All Forum Posts by: Paul Novak

 I have been working at my budget for years.  How I have found my middle ground is with time.  My budget in the beginning was really tight because it was based on the money we made at the time and debt payments.  There wasn't much left over.  With time we paid off debt and lowered our expenses.  At the same time our income grew.  This allowed us to increase our savings and increase our spending.  Every time that happened we increased our savings by 75% of the difference and our spending by 25% until our spending hit a level that we were comfortable with.  At which point we diverted 100% of future increase into savings.  We now budget for vacations, home improvements, car savings, medical savings, Christmas fund, etc... 

 I have used retirement funds for real estate to allow me to continue growing, specifically my 401K.  I wouldn't recommend this for most people but my real estate portfolio is going to be used for my retirement anyways so I see it as shifting funds from one retirement account to another.  I wouldn't do this to fund personal expenses or growing my lifestyle.  I didn't want to pay penalties or excess taxes so I took a loan out against my 401K.  I am not sure how much money you have in the account but the rules with my employer was that I could borrow 50% of the account value or $50K, which ever amount was smaller.  Because my account value is at $280K I could pull out the $50K.  The cost of me to do this was a one time fee of $75.  The terms were a 5 year loan at 8.25% but the interest gets paid back to my 401K so I keep the interest.  I paid it back by payroll deduction of $489 per paycheck coming off my check going to pay back the loan.  My wife and I have a solid income and good saving habits so we paid the loan back in 10 months.  Then I did it again for my next property.  We continue to alternate between doing this with my wife's account, pay it back, then do my account to continue scaling.  I am 39 with 4 properties.  This option has been working good for us and avoids penalties and taxes.  The opportunity costs are the reduction in cashflow from your paycheck while you payback the loan, and your 401K having stunted growth while the money is borrowed against it.  Not sure if this is an option that would work for you but it's something to consider.  If you have more questions feel free to reach back out to me.

I am looking for some advice based on what others in the community have done with their 401K’s. My first investment ever made was my 401K. At one point my wife and I were putting 15% into our 401K’s. The more I learned about personal finance and investing the more I knew how important this account was and continued to focus on growing my contributions. That was before I got into real estate. I now see real estate as my way to retirement. My strategy best aligns with the small and mighty real estate investors. My portfolio is currently 4 properties 6 doors. My ultimate goal is to generate $11K per month in passive income and I believe I can do that by purchasing 3 more single family homes in my area and paying off the entire portfolio. Based on our current income levels I should be able to accomplish this goal in the next 10 years and I am 39 now.

My question to the group is what to do with my 401K. To increase my capital for investing I have already scaled our 401K contributions back to 6% to take advantage of the company match and aren’t doing any more than that. We have also started using our 401K’s to take loans out to purchase properties. I have decided that I would rather borrow from myself and pay myself back interest vs. the bank. The next step I am considering is stopping contributing all together and putting that capital into our real estate investments. This would give us about an extra $14K a year today to invest and as our income grows so will that number. Today we invest 100% into Roth contributions so there is no tax benefits to diverting the funds I would just be giving up the $7K a year employer match. Today my wife and I have around $500K in our accounts combined. By my calculations and I, correct me if I am wrong, but if those accounts grow by 7% per year on average and we stop contributing that $500K will turn into about $1.9M in 20 years when I can start pulling it out. If our rental portfolio is already sustaining our living, why do I even need that extra $1.9M. Even if it’s only $1M I think I would be okay in stopping our contributions. Am I missing something?

 Don, thanks for taking the time to reach out and respond to my post.  I did trying to do one subject to loan an my real estate investor didn't know much about it.  Where would you start with a process like this.  Would I go to the current owners bank to see if they would allow a subject to loan?  The deal is good and the current owner is my friend.  If I could find a way to make it work I think it would be a good deal.  My fear is the lender calling the loan due because I wouldn't have the cash available to pay it off.

