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GAFF
Alabama Fan
Georgia
Member since Aug 2010
1225 posts

UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
And if it’s equal or less than the average stock ROI why not invest your money into stocks and make it work more for you?

Considering taking a portion of my 401k out to buy a rental property using the CARES Act. Pros and Cons.
This post was edited on 8/1 at 5:27 pm


jimbeam
USA Fan
University of LSU
Member since Oct 2011
63077 posts
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re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
COC? IRR?


GAFF
Alabama Fan
Georgia
Member since Aug 2010
1225 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
Yes, COC


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C
Atlanta Falcons Fan
Houston
Member since Dec 2007
26321 posts
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re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
quote:

why not invest your money into stocks and make it work more for you?

Diversifying returns.

My worst year was 2018. Made about 4% return on capital. Most years I do about 8%


Rust Cohle
Baton rouge
Member since Mar 2014
1321 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
Leveraged 50-80%
Unlevered 20%

Buy a house for cash 50k, rent for $10,800 year
Or finance for 10k down gross $10,800 net 9k after interest.
These numbers are proforma.


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AUCE05
Auburn Fan
Member since Dec 2009
31790 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
Why not invest in the market and make more money?


C
Atlanta Falcons Fan
Houston
Member since Dec 2007
26321 posts
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re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
quote:

Why not invest in the market and make more money?


It’s probably 15% of my portfolio


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Thecoz
Member since Dec 2018
797 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
Diversify Is main reason

Monthly income(like bonds or dividends)
Appreciation value of unit value ( you could argue also this will result in increasing rent so sorta has an inflation aspect built into income stream)
Apply money to improve it and write it off
(Repairs versus improvement consideration and amortization thought required)
Reduced income from feds (depreciation Of unit applied to income will reduce taxable income from rent)


ItzMe1972
Member since Dec 2013
3903 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
The market has been on a tear. That is not always the case.

Many times it loses money.


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GAFF
Alabama Fan
Georgia
Member since Aug 2010
1225 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
So if diversifying is mainly the reason would it be unwise to take advantage of the CARES Act and withdraw say 30k from my 401k to put into a rental property (downpayment)? Would this not be the same as buying a stock in a sense? But with the added features that are listed above?


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cgrand
New Orleans Pelicans Fan
HAMMOND
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re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
how is your 401K invested?
what’s the current return?


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Rust Cohle
Baton rouge
Member since Mar 2014
1321 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
I think it is definitely something to consider, especially since you can use leverage. Real estate, especially lower income real estate, is real money. It will always be worth a certain amount of someone’s labor. It is definitely not passive like being a shareholder is.


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Thecoz
Member since Dec 2018
797 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
I am not familiar with the cares act and 401 option (I am retired and no penalties)

Does this withdraw have penalties??
Is the 401 money switched to equivalent of regular income...

If still classified 401 you need to set up a self directed account for 401 money invested in real estate... difficult and more important is you lose all the important tax write offs...Do not do this...

If cares lets you convert 401 to regular cash (Like you could go buy a car with) and you are honest with yourself and keep this as retirement investment then I could see your interest....

If you want to learn about rental get the book
Nola every landlords tax deduction guide

I am retired and have a “bucket portfolio”

I have a fixed annuity bucket ( retirement)
A fixed income bucket corporate/govt cds
A growth bucket domestic and international index funds )
And a rental income bucket



GAFF
Alabama Fan
Georgia
Member since Aug 2010
1225 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
I’m going to do more reading before doing anything but as I understand it, it’s liquid money. No penalty but it is charged as income that can be divided over 3 years (10k income a year).
This post was edited on 8/1 at 6:02 pm


Thecoz
Member since Dec 2018
797 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
Get that book...
I knew nothing on rentals and bought it off amazon...
It is easy reading...
Lots of benefits...you can reduce income from feds.(Depreciation)..write off reasonable trips if rental in a place you want to visit etc..but have to be there for rental business also..
.
Also you can argue that a rental does have inflation in it ( rents increase over time) which is significant when using it as aN income stream in retirement...

I wish I had started picking up a few rentals when I was younger...

Good luck


jimbeam
USA Fan
University of LSU
Member since Oct 2011
63077 posts
 Online 

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
Better hope a Prez Biden doesn’t get rid of 1031 or you’ll be paying the depreciation recapture one day


Thecoz
Member since Dec 2018
797 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
Leave it to your kids
It zeros out


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KillTheGophers
Yale Fan
Member since Jan 2016
4231 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
If he wins it is gone.

I fear that we will see some type of new taxation on 401k balances as well.


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Fat Bastard
Atlanta Braves Fan
Member since Mar 2009
48411 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question


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Jp1LSU
LSU Fan
Fiji
Member since Oct 2005
2055 posts

re: UPDATED: Landlords, what ROI do you expect from your properties? 401k withdrawal question
One reason is to have some diversity from having all your money in one or two things.
The return is different. I reinvest the rent into paying down the mortgage, but you have to consider the value increase of the house when you sell it. I’ve had houses increase in value pretty quickly.


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