All Forum Posts by: Jeff Wallace

yes, I bought approx 6 houses from auction

@Michael O'Byrne 

Thanks, I will have to get a little more creative to access that profit as a salary. Maybe the Corp will buy and hold as well as partner with my LLC to flip... Thanks again for the input.

The 15 year reference is likely a Dave Ramsey quote... he teaches that debt is bad and only acceptable on a primary residence.  He wants debt paid off as quickly as possible, thus the 15yr preference and advises that if you can't afford a 15yr, then you can't afford the house (primary residence only). Brie's advice (30yr) is in line with the majority of real estate investors and allows you the ability to aquire more property in a shorter time period.  The other side of the spectrum is to pay cash for everything and not finance anything, which is considered foolish by the majority due to the much higher rates of return when you leverage funds ... (use Other People's Money). leverage allows you to control massive amounts of real estate in a relatively short period of time.  I have projected the numbers using both methods and when accounting for appreciation of the assets, the leveraged approach wins... as long as your personal risk tolerance allows you to have large amounts of outstanding debt.  If you decide to go the leverage route, there is no good reason to choose the 15yr option... as @Brie Schmidt  said, you can always pay extra to put it on a 15 year schedule, but the added amount will not count against your debt-to-income ratios when you are ready to aquire additional properties.

@Account Closed 

when I was just getting started, I invested in a multi family in the worst area possible. I originally intended to wholesale the property, but the numbers were so good, I decided to buy it myself and keep it for cash flow. On paper it seemed great because the property was so cheap. I was buying from an inheritance landlord who wasn't managing the property at all. I assumed with a little attention I would have a huge cash flow.  The property produced about half the income that I projected. Regular evictions ate up a lot of income.  A class D property attracts class D tenants. The only reason I would advise you to buy a property in a rough area is if there is the potential for new development and growth. If you do decide to buy, the area probably turns a LOT of potential buyers off and the owner is having trouble selling.... Make your initial offer insultingly low. You may be surprised what he is willing to accept.... Assuming he has been trying to sell for a while.

@Michael O'Byrne 

Yes, I would also be throwing away a pile of $ initially in taxes and penalties. What are you doing with the proceeds from the flips? Are you collecting a salary, or reinvesting? Since you are flipping, you can be actively involved, and therefore able to pull a large salary from the Corp.  I have been told that the IRS frowns on upon a Corp wich mainly generates passive income paying a high percentage of the profit as a salary... and further, that passive income incurs an additional 20% tax for a corporation... Any thoughts or experience?

an

college vs up and coming

College will likely have a lot more turnover and be more time consuming with make ready between tenants, but will always have a steady supply of applicants with parental co-signers... Personally, I would lean towards un up and coming area... Unless you have a good supply of four-plexes near the college. Then see above posting and start as a multi-family investor from the very beginning

Buying a duplex, triplex, or fourplex as an owner occupant is the absolute easiest way to get started in the landlord business. You qualify for lower interest rates and down payment requirements.  You should be able to repeat the process at least once and possibly twice before the banks hassle you about buying as an investor if you can explain a personal reason for the move to the next property (better neighborhood, closer to work, more sqft, etc.) Be sure to get long term financing plans in place before you move out so you still qualify as an owner occupant.

I wish I could go back 20 years and take my own advice.

@Thomas Williamson Thank you. It is reassuring to know that it has been a positive experience for you. I am on the fence with this decision. Although it would be GREAT to access my entire savings ($350,000) without penalty or taxation, I know the limitations accessing the proceeds will handcuff me regarding what I can ultimately build.  Common sense says the choice should be a no brainer....

I would like your take on two follow-up questions ...

- Another BP member advised against holding passive income producers in a C-corp based on tax issues related to C-corps paying higher taxes on passive income... 

- I have also heard that in the given scenario, taking all of the profit from the Corp in the form of a salary would be frowned upon by the IRS... basically, a corp with income based on assets rather than production should have a low percentage of profit paid as salary...

Thoughts?

@Thomas Williamson 

I'm researching the ROBS and came across this topic. You mentioned using the C-corp/401k with Guidant. Now that some time has gone by, can you give some perspective based on your experience with the product ... I am planning to leave my full time job and would like to access the funds in my 401k to purchase rental property and become a full time landlord.... I am commited to the point of being okay with paying the taxes and early withdrawl penalty if necessary... However, if the ROBS is a workable option ... all the better