BiggerPockets

OK, here is is...It's time for me to get real and do something drastic. We are broke, I just went to the grocery store and needed to use my credit card. I have been married 11 years, we have 2 kids. I work part time, my husband works full time. Up until recently we have been able to make ends meet, crawling into deeper debt over the years because of our poor choices.

We hit rock bottom last year (which was a good thing) we almost ended up divorced, went to conseling and worked on our issues. We realized we felt trapped in our current life and decided together we were going to do what it takes to change our lives. We made a big decision to use our credit card to invest in some education together. We paid 16K for some classes in REI and are currently taking them together. We knew we wanted to invest in RE, it's always been our passion, something we always talked about but never had the guts to do. (that's what I mean by hitting rock bottom was good for us, it forced us to get out of our comfort zone).

Recently we bought our 1st investment property with a partner, a REO for 55k. We are working on it now, our budget is 40 K and we hope to sell if for 150K. Once it sells we plan on putting our profit directly onto our credit card to pay for the classes we are taking. We have stopped buying things we can not afford but we ARE living outside our means which is why I needed to use my credit card for groceries today. The cost of living has increased so much we are forced to use our credit card to buy necessities.

My question is, how many of you found yourselves in embarassing situations like this and were able to dig yourselves out? I never pictured our life this way. We have good jobs, we are educated and are very hard working. What should we do to fix the mess we're in? Do we move (I'd hate to move our children from their home), Do I try to get a full time job? (then we'll pay more for daycare and our lives will be very hectic. ) Do we continue " floating" and investing in RE and putting our profits toward debt? Seriously...we know we need to make changes but we don't know where to begin. Obviously we'd like to keep our home. Quite honestly, I'm willing to move buy my husband is not. I am open to your harsh comments. Like I said, we have learned from our mistakes and are desperately trying to fix it.

I'm going to STRONGLY recommend a book to you. It is The Total Money Makeover by Dave Ramsey.

http://www.amazon.com/Total-Money-Makeover-Financial-Fitness/dp/0785289089/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1214159988&sr=8-1

You need to make some serious changes or you will be facing financial disaster. Hoping for a windfall to bail you out does not change the fundamental basics of your situation. The good news is that you can turn things around. Many years ago I went through some rough times financially and came out of it in much better shape. That happened because I made some serious changes to the way that I operated financially.

You may also wish to read the following blog post:

http://www.biggerpockets.com/renewsblog/2008/01/29/getting-your-own-house-in-order/

8)

Loral Langemeier talks about the " fastest path to cash" when folks are in trouble. Rehabbing houses is a risky and long path, especially the first time. Spending $16K on a REI course if a very long path, and IMHO, most likely a waste of $15,980. Meaning you can probably learn everything you will learn in that class from a $20 book. Richard's " A Rehabber's Tale" for one.

Honestly, I'd make every effort to get that money back. That would be a very fast path to $16K.

What can you do to generate some cash quickly? Can you get a full time job? If you do, will it really pay? Or, will the commuting costs and day care eat up the extra income. Can you or your husband or both of you get a better job? Is there a way to take classes or get certifications relevant to your current line of work that will make you more valuable? Could either of you get another job?

Are you treating this rehab as a second job? I just finished my rehab. I work full time. I looked at the time I had spent on the rehab for the nine weeks it took. I worked on it every Saturday and Sunday, all day, and two or three nights every week. In the end it totaled up to about 30 hours a week on the rehab and 40 hours a week on the day job. If I were you I'd do everything I can to get that baby finished up and sold, even if it means burning the midnight oil. You say you have a partner. I'm guessing that's a money partner. So, I'm guessing you're not paying hard money costs to hold the house. That's good. But, I'm also guessing your partner is getting half the profit. That's not good, and is probably a bigger cut than hard money would be. If those guesses are correct, your ARV is correct, and you stay on budget for the rehab (very hard) the profit looks to me like about 40K. If its a 50/50 split you stand to net 20K. You'll pay tax on that. So, it might just cover the money you spent on the course.

After you get through all that, you may find it pretty tiresome. I certainly know I do. Rehabbing can generate cash, but its very much a job just like most jobs. It may well not be your best option for a income generating job. Its a lot of work, its risky, and its lumpy.

Moving would be a big step. If you own, your costs to move are high because of the high transaction costs for a house. If you rent, its easier, but still not free and not easy. That doesn't seem like a good step to take unless it somehow generates a lot of savings. I heard a story on NPR last week where a lady said they had sold their house in the country and moved into an apartment near work. They mostly biked and walked. For them, the savings was worth it. For me, it would be nutty to try to move in order to generate any savings.

Don't get me wrong. I struggle with this, too. I spend too much. Its really easy. No matter how much money you have coming in, if you don't control the spending, you'll always be in the hole. Making more money isn't a solution, though it can help get out of an immediate hole. Controlling spending is the real answer.

Heatherp,

There's some good advice here, and I hope you know we all wish you well.

A random thought or two:

You seem willing to invest in your education and that is great. But REI is a 'get rich slow' strategy. And it's damn hard. And it's not for everyone. Although at times it may seem that your competition seems to be 'everyone'.

What if... you invested in alternative education? Nursing quickly comes to mind because you can get your RN in two years from a community college; plus, as an RN you can make excellent money working nights, or weekends, or part-time. Leaving you time for family and real estate, while earning good money.