Quote from @John Cardinale:

Quote from @Paul Novak:

BP Team,

I am looking for perspective and advice.  I have been following BP on YouTube for a few years and have been investing in real estate for the last 3 years.  Over that time we have acquired 4 properties, 6 doors.  Those properties are currently cash flowing $3,815 per month but if they were paid off they would generate $6785.58 per month.  My ultimate goal is to generate $11K per month cashflow and retire.  I have decided that I don't want to build a real estate empire but rather generate that cashflow from as few properties as possible.  What has worked for me is duplexes and single family homes.  I like this strategy and plan to continue.  As you can see by the attached photo I am tracking current cash flow as well as what my cash flow would be if my properties were fully paid off.  My goal is to shift from buying to paying off my properties as soon as the paid off property bar hits $11k per month. 

I live in Sheboygan Falls, WI.  The average rental home price I am looking at is between $175K and $250K for a 3 bedroom house that requires minimal work in a nice neighborhood.  Those houses could rent anywhere from $1,600 per month to $2,000 per month.  One of my buy box requirements is the house needs to cashflow at least $500 per month or I am not buying it.  With rising prices and interest rates I have been able to overcome that requirement by putting more money down.  The last house I purchased was $227,500 and we put down $85K.  My wife and I both have jobs that pay over 6 figures and our monthly living expenses are only around $8K.  We invest the rest in our business and reinvest all the profits from the business back into the business.  We are able to save about $100K per year so putting down $85K is possible for us with our current situation.  Now for the question to the group:

 - I would like to be able to retire as soon as possible even though I know we are 5-10 years away from that.  If I keep doing the same strategy, putting more money down upfront, I will generate more cashflow now but am delaying how quickly I can purchase houses.  I always viewed it as "who cares how much money I put down", I plan to pay them all of before I retire as part of my ultimate strategy anyways.  All I am doing is paying more on the front end and that saves me how much I need to pay on the backend.  It's also less total interest paid because I am borrowing less total money.  This also protects my downside risk because I could very easily lower my rents if I had to in a market downturn and compete vs. being forced to sell because of losing money.  This also gives me solid staying power when maintenance costs arise.  Should I keep doing this strategy?  Below is my other option.

- Now that we are generating $3,815 per month cashflow from my current portfolio do I just continue to buy more properties putting the minimum 20% down?  Doing this would put my new properties making next to nothing, running some rough numbers I may make $100 or $150 per month on new properties with mortgages that are around $1,500 per month.  I would use the cashflow from my current properties to protect us if we had vacancy or repairs that needed to be paid for.  Doing this would allow me to cut my down payments in half.  Or said differently purchase twice the amount of houses I have been buying.  I truly think I only need 4 more houses to hit my goal and then shift from buying to paying them off.

I am not sure if I am thinking about this the right way and I am sure there are things I am not thinking about but below are my thoughts:

Pros

 - I can purchase the houses I need to hit my goal faster

 - With getting homes fasters the depreciation, tax benefits, amortization, appreciation, rent increases all start sooner

 - Home prices on average should be lower now then if I buy in 4-5 years

 - I can take better advantage of leverage

Cons

 - I have more risk until I pay the properties off

 - Less upfront cashflow

 - Longer timeframe to acquire the properties to reach my goal

If anyone has any opinions or advice I'd love to hear it.

One thing to consider is the more of one’s own money you use, the more you can be lax and lazy with the deal and your standards. If you’re using all cash you can afford to make mistakes with underwriting, or during renovations. If you’re repeatedly using OPM successfully, the processes to follow obligate stricter adherence to the system and so chances are you are a good bit more careful. Using all Cash can make us lazy so we need to watch out for that. 

 Thanks for taking the time to respond.  I do agree with you, when your margin of error is higher you don't have to be as precise which ultimately leads to waste in profits and prolongs your abilities to reach your goal if you are not disciplined.

 I am very excited for the conference as this will be my first BPCON event but I am also brining my wife.  She has signed up for some of the events but I could see her potentially going to a few of the events and taking a few of them off just to hang out and network.

