All Forum Posts by: Mark S.

@Account Closed , I'm very familiar with retirement plans, however, you're still giving up essentially 1/3 (10% penalty, taxes, etc.) of the distribution with an early withdrawal. To me, that's just silly. As you basically said, if you're still "in service," meaning with your employer, you typically cannot roll those funds to an IRA if you're my age. Yes, there are exceptions (in-service distributions, etc., depending on the plan document), but generally speaking you cannot.

One thing I am contemplating, though, is backing out CONTRIBUTIONS from my ROTH IRA in order to come up with some down payment money. I just don't have the cash I need to do this without that. I have plenty of other money in Traditional IRAs and 401(k) plan if **** hit the fan. In fact, as of right now with my current employer, I could take a 401(k) loan of 50% up to $50,000 for 3.25% interest. Not too shabby. The downside is that if I separate from service, that loan is due immediately and if it cannot be repaid immediately, it's a treated as a taxable event. So, again, a bit scary.

The bottom line for me: I WOULD consider backing out ROTH IRA CONTRIBUTIONS without any taxes or penalties due, however, I probably WOULD NOT take an early distribution from a TRADITIONAL IRA or a loan on a current 401(k) plan.

Thoughts?

@Jeff S. , can you elaborate a bit on your statement about keeping your SHTF cash in an IRA? Are you at least 59 1/2, where you can withdraw with the 10% IRS early withdrawal penalty? If not, what's your reasoning for this strategy?

I'm a much younger guy with more money than most in retirement accounts, but not nearly what I'd like to have in after-tax, liquid cash. I'm just wondering if you're under 59 1/2 and your strategy works for you, what I might be missing. Thanks in advance.

@Matt Mason
Yeah, that's my #1 hesitation right now: not having enough reserves. I'm planning to really bulk up my savings over the next few months into the new year. That, coupled with a large expected tax refund, and I should have about what I need to get everything under contract. 3-4 months later when it's finished, I'll be more than ready to go.

So, basically my taxes COULD BE even less than estimated? Which would make my deal even BETTER than originally thought? :-)

A question I have is about what level of reserve the banks will likely want to see. I am planning on backing out some Roth IRA contributions for the down payment. Cash is definitely a bit tight. What should I be shooting for?

Hey @Matt Mason , thanks for your responses. I am planning to self-manage, as these will be my first two units and I'm dead set on proper tenant screening. I want to make sure it's done right; if they sit vacant a tad longer, so be it.

As for the property taxes, the assessed values on the PVA website for these units (remember, they're all identical in a row), ranges from $185,000 - $188,500 and the tax per thousand is 11.15. Even if I buy at $170,000 and they say it's worth $188,500, my taxes are still only $2,101. Is this what you meant?

@Mike H.

Thanks for helping me to keep this thread alive. I thought, for a moment, that I might need to re-create the topic. Yes, I'm absolutely with you on factoring in the other elements to the total return. I, too, believe they're important to consider. My numbers were based on what I believe is a fair and conservative estimate. I used the REIPropertyAnalyzer spreadsheet found on BiggerPockets to help me with the numbers. Are there other user-friendly spreadsheets that factor in these other return components?

As for your question about rent rates, these are all brand-new duplexes in a new development. There are some duplexes, a section of single family homes, and then another section of duplexes (this is where I'd likely be building). I've seen the rent range from $795 - $850 for these; they're all identical duplexes. I was thinking of trying to possibly get $900 and bring it down to $850 if needed.

There isn't any HOA. I figured, as the landlord, that it is my responsibility to care for the yard. Is it not? I know you can negotiate this with certain tenants, but I thought that it's up to me by default.

@Stephen Masek

Stephen, it's pretty clear from many of your posts on BiggerPockets that you're a successful real estate investor; you certainly aren't shy about letting people know that. It's people like you that newer investors like me could learn a great deal from. It's also people like you with a bad, sarcastic attitude that discourage newer investors like me from asking questions for fear that we're constantly being judged for our ignorance. If you can add value in a non-condescending way, please do. If not, please get off my thread and allow those that are willing to be helpful, like @Mike H., to post. If you're going to critique others, maybe you should start with the correct spelling of "real estate" in your profile.

