All Forum Posts by: Paul Novak

Hey Zoe good to meet you.  I have been investing in real estate for a few years now and am focused in Sheboygan, about an hour north.  We aren't that big as we only have 5 properties/7 doors but it has been a great experience for us and we aren't looking back.  Since getting started we have learned a lot and have built quite a few systems and processes to increase efficiency and maintain consistency within our business.  While we aren't very big we still want to keep a professional feel with all of tenants.  Both my wife and my background is in manufacturing, specifically operations, customer service, and project/account management.  We have tried to take all the skills we have learned in our W2 carrier and apply them to our personal business.  I really love talking personal finance and real estate.  I have no issues sharing what we have learned up to this point and the work instructions / processes we have built.  If you ever have any specific questions about getting started or need to bounce some ideas off of a local investor let me know.  Good luck on getting started and welcome to BP!

Well I may not be the most seasoned in the world but my wife and I have established processes that work for us.  I am about an hour north in Sheboygan.  We have been at this for about 4 years have 5 properties and 7 doors and are also looking to keep growing.  Our focus has been on documenting our strategy, creating work instructions for all of our processes, holding true to our buy box, and not overleveraging ourselves.  I would be happy to setup sometime and talk strategy if you would like.  I am also more than happy to share any of the content/processes we have built. 

I'm going to exclude my personal residence from this because I don't view this as an investment, I need a place to live.

Excluding my primary residence my current breakdown is 47% real estate 53% stocks/cash.  Having said that my allocation is flipping quickly.  July of 2021 I was 100% stocks/cash and 0% real estate.  As times goes on I see my real estate growing much quicker than stocks as most of my current investing goes to real estate.

I feel where you are coming from.  I love real estate but keep coming into the same dilemma you have with getting funds to keep it going.  We live in Wisconsin have been at it since 2021 and have 5 properties.

I have 4 options that we have been doing that work for us.  I'll put them in order of what I prefer and why:

1) Save up the cash using cashflow from my current portfolio and W2 income.  While I find this the ideal way to buy more properties it also stunts my growth and I tend to lose patients.  When I see good deals I tend to jump in vs. waiting for this option but I still think this is the best option if you can afford to wait.

2) Take out a loan from my 401K.  Because the balance in both my wife and my 401K's are greater than $100K we have the option to take out loans up to $50K for use on our properties.  The longest terms our plans provide to pay back the money is 5 years and the payments get made automatically through payroll deduction.  What I love the most is two fold, the interest paid back on the loan goes back to you, the fees to do this are extremely minimal.  For my account I pay $10 per quarter while the loan is active so only $40 a year to borrow this money.  For my wife it's a $75 flat fee when she takes out the loan.  I would rather do this and retain my money then give it to the bank as interest.  The opportunity costs is losing the growth while the money is borrowed but this can work both ways.  If the market goes down you don't take the losses either.  I have done the math and this really doesn't stunt the growth of the account much because you are paying back the money with interest.  When I do this I try to pay the money back as fast as possible.  The last loan we took out I paid back in 10 months.  The watch out is if you lose your job or quit you will need to pay the money back in 30-60 days so I always make sure I have cash reserves to cover this if needed.  The other thing to note is that the IRS only lets you have a 401K loan balance of up to $50K over a 365 day period.  This means if you pay back your loan today you can't borrow another $50K tomorrow.  The way we have done it is to borrow from my 401K, when I pay mine back borrow from hers and repeat this cycle so we always have one we can pull from. 

3) This option will be controversial but I have taken out private money loans with family and friends. They know we have rentals and that we are good for the money. I have told them I would rather pay them interest vs. give it away to the bank. I took out a loan with one of my friends, wrote up a loan agreement contract that we both signed and paid him the interest on a property early last year. He turned around and used the interest I paid him back to go on a golf trip with me later that year. I have also told my grandma who was getting 5% return in a CD that I would give her 6% if she lent me the money for the down payment on the last property I purchased. This way we both win and I keep the money with family and friends vs. giving it to the bank. In both cases to keep things clean for underwriting at the bank I used my HELOC to secure the mortgage. Then I paid the HELOC back within a day or two of closing and paid back the private money I borrowed.

4) The last option I have is our HELCO. I try to leave this alone and not use it because it costs me interest that I won't get back. I would pull from it to refund a 401K in an emergency or if something catastrophic happened in the business but I have this there as more of a lifeline then funds to actually use. As I stated above I have use HELOC funds as a bridge strategy but that is really it.

If you have more questions hit me up and I would be happy to discuss these options in more detail.  Hopefully this helps.
 

I understand where you are coming from as we always did our taxes on turbo tax as well until we purchased rental properties.  I am not a tax professional trying to sell you my services I am simply providing my perspective.  I am the type of person that is normally looking to save a money to increase my investing so the thought of paying someone to do my taxes when we could do them ourselves didn't make sense.  That was right up until we started purchasing rentals.

We have an LLC so we actually pay $400 per year for our LLC to file and then another $150 for us to have our personal taxes done. We reached out to other contacts we have locally that also do rentals to get a recommendation and I am glad I did. Not only does our CPA do our taxes but he is always available throughout the year to answer tax questions we have which has been helpful. Having him easily saves us more in deductions every year then we pay for our taxes and I can sleep well at night knowing that a professional is looking everything over before we he files them. It's up to you but I would recommend getting a CPA.

Welcome to the group.  I am in a similar boat as you, I currently have 5 properties about an hour north in Sheboygan County.  We also do long term buy and hold properties.  We have two multifamily properties and 3 single family properties.  If you ever want to connect to talk real estate let me know.  I love learning ideas to make my business better from other local investors.

One trend I have seen shifting in my market, Sheboygan County, is going from a sellers market to a buyers market.  I haven't seen prices drop too dramatically but I have seen homes in my buy box sitting on the market longer and some lowering prices.  I am sure some of this has to do with seasonality but this was far from what I saw in the market the past 3 years.  If there was a house of interest listed it was get there same day and make a strong offer to even have a chance, this doesn't seem to be the case at this moment.

Welcome to the group!  I am an investor about an hour south of you in Sheboygan County.  If you have any questions on how to get started I would be happy to help answer.  I have been at this since 2021 so I am relatively new myself and really enjoyed it.  I love talking personal finance and real estate investing so I would be happy to help.

Congratulations on getting started!  We started back in 2021 and haven't looked back.  It's been the best decision we have made.  We invest in Sheboygan County.  Where are you looking to invest?  What types of properties are you looking for?

For me, and I know it adds some complications, but I actually wanted to separate my business accounts from my personal.  To do that I partnered up with a different bank all together.  I know this isn't necessary but it worked for us.  We chose to move our business accounts to a smaller local bank to help grow our relationship.  This has definitely paid dividends for us when it comes to mortgage rates and lending options.  As for the credit card route we also went with an AMEX card for the cash back option.  The only draw back I have is that AMEX isn't accepted everywhere but otherwise we like our AMEX Blue Business Card.