BP Team,

I am looking for perspective and advice.  I have been following BP on YouTube for a few years and have been investing in real estate for the last 3 years.  Over that time we have acquired 4 properties, 6 doors.  Those properties are currently cash flowing $3,815 per month but if they were paid off they would generate $6785.58 per month.  My ultimate goal is to generate $11K per month cashflow and retire.  I have decided that I don't want to build a real estate empire but rather generate that cashflow from as few properties as possible.  What has worked for me is duplexes and single family homes.  I like this strategy and plan to continue.  As you can see by the attached photo I am tracking current cash flow as well as what my cash flow would be if my properties were fully paid off.  My goal is to shift from buying to paying off my properties as soon as the paid off property bar hits $11k per month. 

I live in Sheboygan Falls, WI.  The average rental home price I am looking at is between $175K and $250K for a 3 bedroom house that requires minimal work in a nice neighborhood.  Those houses could rent anywhere from $1,600 per month to $2,000 per month.  One of my buy box requirements is the house needs to cashflow at least $500 per month or I am not buying it.  With rising prices and interest rates I have been able to overcome that requirement by putting more money down.  The last house I purchased was $227,500 and we put down $85K.  My wife and I both have jobs that pay over 6 figures and our monthly living expenses are only around $8K.  We invest the rest in our business and reinvest all the profits from the business back into the business.  We are able to save about $100K per year so putting down $85K is possible for us with our current situation.  Now for the question to the group:

 - I would like to be able to retire as soon as possible even though I know we are 5-10 years away from that.  If I keep doing the same strategy, putting more money down upfront, I will generate more cashflow now but am delaying how quickly I can purchase houses.  I always viewed it as "who cares how much money I put down", I plan to pay them all of before I retire as part of my ultimate strategy anyways.  All I am doing is paying more on the front end and that saves me how much I need to pay on the backend.  It's also less total interest paid because I am borrowing less total money.  This also protects my downside risk because I could very easily lower my rents if I had to in a market downturn and compete vs. being forced to sell because of losing money.  This also gives me solid staying power when maintenance costs arise.  Should I keep doing this strategy?  Below is my other option.

- Now that we are generating $3,815 per month cashflow from my current portfolio do I just continue to buy more properties putting the minimum 20% down?  Doing this would put my new properties making next to nothing, running some rough numbers I may make $100 or $150 per month on new properties with mortgages that are around $1,500 per month.  I would use the cashflow from my current properties to protect us if we had vacancy or repairs that needed to be paid for.  Doing this would allow me to cut my down payments in half.  Or said differently purchase twice the amount of houses I have been buying.  I truly think I only need 4 more houses to hit my goal and then shift from buying to paying them off.

I am not sure if I am thinking about this the right way and I am sure there are things I am not thinking about but below are my thoughts:

Pros

 - I can purchase the houses I need to hit my goal faster

 - With getting homes fasters the depreciation, tax benefits, amortization, appreciation, rent increases all start sooner

 - Home prices on average should be lower now then if I buy in 4-5 years

 - I can take better advantage of leverage

Cons

 - I have more risk until I pay the properties off

 - Less upfront cashflow

 - Longer timeframe to acquire the properties to reach my goal

If anyone has any opinions or advice I'd love to hear it.

Quote from @Noah Bacon:

Quote from @Paul Novak:

Quote from @Noah Bacon:

Dear BiggerPockets Community,

We're thrilled to announce that registration for BPCON 2024 is officially open! 🎉🏡 Join us for an unforgettable experience as we gather virtually to learn, connect, and grow together.

🌟 Exciting News: Early Bird Window Extended! 🌟

📅 Save the Date: BPCON will take place from October 6th - 8th in Cancun, Mexico!

🎟️ Registration Details: Secure your spot early and take advantage of our early bird pricing. 

