All Forum Posts by: Tucker Cummings

@Joe Splitrock & @Justin Thorpe

Thank you both for the gut check, I apologize and I should check my language before writing. I guess by "easily", I mean when you take into account cash flow in my area, debt paydown, appreciation and tax benefits, it doesn't really seem like capital appreciation investments compare in any way to real estate.

My experience so far is what gives me some confidence. I acknowledge I'm new and that I've only done three deals. One was the MLS where I wasn't looking for a good deal, just something to get in the game and I'm running a 35% return on cash flow alone, the second was a BRRRR where I pulled about 7k out more than I invested, the third is a BRRRR deal where I used delayed financing to net even (you can't pull out more than you put into a delayed finance deal, but I would have been able to pull money out had that been an option). I'm just thinking that if I'm doing this well with limited experience, what could I do if I leaned it more?

If I pulled out the 401k, I'd probably just do another MLS deal with 20% down. So for example, I pull out $28,571 and pay the 30% taxes and penalties to net $20,000. Use the $20,000 as a down payment on a $100,000 house. My market I can get about $500/month cash flow (this value takes into account capex, maint., PM, vacancy) on that, so $6,000 for the year. From just cash flow perspective, that's a 21% return. Add the $100/month in debt paydown so we rise to $7,200 or a 25% return. Add 2.5% appreciation, we rise to $9,700 or a 34% return. Then we have tax benefits, which I'm not capable of predicting, but perhaps the tax benefits of 401k compounding compared to what you can find through REI, so maybe they net each other out.

The alternative is $28,571 stays in the 401k, averages 8% and I get $30,856.

Break it out over a few years:

401k: Year 0 - $28,571 | Year 1 - $30,856 | Year 2 - $33,325 | Year 3 - $35,991

REI: Year 0 - $28,571 | Year 1 - $20,000 | Year 2 - $29,700 | Year 3 - $39,400

I'm not trying to be overconfident or arrogant... otherwise I wouldn't bother asking for advice on the forums. I apologize for my arrogance in the OP. 

@Dmitriy Fomichenko Definitely still going to contribute. From what I understand, I can get the 100% immediate return and then if I immediately pulled it out and took the ~20% taxes and 10% penalty, I'd still net a 70% return. 

The real question is my wife's 401k, which we contribute 10% of her paycheck. She doesn't get any matches at all. So I'm thinking the wiser option might be to stop contributing so we can invest that money into real estate. Idk, it's a real humdinger to go against what I've always been told to do... but just because it's popular doesn't mean it's right. 

@Basit Siddiqi but I didn't, and its not 2020 anymore, so thank you for the shoulda, coulda, woulda. If you have some useful suggestions for 2021, that are forward looking, not retrospective, I'd be open to hearing those.

@Arthur Schwartz I've heard of this tactic. Maybe that's what I need to discuss with my CPA. Ultimately I just feel like its money/equity that's just sitting there, not being utilized to it's highest potential. 

@Joe Villeneuve love your advice on doubling what you paid for. I've been looking for something measurable to know when to sell and that gives a good idea. Thank you!

I'm wrestling with cashing out my 401k and I'm wondering if this is something I should do with mine and my wife's 401k. The purpose would be to push it into real estate. Total we have about 70k in our collective 401k. I'm 28 y/o, she is 30 y/o.  

My employer gives a 100% match up to 6% and I max that out at 6%. Her employer does not give a match and we contribute 10% of her pay to the 401k. Overall I'm looking at stocks/401k and we can see a YoY 8%ish return in the stock market for stock funds. But I know I can go buy a deal off the MLS and easily get 30% returns in just cash flow. If I'm doing an off market deal, the returns are even better.

At face value, I'll pay the 30% in taxes and penalties and easily make it back in real estate. So I want to do it, but I'm just wondering if I'm overlooking anything or if this is a bad idea. Just right now the way I see it, I have 70k just sitting there that I can't leverage.

Any recommendations or experiences?

@Jordan Becker

I’d say yes. Do some smaller deals to get your team together and figure out the process, then scale as you gain good experience.

@Tyler D.

Unless you’re willing to scale to at least 10 doors or more, it’s probably not worth it. You’re going to deal with turnover, capex, maintenance, etc that will eat into profits. Once you get to 10 cash flowing doors, the scale offsets the expenses.

Having said that, my first deal was just an MLS deal, spent a little time finding the deal, put a 20% down payment on it, handed it to my property manager and made a 35% ROI in year one. It can be done easily. I spent about as much time analyzing that property as I would analyzing a stock in the market. I'd say that was and still is a very passive investment.

@Gregory Greene I used to live in Chandler. I love that area. From a rental standpoint though, that area and Gilbert are the main A-B+ suburb of AZ, so cash flow might not be as strong as you might want in a multifamily.

Could not agree with @John Morgan post more. Most people just sit on the sidelines and wait to jump in. Just get out there are do it. You don't have to do the fancy BRRRR method and other creative strategies to start out. The most important thing is that you just start!

Anybody in or around the North Carolina market? I'm hoping to scale into multifamily and would love to know what kind of numbres I might be looking at in the future.