All Forum Posts by: Account Closed

@Dawn Anastasi that's a very good point, and I agree, I'd rather not lose money.  I should have added that we are not looking for the "insanely rich" path so much as we are the "retire as soon as reasonably possible on a comfortable income" path.  Not that that necessarily means sacrificing $50k now, but to me the time to recoup the $50k is secondary to which overall strategy will accomplish our goals.  But at the same time if we only add five years to our retirement at a significant reduction in monthly income, that's just silly.  I think what I really need is to run numbers on each scenario, which I intend to talk to my CPA about in January.  And I have considered the Solo 401(k), but unfortunately don't qualify.

@Chris Soignier thanks for sharing! You've got us revisiting the HELOC thing (we ended up talking about it for most of the afternoon actually), so we may end up pursuing that based on how the numbers shake out. Mostly your creative approach helped remind us to understand our desires and fears and separate those from the numbers and logic. Thank you!

@Brian Eastman that calculator is really helpful, thank you very much!  And good to know that SDIRAs are not as scary as people make them out to be - you're right, I think they do that to get you to play it "safe" in paper assets.  As above, we are definitely trying to keep our fears from clouding our logic on this one.

Thanks again, all, this has helped us continue the discussion and keep open to new ways of approaching our plans.  Much appreciated!

Here’s my dilemma. I have ~$150k in an employer 401(k). My job ends at the end of February. After that my and my husband’s plan is to invest in multifamily rental properties, reinvesting all of the profits as we go into buying more property. Our goal is to create sufficient cash flow for retirement. We’d like to retire in 10 years (or less), but at the outside 20 years (I’m 34 now, my husband is 32).

Note: We have other retirement funds – my husband has a 401(k) that will give us comfortable income once he's 59 ½. Plus I'll have a pension from the job that's ending once I'm 55. Plus Social Security (though when I do our retirement calculations I pretend like that's not gonna happen….because you know….it probably won't). So in any event we will have an acceptable retirement at a decent age in any case. Anything we do with my 401(k) is icing. Plus we may still start a Roth IRA for one or both of us regardless of what we do with my 401(k) money.

Another note: We will have ~$25k of our own savings to put toward investing, and we could pull about ~$110k in equity out of our house for investing (though I'd rather not do that since the 401(k) money could be used as described below and the HELOC payment would require drawing cash flow off the rental property…which could be a problem if there ever isn't any or enough).

At any rate, here are the options I’m considering with my 401(k) money and the pros and cons as I see them (there are probably more, these are just off the top of my head):

Plan A – Roll the money into a self-directed traditional IRA.

Pros:

• We get access to the full $150k.
• We can pretty much still operate as planned, since we don’t plan to draw off any of the income until retirement anyway.

Cons:

• Getting loans to the IRA entity would be difficult as there are few lenders that do this. Terms are often less favorable than we could get personally. Including…
• A huge down payment (30-50%) is required. We’d likely have a higher going in price point if we simply cashed out and used the resultant ~$100k on a traditional 20% down loan.
• We can’t start drawing until 59 ½ (25 years from now), so this doesn’t really achieve our early retirement goals.
• Direct investing in rental property through an IRA is fraught with risk. It seems the IRS itself isn't even always sure of what constitutes a prohibited transaction until they decide something is. Even reputable businesses that help with this kind of investing now could end up unintentionally steering you wrong, blowing the whole IRA out, leaving the property in limbo and all sort of other legal issues.
• Management and other fees of the self-directed IRA, the IRA entity, etc.
• Slower access to funds – everything has to get vetted thoroughly before any money can move.
• A traditional IRA is simply tax-deferred – so not paying taxes now on $150k means paying taxes later on (hopefully) a lot more money. This is the part I like the least.

Plan B – Roll the money into a self-directed Roth IRA.

Pros

• We get access to most of the money (less taxes, but no penalties).
• Same as above, we can still operate as planned.
• No taxes on the income once it’s drawn out.

Cons

• Same as the first six above.

Plan C – Take disbursement of the money and pay the associated taxes and penalties.

Pros

• I believe this would be the most flexible option. No complicated business structuring, slow access to money, high fees, etc.
• It would be easier to use tools like seller financing, HELOCs on rental properties, partnering, etc. to snowball assets.
• It would allow us to retire when we want/are able to, without the 59 ½ age restriction.

Cons

• Taxes and penalties, likely leaving only ~$100k of the original $150k.

So, my esteemed BP peeps…what do you think? Which option should I choose and why? Am I missing any pros or cons? Are there other options I should be considering (I know they exist, but didn’t include them as I see these as my primary options….but if you have a good argument for another option I’m open to it!).

In any case, thanks for reading!

@Timothy Riley I've started doing some research on my own. Just read Diane Kennedy's "The Insider's Guide to Tax Free Real Estate: Retire Rich Using Your IRA." Suggest you check it out - it answers some of your original questions. It helped me gel the pros and cons in my mind, though I still have a situation-specific question I'm going to put to the BP community soon before I talk to my CPA. =)

I use Wired Seattle. (WiredSeattle.com). Not sure if they do Tacoma, though.

Wow, that's a great question. I think it's still illegal to grow without proper licensing. So I think the standard no illegal activity thing still applies to non licensed growing. Even if licensed you could take the tack that it's using the residence for business purposes and prohibit it that way. But I haven't dealt with this yet either so I'm interested to hear if/how someone has!

@Account Closed Yep, it caught a leak in the water heater at my primary residence a few years ago. There was only a small amount of water before it went off. We had simply placed it according to the directions on the package.  They're very easy to use.  There may be more sophisticated systems that I'm not aware of, but these work fine.

Home Depot et al sell small, inexpensive (<$15) sensors that can be placed near potential leak sources. They emit a loud signal when water touches both contact points. We have them installed under/next to dishwashers, washing machines, water heaters etc. They work well for us.

@Jeremy Billauer  unfortunately I didn't catch that podcast.  Wish I had now, though!  I only heard about it through other forum posts, but I do also plant to talk to my RE attorney about it.

@Travis Beehler  since I haven't done any deals yet, no. :)  I had 3 veteran REIs, my CPA, a RE attorney, and a mortgage banker each tell me that.  And I guess I shouldn't say "typically" - perhaps they meant "prefer" to.  But honestly having checked at a few banks while trying to line up for my first deal I've found that to be true.  But maybe I'm checking with the wrong banks....or just that I don't have enough experience yet.  Is it that you already have an established portfolio?  Or personal relationships with the banks?  Would very much like to hear more!

@Jamie Garcia  I should also add that I do actually have an LLC, but right now I'm mostly using it as a "store front" for establishing myself and networking. I'll eventually use it for renters (the LLC has its own bank accounts and PO box, etc) and holding property (either in a land trust after I learn more about them, or once they're paid off for liability as @Kevin Page  explained above.  I do also plan to get an umbrella policy after purchasing my first property next year.  I lived in LA for years, and if people there are still as sue-happy as they were when I lived there, doesn't hurt to get all the liability protection you can!

@James Sotipalalit  No, I just finished putting together my major team members and have my business plan out for review.  Once I've arranged some cash I plan to buy a small multifamily as early as March.  I take my research and prep seriously! :)  I'll be interested to hear how things go for you.  Take care and happy holidays!

As a newbie myself I do not plan to negotiate unfamiliar territory without experienced guides. You can certainly take that path eventually if it's right for you, but don't do it if it's because you think you have to do everything yourself. Trust me, you need other people. And good REI team members can be a huge blessing and help you along in your journey to decide what path is best for you. Good luck!