All Forum Posts by: Paul G.

@Andrey Y. If I told you to buy a property without running any comps, or knowing anything about the property besides the price I'm offering it to you at, would you do it?

No?  didn't think so.  So why the heck do you think I would do that with a 401K?  So, no Vegas ISN'T a safer bet because you know what you're gambling on.  

I look at what I'm investing in. I do as much research as I would an investment property. And I continually monitor that. In fact, I do more research on stocks than I would ever do on Real Estate. Not because I have to, but because I find it fascinating. In my Roth IRA, I invest in options and much riskier things. I've had a return of about 20% a year (I have one stock that is up 200% over 3 years time and gives a 10% dividend. Show me a property that will beat that. And since it's in my Roth IRA, 100% tax free)... In my 401K account, I invest in broader markets because they are less reactionary and trend better over time. This is my safety net that can't be touched no matter what happens with my Real Estate. Even if I am forced to foreclose on my properties, they still can't touch my retirement.

Broad sweeping statements like, stop investing in your 401K are dangerous and near sighted.  What would you do if your parents came to you when they're 60 and said, "son (or daughter), we lost everything.  We have no retirement and we don't know how we're going to live for the next 30 years.  We have to start over."  I'd be pissed!  My family instilled in me to take an active approach in your future (whether it be retirement planning or career plans).  Maybe I'm in the minority, but I would never rely on just Real Estate, or just stock.

Any deal, whether it is in Real Estate or Stock needs due diligence.  To do so without is reckless and you will lose money more times than not.

@Eric Johnson easy there on the hyperbole.  It's not "bad" for everyone.  I pay about $40 in fees a year in my 401K and contribute about 12K + get a match of about 5-6K a year from my employer.

Please tell me how my $40 in fees eat my my 5-6K employer match? Also, using my 401K I'm able to save about 4K-5K of taxes a year.

Equating the stock market to Las Vegas is also not a fair assumption.  Sure, there are losses to the stock market, but the same could be said for Real Estate.  In fact, you can LOSE more than everything in real estate.  At least with the stock market, unless you're into speculation trading and trading on margins that wont happen.  But you can't do that in a retirement account anyways.

Also, most 401K accounts let you invest in something other than stocks.  Every one that I've been apart of has let me invest in index funds, BONDS, or let it sit in the money market.  So, assuming you can recognize when a market correction is coming, you could easily sit out in something safe... You may not predict the peak, or the bottom, but at least if you understand trends you can see something major coming and get out to protect the majority of your asset.  If you do that, you'll be able to capture the appreciation on the back end as well. 

With Real Estate, depending on your asset, you can be foreclosed on and or your loan could be called due.  Then, not only would you be hit with a foreclosure, have a huge tax bill for depreciation recapture, and potentially lose whatever equity you have.  Even if you ride it out, you only come back to whole.   How is THAT better?  Stocks aren't going to immediately drop to 0.  Nor will an index fund tracking the S&P500 for instance.

Lastly, It's much easier to move Stocks and Bonds than it is Real Estate when a market correction occurs.  In a tax advantage account, you can sell and wait for 1-2 years for the correction to level out.  With Real Estate, if you try to sell, you first have to have a buyer, then 1031, which gives you a maximum of 45 days to find a new property that's eligible.  That isn't going to help much...

I'm not saying one is better than the other.  I'm saying there is room for both in an investment strategy.  The years of 70% tax rates are over.  Congress would NEVER be able to pass something like that again.  Even raising in 1-2% makes the country freak out.  There's no way they'de be able to increase it by 30%.  So your comment about raising taxes to pay the debt is 100% speculation, and in my opinion, a non starter.

@Alexander Monnin I've seen a lot of posts about this over the past and while I initally liked the numbers, I realized you are not comparing apples to apples.  401K is offered pre-tax, so you're paying less tax at the end of the year.  While it may not be much, depending on how much you contribute could be enough to counteract.  For that 1000 dollars that you mentioned above, if you're in a 25% tax bracket (MFJ making 75K a year), you REALLY only get to invest in real estate with $800 (since it is after tax).  That gets you to comparing apples to grapes (both fruit and the same color)... You still can't compare the two because of Capital gains tax vs tax at retirement.  Everyone is different.  If you can live off of taking 50K at retirement right now, you would only pay 15% tax on your income during retirement (minus any deductions).  At that point, not only did you get to save 25% tax at the front end, but then on the gains you make you only pay 15% or less, which will be less, or at the very least, the same amount as your long term capital gains.

Right now you can't compare the two at 1K to 1K because that's not an actual real case.

