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SHOW NOTES FOR EPISODE 284: ASK BILL! INVESTING OVER 50 & OVER 70, FAST MORTGAGE PAY-OFF AND BOOSTING CASHFLOW
This is our monthly Fun Fact Friday “Ask Bill!” episode, where Bill answers specific real estate investing questions received during the month from e-mails, in-person conversations, phone calls or through online portals such as BiggerPockets.com and Quora.
One of our goals here at the Old Dawg’s REI Network is to help to educate/enlighten fellow real estate investors, to share what little knowledge we have by answering your questions, and to help other investors to broaden their understanding of real estate investing and to, hopefully, avoid some of the mistakes that can cost you later.
In this month’s “Ask Bill!” episode, Bill answers questions on investing after 50 and after 70, using 401Ks, retiring in 5 years, strategies for increasing cash flow and for the rapid pay-off of your mortgage.
Question #1 – Trying to Retire in 5 Years
Hi Bill,
Thanks so much for your informative website! That you didn’t start investing till you were in your 50’s is particularly inspiring because my husband and I are turning 51 this year. We started investing in 2017 and own a quad in KC MO and a SFH in Indy. The properties are doing ok, but if we want to meet our goal of being work optional in 5 years, we need a strategy. Please forgive if I am overstepping but I listened to your podcast #254 (How to Retire in 5 Years) and have a few questions for you. No pressure to answer. I know you’re busy!
1) Would you be willing to share where those 50K SFHs in Indy are? Ours is in Cumberland, was 100K and has been vacant since we bought it 3 months ago. Not good!
2) My husband and I have a good amount of money in our 401Ks, but am I right in assuming we can’t access that money until we retire? Don’t you have to be self employed to have a self directed IRA?
3) Are there any financial advisors who specialize in real estate that you can recommend?
Any and all advice would be greatly appreciated! Thanks so much for reading.
Best, Elizabeth
Answer to Question #1
Hey Elizabeth,
Thanks for listening! You are never overstepping by asking questions. In fact, that’s how us real estate investors learn, by asking LOTS of questions – including yours truly! It’s just so happens, I get to ask a lot of my questions every Monday on this podcast with our great guests!
Well first, congratulations to you and your husband for jumping in feet first to real estate investing. You are about to embark on an exciting journey that will yield great rewards if you can remain diligent, unrelenting and not let the little stuff (and the big stuff) get to you.
By the way, Kansas City and Indy are great markets. You should be able to find great properties in both places.
Regarding becoming financially independent in 5 years, it’s definitely possible but you need to understand it takes hard work and care, strategic planning and execution. You also have to be very deliberate and have a firm strategy in place. Don’t just buy any property. It has to meet your criteria and be part of your overall strategy. In other words, for example, if you find a house that you really like and it only cash flows $200 and you plan calls for $400, it will impact your time line and you may not reach your goal when you originally planned. Don’t veer from your strategy
On to your specific questions…
1) Would you be willing to share where those 50K SFHs in Indy are? Ours is in Cumberland, was 100K and has been vacant since we bought it 3 months ago. Not good!
- Finding $50,000 homes in Indy is pretty easy. For example, I did a Realtor.com search on 3/2 homes in Indianapolis $50K and under and 37 homes showed up — and that’s just on market properties. What you might want to do is to make connections with local wholesalers/flippers and others that have access to off-market properties. Here are a few that you might want to contact:
- And on the home in Cumberland you paid $100K for and have been waiting 3 months for a tenant, I don’t know where it’s located in Cumberland but tere are some great neighborhoods there. If it’s been sitting empty for 3 months, that’s a property management problem – you need a new PM. And that’s another discussion.
- A couple more points here:
- There are lots of other good places, besides Indy, to find $50k homes, including Ohio, Georgia, Tennessee, West Virginia, Arkansas, Missouri, Alabama and more. What you’ll want to target is those places with the highest rents. So you might consider expanding to other markets as well
- Also, I would recommend buying more multis instead of single family. They are most cost efficient, have better economies of scale and are best for long term holds.
2) My husband and I have a good amount of money in our 401Ks, but am I right in assuming we can’t access that money until we retire? Don’t you have to be self employed to have a self-directed IRA?
- I’m not an expert on 401Ks but I’m pretty sure you can convert your regular 401K into a Solo 401K. With Solo 401Ks, You can invest within your account just like you can with a self-directed IRA. And since you are doing this all for your retirement, you don’t have to touch the account until you’re 59 ½. In the meantime, all your rents will be going back into your solo 401K and it you are contributing out of your salary as well every month, as your 401K rapidly grows, you can buy more properties directly out of your 401K, that will have their rents go it as well. And you can see how a snowball affect will occur rapidly.
