition (meaning worn carpet and could use some paint).  

Surprise is great for rentals as it is close to Luke Air Force Base, so you may get someone who is in the Air-force with a family who does not want to commit to buying a home.  There are many who were foreclosed on during the housing crisis as well who can't qualify or are not interested in buying again.  There are still quite a few homes you can get out there below $200,000, like Sierra Montana where 1900 sf you can get at $174,000. 

Chandler (class A & B), Tempe (Class B & C), Gilbert (Class B), Mesa (Class B & C areas), Scottsdale (Class A).  Once you go west there are more C & D areas, unless you go far west like Avondale or Surprise which would be more class B.    Avondale & Surprise have good cash flow and homes start in the low 200's.