💸Pricing Guide:  This year, it's more than just learning—it's an all-inclusive, immersive getaway. Relax by the beach, soak up the sun, and dive deep into real estate knowledge, all in one extraordinary event. Secure your spot now with one of our exclusive event packages, as individual passes won't be available. Here's a pricing guide at the bottom that you can download!

🌟 Why Attend BPCON? 🌟

• Make Valuable Connections: With fun-filled activities and networking opportunities, BPCON is designed to make it easy for you to connect with and lean on like-minded investors who share your goals and aspirations so you never feel alone on your investing journey.
• Boost Your Potential: Buzzing with energy, inspiring speeches, and the best teachers, you’re guaranteed to leave full of momentum and confidence to get started and go farther on your financial freedom journey.
• Close More: The most approachable environment where you can meet your mentor, partner, or teammates and grow your portfolio to unimaginable new heights.
• 🙌 Don't miss out on this incredible opportunity to learn, grow, and connect with the BiggerPockets community. Register now and secure your spot at BPCON 2024!
  

🔗 Register Here

🏝️See you at BPCON! 

 Quick question about pricing.  My wife and I just purchased our airfare so we 100% plan to attend.  I am a BP member but not a pro member currently.  What is the difference in price for the trip as a guest vs. a pro member?  Trying to see if it would make sense to just become a pro member depending on the discount of the event.

 Hi Paul,

I'm very excited to meet you and your wife this year at BPCON!

Attached is the pricing guide breaking out the GA - Standard and Pro Member - Standard rates. It depends on which room you are looking at reserving, but this guide should have everything you're looking for!

Please let me know if there is a specific room you are inquiring about, or if you have any other questions I can assist with!

 Don from BP reached out to me via phone call which was really helpful.  The annual BP Pro membership if paid in full is $390.  The discount to BPCON is $450.  It only makes sense to buy the pro membership if you plan to go to BPCON and aren't a pro member already.  I am posting this just so others can see this to possibly help them increase their benefits yet save money at the same time.

Quote from @Noah Bacon:

Dear BiggerPockets Community,

We're thrilled to announce that registration for BPCON 2024 is officially open! 🎉🏡 Join us for an unforgettable experience as we gather virtually to learn, connect, and grow together.

🌟 Exciting News: Early Bird Window Extended! 🌟

📅 Save the Date: BPCON will take place from October 6th - 8th in Cancun, Mexico!

🎟️ Registration Details: Secure your spot early and take advantage of our early bird pricing. 

💸Pricing Guide:  This year, it's more than just learning—it's an all-inclusive, immersive getaway. Relax by the beach, soak up the sun, and dive deep into real estate knowledge, all in one extraordinary event. Secure your spot now with one of our exclusive event packages, as individual passes won't be available. Here's a pricing guide at the bottom that you can download!

🌟 Why Attend BPCON? 🌟

• Make Valuable Connections: With fun-filled activities and networking opportunities, BPCON is designed to make it easy for you to connect with and lean on like-minded investors who share your goals and aspirations so you never feel alone on your investing journey.
• Boost Your Potential: Buzzing with energy, inspiring speeches, and the best teachers, you’re guaranteed to leave full of momentum and confidence to get started and go farther on your financial freedom journey.
• Close More: The most approachable environment where you can meet your mentor, partner, or teammates and grow your portfolio to unimaginable new heights.
• 🙌 Don't miss out on this incredible opportunity to learn, grow, and connect with the BiggerPockets community. Register now and secure your spot at BPCON 2024!
  

🔗 Register Here

🏝️See you at BPCON! 

 Quick question about pricing.  My wife and I just purchased our airfare so we 100% plan to attend.  I am a BP member but not a pro member currently.  What is the difference in price for the trip as a guest vs. a pro member?  Trying to see if it would make sense to just become a pro member depending on the discount of the event.

 I know and that’s what I’m trying to prevent.  We only do month to month leases.  I’m trying to do what we can to protect our tenants and our businesses reputation.  Thanks for taking the time to respond.