There will always be RE deals out there for you. But put your own 'house' in order first and build a solid base to grow from.

Let us know how everything turns out. And best wishes.

Very brave of you to post about your predicament, Heather, knowing that it provides an opportunity for people to pile on and tell you how poorly you have managed your money. I'll try to keep it as constructive as possible as you need help, not a lecture. That said, here are some of the common places where people spend money that I would look:

1. First and foremost, any possible way to get back any of that $16k - that's your best bet at a big win. In an attempt to keep it constructive, I'll just state that in my opinion, you would have been just as well off betting it all on one spin of the roulette wheel in Vegas.
2. Do you have cable or satellite TV? If so, drop it.
3. I assume 2 cellphones for the family? No need - 1 max or live without like we did for many years. I know it sounds like sacrilege, but we all lived without cellphones 10 years ago and somehow we all survived.
4. High speed internet? Use the library unless you truly have the need.
5. Buy groceries and perishables in bulk; store brands - it all adds up.
6. What type of car(s) do you own? Can you trade down?
7. Vacations? I would put a hiatus on these for the near term. Visit local friends and family instead.
8. Magazine or newspaper subscriptions? Not necessary.
9. If either of you are smokers, I know that's very hard to overcome but a lot of money gets thrown away on that habit.
10. Find the lowest rate credit card possible or as someone else mentioned, perhaps even a bank loan - whatever can get you the lowest cost of money. Once you start paying interest charges on a Credit Card, watch out.
11. Take a critical look at your housing situation and sell/move if it makes sense.

Good luck.

I got into a major financial situation just last year and got to where you are today. I'm still digging myself out of that mess, but have managed to get on top of it and soon will be able to invest my money again.
However I had to reorder my financial priorities and you should do the same-
1. Get enough coming in to continue to support your present lifestyle FIRST.
2. Set aside enough reserves to get through say a 3-6 month period.
3. Then and only then start using the extra to invest and pay off debt.
Its really very simple and makes sense to do it in that order but that doesnt mean we all do it or dont try to take shortcut somewhere.
When you start investing money while youre living off credit cards you're setting yourself up for disaster. One wrong move or unexpected expense (or layoff, or medical problem, or legal suit, or new baby, or new roof, or whatever)and then what? The credit cards are maxed, and you already cant pay your bills and theres no reserves.
You'll have bigger problems in no time.
And let me tell you how much banks today like to give you money if you're maxed out or have a high DTI (even with good credit).Not happening.
Tell you what I WORK all the time lately. I have three jobs right now (realtor, contractor and i have a sales job) and am still constantly trying to generate other streams of income. And I am a single mother with two kids. Don't ask me how I found the time, but it had to get done and if thats what it took, well so be it. It feels good to not be hanging on the brink of financial ruin. And very soon I can invest again.
Just not before I know that I have it all else down first. I'd suggest the same.

I also want to thank Minna for giving some advice as someone who's been there. I know that's much more meaningful than someone like me suggesting a bunch of things that I don't do myself because I've been more fortunate. I also want to wish Heather the best of luck as she is obviously taking in the advice and trying to improve her situation vs. focusing on why she can't.

You've misunderstood me. I don't think it is foolish to invest in real estate. You've over-paid for your education, but education is a good thing.

I think it is foolish to not even have money to eat, yet to not look for a full time, and even a second, job to increase your income.

I think it is foolish to stay in a house you can't afford just because you don't want to move-- you've got a very good chance of losing that house.

I think it is exceptionally foolish to buy groceries on your credit card. If you don't have money for food, cut back. You can buy a 25 pound sack of dry lentils for $8 and that is enough food to feed a family of four for almost a month. Give up the goodies until you have money to pay for them.

Credit cards are for convenience, not to support your lifestyle when you don't have any money to pay for your needs. If you don't even have money for food, how are you going to make that credit card payment?

I suspect you are ruining your credit and you are going to have a very difficult time being a real estate investor without good credit. If you want to invest, take care of your credit score-- and that does not mean charging a bunch of stuff you can't afford and have no way to pay for on your credit cards.

Turn off the cable. Turn off the lights. Have the land line cancelled. Learn to eat economy food. Be careful how much you drive the car. Find cheaper housing. No more new clothes. Cancel the kids' cell phones.

Get back on your feet, get your new business going to the point that it supports itself first, and after that you can take some money out and maybe return to your previous lifestyle if you earn enough to pay for it.

Heatherp, fingers crossed for you and wishing you the best of luck.

You certainly aren't the first to be in a tight spot. It's hard, but you can get out of it, all you have to do is to make the effort. It's surprising how many will just watch their life slide away without doing what it takes to stop the damage.

It sounds like you have your work cut out with your husband. If he can't make a rational decision between putting food on the table and having a luxury such as cable tv, well... good luck. Keeping your head above water is one thing but without some serious sacrifices, how will you ever help the kids through college or finance your own retirement and healthcare when you get older?

I think Aly is right, if you set a target, I suspect you could find all kinds of ways to save money. I know if money ever got tight for me, I could very quickly find $500-$1000/month and then some that I could cut out almost immediately and it would hardly have an effect on my quality of life.

Sorry, I know that this post, like many of mine, is more Finance 101 than Real Estate 101 but honestly, I feel like there are way too many people on this board (and in this country) that don't even know the basics about money which to me should be a minimal requirement to even getting into Real Estate.