Stuck!

25 Replies

My husband and I are hungry to jump in the world of REI. We've been learning via books, seminars, REI classs, etc.

We have between the both of us, student loans totaling $120K, and no extra income.

Where do we start? How do we start, OR do we even start at all right now?

Thanks in advance!

Look at that no extra income statement.

I bet there is money to be found it just might be things deemed essential that at closer glance may not be.

The 120k student loans are those frozen currently or are you paying on them?? Might want to see if you can get the payments extended, reduced, frozen etc. to free up some cash.

Student loans are a devastating blow to people who can keep you in poverty and owing the government for a very long time. College in my opinion is HEAVILY overrated UNLESS you know the field you are going into is high pay and high demand and that in the end you will come out ahead.

Sadly many rack up student debt to be doing something ( not saying this is you ) and then switch to something else. Student debt cannot be wiped out in a bankruptcy and in fact is one of the number one items lawmakers are saying could push us back into a recession as the loan amounts are staggering.

The student debt you rack up had to be weighed against job demand getting out and what the starting pay and chance for advancement is. Example It doesn't make sense to rack up 80,000 in student debt for a 30k job starting out. Now if you land a 75k job or higher in demand with strong growth the debt can be paid down quicker. There is a breakeven livability income amount and it is usually around 30 to 40k a person ( what many jobs pay) so is hard to save anything which is why the income earned out of the starting gate is so important.

I believe in colleges but only under the right circumstances.

Thanks for your response Joel. What you've said makes alot of sense.

Also, I will DEFINITELY explore the no income statement.

@Patricia Velez ...Reading and networking is def a start in the right direction..You can find creative ways to get started, but it will take some WORK....Keep an open mind and don't let money keep you from RE if you're passionate about it!!

Hey Patricia, I'll share with you the story of my wife and I.

We have been married 6 years come this June. When we met she was in nursing school working as a secretary. A year after we were married she graduated while making about $16/hour as a nursing assistant. Her student loan debt was $80K She now makes over $50/hour. But it took some years of work to get where she is. I also understand every career doesn't allow pay jumps like that. Last fall we cashed out her 401K, pension, and part of my 401K to buy our first rental property. Although it has not been easy, the property is cash flowing positive. I don't recommend that everyone do what we did. Everyone's situation is different. You will have to look at the income of you and your husband to decide how much disposable income you have. And then look at things you can really downgrade like Cars, Cell phones, Eating out, