All Forum Posts by: Jeremy Horton

Can we get rid of the sidebars? This new one on the left really makes the forum discussion area small...The forum area used to take up about 90% of the screen, now it's about 50%. The forums are much harder to use with these sidebars taking up so much room. 

Also - pop-ups. I keep getting a pop-up at the top and bottom of the page and am having to close them out every time I move around the forums or my page refreshes. Another thing that makes the forum very hard to use 

Quote from @Michael Plaks:

Quote from @Wayne Kerr:

My goal is to just blend in with other real estate investors. I would think with enough "proof" you could deduct trips/masterminds and all of that 

This does not work the same as blending into speeding traffic. But you will not believe me unless audited. And I hope that you will not be.

 Hypothetically speaking - let's say someone replaced the countertops in their primary home at the same time they were rehabbing a rental property. Maybe the receipt for the countertops got mixed in with the rental property receipts and the countertops got deducted. Is an IRS agent going to personally come in to inspect the countertops?

My HVAC guy deducts literally everything

Thoughts?

I tend to expense everything that is "necessary and ordinary"

If it's an extreme outlier position that most other real estate investors would not deduct - then I opt not to deduct it. If I can justify it, would improve or is necessary for the business then I'll deduct it. 

I know several people that are self employed that make anywhere from 90-150k a year and the deduct down to where they are making 30-40k a year. 

My goal is to just blend in with other real estate investors. I would think with enough "proof" you could deduct trips/masterminds and all of that 

Quote from @Jaron Walling:

This market has rental properties in a gridlock. We run the numbers and nearly everything on MLS doesn't work for rentals. Wholesaler deals are better but the properties are tiny or the condition is so poor you have to flip it to make any money.

I'm not a professional flipper. I'm a BRRRR guy that wants to provide safe, affordable, rentals in my community. I'm not sure that's possible in 2024. We want cash-flow we can manage, not a flipping business, but I don't think you can have one without the other in this market. I'd have to jump in full-time, live off my wife's income, be a "stay at home" dad, and still have to find deals. Even with low expenses and no bad debt it's financial suicide given our income. 

I wonder how long the house-hacking trends holds out? This strategy is touted to new buyers over and over again to reduce mortgage payments but at some point the treadmill stops. 

This is the exact problem I've been having with these higher rates and the market overall - cash flow too small to be a LTR (or just fix the property up good to minimize capital expenditures) and accept the small cash-flow. 

Once you BRRRR and refi - the cashflow is gone.

Equity capture at the buy makes the house "worth" doing but it would still be a small flipping profit. Hardly enough to make it worth it. 

Last house I did - purchased for 150k - put about 10k into it (And this was primarily DIY work - saved probably 15k doing DIY work). PITI is $1250 - would rent for 1500-1600 as a LTR. Could flip and sell for probably 190k-200k. So a 20k flipping profit after paying the realtor, and short term cap gains tax. Or take the tax benefits, small cash-flow and long term appreciation and sell in a few years and 1031 into something else. I got offers for 165k literally days after I purchased this one for 150k as well - so the market is tight with competition still.

Buying places at 4-4.5% compared to 8-8.5% equals $450+ a month in cashflow - $5400/year. That's enough to make/break a deal for these 150-200k houses that rent for 1200-1600. 

I've been at the point this year where the effort and marketing isn't worth the reward - I just haven't been seeing any great deals - not even anything remotely good. The ROI just isn't worth it. Especially with it not looking like we'll see any rate drops soon.

I've honestly been planning an exit out of residential into commercial the past 6 months or so...

Quote from @V.G Jason:

Quote from @Jimmy Rojas:

Im currently in the car sales industry and doing okay but I know (or heard👨🏽) real wealth is made in real estate, i been intrested in real estate for a while now but always get held back by the time it takes to see nice profits.

 Short answer is yes. Fast solutions have slow problems. Seek longevity, sustainable not extreme volatility. You can trade vol just in different areas, real estate isn't one unless you're deep with money. 

 This is exactly it - 75% of it is longevity. If you stay in business, stay consistent and keep going you'll build long term wealth. 

The thing about RE that I like is my ability to control the individual deal. I do use RE as diversification - 50/50 stocks to RE. But by controlling the individual deal I can buy in a good location and at a discount (equity capture at the buy). 

If I buy a house for 150k, put 20k into it, and it's worth 220k - I've just picked up 50k equity on paper. Even if the ARV is 200k, I've still picked up 30k in a few months while working a full time job.

Quote from @Daniel M.:

I'm considering cashing out my 401(k) and IRA funds to invest in more real estate and would appreciate any advice or insights on whether this idea is viable.

Current Financial Situation:

• Significant savings in 401(k) and IRA accounts.
• ***What does significant mean? Means different things to different people - are we talking 300k or 3mm?
• Additional funds in a taxable brokerage account. 
• ***I think diversity in investments is a good thing
• Age: 40, with a relatively high effective tax rate. *** What does "relatively high" mean?
• Limited emergency fund.

Existing Duplex:

• Mortgage with a 75% LTV ratio and a high interest rate.
• Modest annual cash flow. 
• ***What does "modest" mean? What's your ROI? How much appreciation a year? Are you able to take tax deductions or do you have to pass them forward due to income limitations? Are you or your spouse a REP?

Withdrawal Scenarios:

• Scenario 1: Withdraw everything today at age 40, resulting in a 35% loss to penalties and taxes.
• Scenario 2: Withdraw at age 60 with growth scenarios ranging from 1.3x to 2.3x the initial balance.

Proposed Real Estate Investment:

• Purchase two additional duplexes with a 75% LTV and 6.635% interest rate on a 30-year term.
• Projected outcomes include appreciation, cash flow growth, loan amortization, and tax benefits. 
• ***These outcomes are so vague it tells us nothing. Can you quantify any of these? You quantify losses due to withdrawing your 401k - then you leave the real estate investing completely vague. Huge red flag.

Comparison of Real Estate vs. Retirement Accounts:

• Conservative estimates suggest real estate investment could more than double the value compared to leaving funds in retirement accounts.
• Best-case scenario projects nearly three times the value through appreciation, rental income, mortgage paydown, and tax benefits. 
• ***Any numbers to quantify these scenarios? I don't see how RE investing doubles or triples the value compared to leaving funds in a retirement account - probability says that won't happen. Where's your worst case scenario? 

Conclusion: Investing retirement funds in real estate offers significant potential for financial growth and diversification. Despite risks, the projected returns surpass those of traditional retirement accounts. 

***Can you prove, with numbers on deals you have done in the past that you are currently surpassing those in your retirement accounts? Are there any numbers or proof to these claims?  

Seeking Advice: I would like your advice on whether using my retirement funds for real estate investment is a good idea, considering the potential risks, returns, tax implications, and any alternative strategies.

Thank you for your help!

I think this is a horrible idea personally. 

Withdraw your 401k, pay income tax, pay tax penalty, lose opportunity of compounding interest etc - you're taking a huge L out of the gate here 

Do you have a track record of success? When did you start RE investing? Why would you need to withdraw your entire 401k for downpayments on two duplexes? 

Do you have a plan to capture equity at the buy? Not discussed enough - even if I don't get great cash flow I'm capturing 15-25% equity at the buy (increasing net worth on paper). I didn't see you bring up this point - just the same regurgitated - cash flow (much harder and lower today than previous years), appreciation (going to keep you up with inflation unless you're "lucky" and bought in a great area), loan paydown (takes 20 years for significant paydown) and tax benefits (if you make 150k plus there's a good chance you're going to be passing these on) 

Why wouldn't you use your taxable brokerage instead and just pay the capital gains and reset the cost basis? As opposed to using your 401k and paying all kinds of penalties? 

"Limited" emergency fund? What does "limited" mean - 2k? 20k? 200k? 

Don't get me wrong, I like RE investing a lot and I think there's a place for it. But I am sensing major inexperience, lack of due diligence and just a bunch of red flags in general. 

The only way I could see withdrawing a 401k would be on a commercial deal where you can develop the land and increase the equity through revenue

Quote from @Kar Sun:

Quote from @Jeremy Horton:

Haha they had a tenant on the radio this morning describing the same thing...said her house wouldn't get below 80 - landlord told her she set it too low. Then told her to reverse her ceiling fan blade direction. Then told her to get a portable unit/window unit. LOL.

Fix the effing problem and don't have cheap *** old *** units

 I doubt you splurge on your invested properties

Big difference between "splurging" and maintaining. A little thinking before you post can go a long way. Think before you post next time. 

Haha they had a tenant on the radio this morning describing the same thing...said her house wouldn't get below 80 - landlord told her she set it too low. Then told her to reverse her ceiling fan blade direction. Then told her to get a portable unit/window unit. LOL.

Fix the effing problem and don't have cheap *** old *** units

I actually just got back from a week vacation in Orange Beach - we stayed at one of the Phoenix condos - nice enough place, decent amenities - the kicker here was we were on the beach - the balcony overlooked the beach. That's my deal breaker - when it comes to the beach I want a beach view along with walking access. I don't want to drive a car, park etc. 

You definitely need insurance - one hurricane could wipe you out or cause enough damage to where it essentially (not literally) still wipes you out. 

Remember AirDNA includes the cleaning fee in their revenue calculations - you will have to pay the cleaners - this is a significant expense. 

Management will likely be 15-25% of gross revenue depending on the service. 

Lots of other houses in the neighborhood - why would someone rent yours? Better amenities? Better finishes? More activities (games, outdoor décor and games - games also end up with missing pieces very often). Better price? More convenient? Bigger size? I don't know if yours would be unique enough to stand out amongst all the others... 

I gotta be honest - I don't think this makes money - high cost of materials, high rates relative to the last 15 years, probably not looking at much appreciation (I wouldn't expect the last 15 years to be the norm), lots of competition (there are a few brand new high rise condos going up), gulf shores is just down the road as well. It's a very seasonal area as well. You're competing against institutional investors (Brett Robinson to name one) that own a ton of them, market them very well and have this stuff down to a science. 

I think the STR market peaked in 2020- very early 2022 - I don't think it's necessarily what it was played out to be. I don't think you see nightly rates increasing either - I think you actually see a decrease in rates due to the competition and peak from 2-3 years ago.

There's a HOA you mentioned - so there will be HOA fees and every 5-10 years there will be a "special assessment" (this is equivalent to capital expenditures on a LTR type house).

I didn't run numbers - but I personally don't like it. I looked heavily into the STR market back in 2022 and it didn't make a ton of sense then. I'd do it, but I'd need a unique location that's beachfront. I think it makes even less sense now

@Elvin William

What makes you think they are a "great property manager who takes great care of the property"?

Not saying they aren't but not saying theyvare either. A 30k bill on turnover when you purchased is probably going to be typical every few years. I'm thinking you'll spend several thousand each turnover. That's the kicker with class D - looks good on paper, doesn't pan out that way in real life