All Forum Posts by: John Woodrich

Sean is correct, to sell real estate in MN you must be licensed.  it wouldn't surprise me to hear that a licensed realtor/broker said it was illegal.  They may not understand the concept or they may just be upset that you are considering their line of business without a license to sell.

In his defense - I am sure there are wholesalers who are operating as realtors and violating license law.  

Are all 4 of you going to be on the title to the property and are all 4 of you qualifying for the loan?  Guess I haven't heard of 4 people for an owner occupancy so my first step would be to look into how you are going to finance.  It may be just two of you on the loan and that may increase the risk on these two individuals.

There are many ways to structure this but my guess is that the attorney is going to advise on a LLC and an operating agreement. The agreement will stipulate income allocations, distributions, etc. If I were going into this I would want some sort of buy/sell language stipulating how someone is bought out in case of future events. I would also want language in there stipulating how you deal with capital raises and what happens if one owner can't cover his costs. Lastly, if there end up only being 2 people on the mortgage you will have to agree whether they should be compensated extra for the risk involved. Could be a guarantee fee (annual payment) or more equity.

IMO 4 people trying to split profit from a SFH seems like a stretch. I agree it may limit your risk but it also kills a lot of the profit. I don't know your expected cash flow but I wouldn't book on appreciation for a profit.

I am with @Tim Swierczek, a dumb attorney is going to be a better resource than an online entrepreneur.  Find an attorney who specializes in real estate.  They can be expensive but in $300 an hour it could save you hours of online research and let you know whether you need to take action or whether you are SOL.  

Not needed for first property, as mentioned it may be hard to setup correctly. That being said many people say their property is in an LLC, file and operate as if it is the case with the property still titled in their name. Are they afforded any protection? I am guessing no but that is a legal questions for your attorney.

I have read a chunk of the book, it is pretty basic.  Everything relevant to a new investor should be covered in a half hour call or initial consultation with your tax professional.  To answer your other questions - if you don't have a business going or if you aren't in real estate you aren't going to have a way to deduct the cost of the book.

The coursework and cost and time to maintain the license are the main pitfalls.  I am not a realtor but it would not cost anywhere near $5k-$10k to maintain a license unless you are paying for office space.  It has been a while since I have looked into it but I recalls ~$500 board fees, likely $100 license renewal, then CPE.  Maybe a local realtor can help you out.

Your loan will stipulate how much equity you need to purchase a property.  Your loan will have to be paid back to your 401(k), with interest so you are correct that it would be a higher amount.  You could make the payments with a cash out refi (if you had additional equity) or you could repay the loan with cash flow from the investment.

You could also borrow from your 401(k) as a down payment for a flip house, you would have to meet the loan requirements for a purchase and rehab loan though.  If you find the right property it could work out nicely.

@Mike Staheli Yes you can but you cannot borrow from an IRA under any circumstance.

Self Directed IRAs and self-directed 401(k)s are not an area to play around, anyone considering one should talk to a professional in that area.  There could be major tax consequences if one is setup incorrectly.

@Stanley Dean There are no issues with borrowing from a 401(k) for real estate investing but as you mentioned the payback terms may not provide enough cash flow depending on your investment ideas.  In any instance you will want to find a property with cash flow, then you may be better off with a lower loan from your 401(k) (say enough for the down payment) and a higher bank loan with longer terms.  That should help a bit with cash flow.

@Stanley Dean you cannot loan money to yourself from an IRA, it is a prohibited transaction. You can however take a loan against your 401(k) account if the plan permits but the loan is limited to $50,000.

Welcome @Kenneth Freire.  Good luck with your real estate aspirations, if you are looking at investing in Mpls I would take some time to learn the area as moving a few blocks the wrong way could impact your value quite a bit.  North Mpls also has some areas for concern.

If he is paying himself a wage on a property owned outside of his IRA/401(k) this would be an OK transaction however he would have potential SE tax implications which would have otherwise been avoided. There are also the annual 401(k) contribution limits so it would just seem easiest to max out his work plan instead of playing games trying to generate SE earnings through rental income.

I would also double check that your employer plan allows you to roll your funds into an outside investment while you are still employed.  Most plans do not allow a rollover even if a person is fully vested.