- I had an expert on my show on Solo 401Ks, Dimitry Fomichenko from Sense Financial, episode #131, and I know he would be more than happy to give you a free consultation (if you tell him you are an Old Dawg)
- That could end up being the best tool of your strategy!
3) Are there any financial advisors who specialize in real estate that you can recommend?
- Not 100% sure what you mean there. I know some CPAs that work with real estate investors. I know some CFPs that now direct clients to invest in real estate. But I’m not exactly sure what you mean there. Maybe you can write me back on what you mean. Be a bit more specific on what and why you would need that person for.
Well, I hope that helps you out Elizabeth.
Question #2 – Investing after 70
I’ve just started listening, so if you’ve already covered this, please point me to the proper podcast(s). Should those of us around 70 who are in retirement and already have a few properties ever take out loans to leverage them?
We’re very uncomfortable to do it at our age and in our physical conditions. The only two rentals we could leverage are both in SoCal: an OC condo on which we only owe $96k and a SFH in North San Diego County on which we owe $169.3k. We’ve got a handful of mobiles in NorCal, but most of our IRA money is in notes, a SFH in the Phoenix area (where we live), and a couple of local crowd-funded multis. We tried to sell the condo, but the market in CA is not good right now, so after three months, we pulled it off the market and got another renter on an 18-month lease. Our home’s paid for, and we’re not going to touch it. The SoCal home we were hoping some day to either move into or use the cash to buy another home for us. (Laguna Beach has been like a second home for decades, which is why nearly all our property is in CA.) Unfortunately, we’ve had a long-standing serious medical situation with our son’s family, so we need a decent influx of cash. Thank you.
Answer to Question #2
Wendy, thanks for listening to our podcast and for your great question.
Yes, leveraging properties at 70 and above will create debt that you don’t want to carry into your 80s. Your strategy now should the opposite — increase cash flow and accelerate your loan pay-offs. The two properties you have in Southern California are invaluable. You are definitely right, now is not a good time to sell here. Prices are on the decline. You are better off just drawing income from those rentals, paying down the loans, waiting through the recession and wait for costs to come back up. In the meantime, you will have accumulated much cash flow.
Here are some suggestions for how to increase cash flow and accelerate your loan pay-offs
First, on increasing cash flow
Increasing Cash Flow
- In podcast episode #070 entitled 12 Ways to increase Your Rental Property Cash Flow I offered a number of tips on increasing cash flow. Many of the points apply to apartment owners but some could be applied to your mobile homes and SFRs.
- Reduce monthly services expenses by seeking competitive bids on services you already use. Start asking for competitive bids for your common monthly services such as trash pick-up, lawn or landscaping and pest control services, to name a few.
- Offer improvements for rent increases. If it’s worth $25 more monthly rent to a tenant to have a window A/C unit, install a dishwasher, or add another inexpensive amenity.
- Negotiate your property taxes
- Consider AirBNB. You can double, even quadruple income for your property. Rent by the room or by the bed and make even more. You can have your property manager or a co-host to do all the work. Check out our podcast episode #109 with Al Williamson.
Accelerating your loan pay-offs
However, before you start making extra payments, let’s go over the ground rules.
- Check with your mortgage company. Some companies only accept extra payments at specific times or may charge prepayment penalties.
- Include a note on your extra payment that you want it applied to the principal balance—not to the following month’s payment.
- Don’t shell out your hard-earned cash for a fancy-schmancy mortgage accelerator program. You can accomplish the same goal all by yourself by doing the following:
Ways to Pay Off Your Mortgage Rapidly
- Pay even $100 more toward your principle each payment
- Pay half of your regular monthly payment every two weeks.
- Set Up a Biweekly Mortgage Payment
- Make an Extra House Payment Each Quarter
- You’ll pay your mortgage off 11 years early, and you’ll save more than $65,000 in interest.
- Re-Finance your 30-year loan to a 15-year loan
- Pretend you’re re-financing. You can refinance a longer-term mortgage into a 15-year loan. Or, if you already have a low interest rate, save on the closing costs of a refinance and simply pay on your 30-year mortgage like it’s a 15-year mortgage. The same goes for a 15-year mortgage. If you can swing it, why not increase your payments to pay it off in 10 years?
- Downsize. Sell your bigger house to pay CASH for a smaller home
- House or Apartment Hack. Better than moving into a smaller house. Sell your home and move into a house where you live rent free and your tenants pay your property taxes, insurance and all utilities,too. Hire a property manager and you’ll have little obligations and you can live rent free and you don’t have to cut lawns, do repairs and worry about “the house”. Your tenants will pay for everything, plus they can supply you with a nice monthly paycheck as well! To learn about Apartment Hacking listen to podcast #283.
Well, I hope that helps you Wendy. You can always write me back for any further questions.
Well that’s it for today
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