After seeing Steve's presentation about multi-unit properties at the Rich Dad Forum Members Get Together (how's that for an awkward title?), my wife and I have become convinced that apartments are the way to go. The good news is that loans for these properties are commercial loans and so the bank doesn't really care about your financial statement - just the property's. The bad news is that they require a higher down payment. So to get ready for moving into this investment area, I've initiated some changes to my financial picture.
First, I am rolling the assets from my 401(k) with my former company to my new company's 401(k) plan. This is actually relatively painless, since both plans are with Fidelity. However, since I no longer work for my old company, I cannot take a loan against that plan. By moving the assets to my new 401(k), I am able to get a loan against these funds, should I need one.
Second, I am closing an old HELOC on my personal residence and opening a new one with a much greater credit limit. My original HELOC was for a maximum of $26,000 and I had opened this when I purchased the house over 2 years ago. Since that time, the value of my house has more than doubled, so I'm going to tap into that equity. The new HELOC will have a limit of $165,000. As an added bonus, the interest rate on the new line is 2 percentage points lower than my old one. Considering interest rates have risen since I opened the first line, this is a nice surprise. (It may be partially due to the fact that the new line is with a credit union, rather than a bank.)
Even with that much buying power, I'm still looking to partner with someone or someones for our first apartment purchase. Apartments have a whole different set of considerations than single family homes and I'd like to team with someone with experience in this area.
Wednesday, April 05, 2006
Gearing Up For The Next Big Investment
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5 comments:
Yeah, seems like the new HELOCs are offering interest below prime. I am thinking about closing the HELOC I have since I paid off my primary residence. If I reapply again, I can get a much bigger HELOC since housing values have gone up plus they are offering a better interest rate. This could come in handy as my wife and I are looking at some potential businesses to invest in.
Congratulations, Shaun! BOL with your new venture. I really like your last paragraph - it shows that you understand the limits of your own knowledge. Get with someone who has already gone down the "trial-n-error" path, so that you can eliminate a lot of mistakes. One thing I would caution you on is to not put all your eggs in one basket. Keep your SFR investments active while pursuing this new venture. Again, BOL and I can't wait to start reading about your adventures in this new realm of REI on your blog!
Shaun, DO NOT roll your 401k into your new company's 401k. Roll it into an IRA. This way you have control over where that money goes. Once it goes into the new company IRA, it is stuck there until you leave the company. With an IRA you have the freedom to choose any mutual funds, stocks, even real estate. Don't you remember Les's presentation on how to take money out of your IRA tax free? Sounds like you can use the money for a multi-unit down payment.
Well, I didn't attend the REST training, so I guess I didn't hear the bit about taking it out of an IRA tax free. However, my intention in putting it into the new company's 401(k) was to be able to draw a loan against it to use as a down payment on a multi-unit property.
Shaun - Another thing to consider is that with a 401(k) loan, you are actually paying yourself back. There are a LOT of things to consider when dealing with 401k loans, such as your earnings potential is decreased by the amount taken out at the time, the length of time you plan to pay it back, etc. I found the following article to be of some interest, but I think you'd need to sit down with someone who really knows financial planning insude and out:
http://www.stretcher.com/stories/00/000501k.cfm
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