I completely understand that my scenario above is a gross simplification of the tax code and there is a lot of information / assumptions I made.

The point I'm tryint to get across is every situation is different.  And you shouldn't limit yourself to one stream of income.  The more streams of income / investments you can have, the safer you are for ANY market condition.

@Gabriel Benavidez I have to agree with @Andrew Johnson.  Landlording is not for everyone.  In a short while, if you have high maintenance tenants, you may hate it.  More importantly though is how thin will it stretch your budget?  If you will still have a decent reserve even WITH another property, then it's less of an issue.  While 6 months isn't a number set in stone, I would caveat that with: spend one cycle of the worst weather in that area.   So... If you're in the North/North East, hold it for one winter before purchasing another.  For me in Arizona, it was after one summer.  I say this due to my past experience.

I got unlucky with my first rental and had the AC die within the first year of buying it.  We ended up with a 4K bill within 6 months of owning it.  Being in Arizona, AC is a HUGE DEAL.  It died the last week of May when temperatures were in the 100s.  Needless to say, summer is the hardest time on the AC in Arizona, and if it's going to die, it'll die then.  We had enough reserves that we were able to replace it promptly.  If we didn't have those reserves, we'd be in a potentially pretty bad spot.

So, in my opinion, assuming you have the reserves and made it though one cycle, go for it.

I second checking your landlord tenant laws.  That seems fishy to me that they're trying to make you replace it mid lease.  Do you know, are you renting from a PM company or an owner?

When I was in California going to school, I basically ran into something similar.  I was a tenant and my landlord tried to take my entire security deposit without doing work on the property and charge us another deposit.  He provided no receipts for the work, claimed he did everything (of which 0 was actually done I found), and came by without warning... Sadly, there are landlords who try to squeeze every penny out of their renters by using shady means.  My experience in CA is one of the main reasons I got into owning property and being a landlord / investor.  I figured I could do it better and offer a quality and fair service.

Without understand the extent of the damage to the walls and duration of your rental, I don't think we can make an adequate decision.  If the holes are small and are the result of hanging pictures and moving furniture etc, then I think you're over-thinking it.  You shouldn't need to repaint an entire wall for small patch jobs and it shouldn't  take more than a few minutes to fix the holes.  I would give them the option to fix it but I wouldn't be upset if they didn't.  

If the damage were more substantial with holes the size of door knobs etc, then that's potentially a different story, at which point I would say they should fix it.  I'm still not convinced that you need to repaint the entire wall.  Then again, my condo is in an extremely dry climate (Arizona), so not sure if that has anything to do with paint deterioration or discoloration.

Regardless of which way you decide to go, you're going to need the paint, so drop it off and see what they do (if it's option 1 with only minor damage).

Every time a tenant moves out, I budget about 30 minutes to fixing up minor paint problems.  I'm on my 4th renter now, and the past 3 have averaged about that much. 

BS in Computer Engineering from Cal Poly SLO

MEng in Engineering Management from Penn State... WE ARE!!!

I work as a Software Engineer / Systems Engineer for my 9-5 and dabble on the side with Real Estate.  I have a pretty strong Finance/Tax background as well since I worked part time during tax season for a small mom and pop shop.  The biggest thing my college education did for me was helped me analyze risk and get me VERY comfortable analyzing deals.  My excel skills are top-notch!  Being an engineer, I also very much rely on my numbers and don't let emotion sway when I analyze a deal.

All in all, My undergrad and masters gave me a steady W2, an understanding of risk, and the ability to step back and see the larger picture of what is happening.

@Bob Okenwa Thanks.  I will definitely give them a call.  They are actually right down the street from my primary house.  

@Chris Martin

I'll have to look into that.  I've never heard of bundling that way.

I have a Condo that I'm looking to buy with a partner.  But it looks like the property wont be warrantable because about 50% of the units are currently rentals.  I've been told that a Portfolio Loan could work in this scenario.

The problem is the property is only about 80K. Are there any banks/lenders that would be a sub 100K portfolio loan? Or am I stuck to HML / Cash only? Is it even worth it to the bank to loan on such a small amount?

If anyone has any suggestions, I'm more than willing to listen.  I'm in Arizona if that makes a difference.

Yeah, that is what I was leaning towards, but part of my numbers are doomsday scenarios where NONE of my condos are rented.  While it's not a huge deal, I can easily cover it, it does look like a lot of red :)

Being an engineer, my excel spreadsheets get a little crazy and I analyze every deal to death. (not specific properties, so I don't get paralysis by analysis, but more of what I can afford, how to structure deals when they come to me)