Sure, but you’re also shorting yourself on other opportunities too where you can garner a potentially much greater return…and if the markets go down (which they will), it was a wise move…
I still disagree about taking money out from your 401k. Markets go up and down just as tenants that come and go. As you already know, buying an income property depends on many factors especially the location of the property.
Cash is king and if someone needs to borrow money from a 401k for a measly return seems to be more risky than beneficial.
Well, as someone who has both borrowed from my 401K, and bought many properties with, I strongly stand by my position on this…
I think borrowing from a 401k can be a good idea if A: You believe strongly in what you are investing in, and understand the risk & B: the return will be greater than the rate of the loan (even though you’re repaying yourself) + the money that would have been otherwise returned.
Given that he is a smart dude, and he has experience I tend to trust Joe. Joe, are you still happy with the rental property business? About this time every year I have the inkling to try it.
Very happy with it. You have my #, call me anytime to discuss…
I’m still trying to determine the steps I need to take. But I think they are:
Refinance my current mortgage with my GF without me, I don’t think I would be able to do it with me in it still as a conventional although I believe we have 20% equity, not sure if that would allow for the loan to not be an owner occupy loan or what. This is a confusing part for me.
Next step would be to get approved for the multiple family house in which it would have to be an owner occupy FHA or conventional so I wouldn’t have to put a big down payment down.
Anyone else experience juggling around mortgages like this?
Am I the only one who sees this as doomed from the start?
If you dont have the proper capital to make the investment, then you have to ask if you are really prepared for the financial commitment that is being a land-lord. What is your contingency $ for repairs to the existing tenant space in addition to the renovations you speak of? How much pure profit are you expecting that you are willing to go out on a limb or re-financing existing loans?
Maybe you should continue to save for a down payment and only refinance when your existing loan rates make the most practical sense.
I’m a very handy individual, I can do electrical, plumbing , heating and cooling. I do hvac for a living.
I know it sounds spontaneous, and it is but it’s not the first time I thought of buying a rental property.
Thought about and being financially prepared are very different.
I wish you luck, but I would make sure you can invest properly and wisely before you take on the risk.
I know, it’s kind of a dream home I’m looking to purchase that’s why I’m trying to pull rabbits out of a hat to get it.
If it doesn’t workout I’ll actually start saving to have a proper down payment although technically pulling out my 401k to get a multiple family home where the property produced possibly $400-$700 a month would be more money than my 401k is producing currently.
+1
Generally I’m against borrowing against your nest egg because it involves liquidating long term positions. This doesn’t look like a horrible time to lock in gains though, very volatile monthly price action up here. Most likely you’ll be paying yourself back at interest and replenishing your position at a lower price. The other side of your transaction is rental…you’re accepting a fair amount of risk but the upside is depreciation, deduction, passive cash flow etc… I just can’t bring myself to buy another property right now, it’s a distinct sellers market and that’s the catch 22 here. My 2 cents.
Slowly moving toward this purchase / investment. This is not a fun process…and not cheap either. If you don’t have cash sleeping somewhere in a coffee can, it’s not the easiest to navigate.
The most important part of this is the Buy, focus getting the right place and figure out what you want your YOY return to be based on your initial investment. IMO if you don’t have a 20% return based on then it it probably not worth it.
Also, know that most banks will only provide you a home equity up to 86% LTV, so depending on the value of your home, you may not have enough to work with.
Cash in the can needs to be documented or so I have heard. Something something $10k cash makes you a terrorist. I’m still watching the market up here, I’m anticipating a reversion to mean still…eventually. zzzzzzz
I just found out I’m preapproved for a mortgage, so I’m gonna start actually looking now!
I’m going to look at a duplex tomorrow which I’ll be living in half. I am already pre-qualed for 1.5x the asking price through more than one bank. I’ll have 25%-ish available for 20% down plus escrow and closing fees (hoping the seller can chip in some and/or bake it into the price).
What do you mean “buy with private financing” as in non fha? then refinance into fha?
Look into the 203k loan program.
Does your inspection count towards any requirement from the bank or do they do their own inspection/appraisal?
203k’s stipulate no work on the property by the owner. You have to solicit legit contractors and can’t cut any corners. Not even demolition.
@travisn - By private financing I mean coming from a private individual. Many times in the form of a relative or friend but there are plenty of investors around that are willing to finance a project that can make some short term gain without any effort on their part.
I’m using my credit union for financing. I’m gonna do a owner occupied FHA loan. I’ll live in for a year and hopefully during that time it will at least pay for itself and then I’ll move out and rent it.