Okay, everyone, so I have some updates to what I originally posted. I spoke directly with one of the local builders in town (he's been around for about 30 years and actually built my primary residence in 2012) regarding this. He told me that he can get one of the lots where these are and build me a duplex, without a realtor involved, for about $170,000. Everything else should remain the same. @Mike H. , I think this might just be the 10% or $20,000 off the sales price you mentioned in your post.

With the new sales price of $170,000, I re-ran the numbers. Here's what I got:

SCENARIO 1: RENTS ARE $1,600/MONTH ($800/UNIT)

Purchase Price: $170,000
Down Payment @ 20%: $34,000
Loan Amount: $136,000 @ 6% (estimated interest rate...in process of talking to bank)
PI: $815/month
Gross Monthly Rents: $1,600 (@ $800/unit)

Expenses (rounded)
Taxes: $2,119/year = $176/month
Insurance: $700/year = $58/month
Vacancy @ 8% (extremely unlikely): $128/month
Grounds Keeping: $50/month
Advertising: $10/month
Maintenance/Miscellaneous/Forgotten Items: $83/month
Total Expenses: $505/month

Net Operating Income: $1,052/month
Less Debt Service: -$815/month
Cash Flow Before Taxes: $237/month

Cap Rate: 7.43%
Cash-on-Cash Returns: 8.37%
Taxable Net Income (after adding back depreciation, 27.5 yrs): -$142/month
====================
====================
SCENARIO 2: RENTS ARE $1,700/MONTH ($850/UNIT)

Purchase Price: $170,000
Down Payment @ 20%: $34,000
Loan Amount: $136,000 @ 6% (estimated interest rate...in process of talking to bank)
PI: $815/month
Gross Monthly Rents: $1,700 (@ $850/unit)

Expenses (rounded)
Taxes: $2,119/year = $176/month
Insurance: $700/year = $58/month
Vacancy @ 8% (extremely unlikely): $136/month
Grounds Keeping: $50/month
Advertising: $10/month
Maintenance/Miscellaneous/Forgotten Items: $83/month

Total Expenses: $513/month

Net Operating Income: $1,144/month
Less Debt Service: -$815/month
Cash Flow Before Taxes: $329/month

Cap Rate: 8.08%
Cash-on-Cash: 11.61%
Taxable Net Income (after adding back depreciation, 27.5 yrs): -$50.75/month

Called the listing agent. Found out there were some issues (floor uneven, no proper foundation - house is on blocks, thinks there's water running underneath without proper drainage system, etc.). Supposedly, two other offers were made and the deadline for pre-auction offers is Saturday at 9AM. Next!

it's assessed at $34,000. Taxes due in 2013 will be based on $34,000. The taxes are $282.00, according to the PVA. It was built in 2007, is 1,100 sq ft, 1BR/1BA with a loft that was used as a second bedroom. It is a foreclosure. Doesn't appear any major repairs are needed, however, we've not yet seen the property. They're asking $29,900. Comps are hard to come by, poverty level there is high. It's set on about 5.50 acres.

SFR for sale about 1 1/2 hours from me. About $30K. 1,100 square feet, 1BR/1BA (a loft used as second BR). Less than 8 years old. Hardwood floors.

List price started at almost double where it is now and has been dropping monthly. I've contacted the PVA for assessed value and tax figures and am waiting to hear back.

Supposedly was NOT a rental and was owner occupied. The listing mentioned being "corporate owned." It's also a foreclosure. Is this the same thing?

I'm looking to buy/hold/rent as an overall strategy, but I'm almost thinking of trying to scoop this up at a good price and if I can't get it rented (it's an all-cash deal, so I won't have to worry about monthly mortgage payments), I can try to sell down the road for a nice gain.

I don't like making decisions under pressure, but I feel like I may miss a good opportunity if I don't act. What do I do? What questions should I be asking? Is it worth it to pay for an inspection up front (it's being sold as-is via auction unless I can get an offer approved prior to the auction)?

Any advice is greatly appreciated. I've yet to do my first deal.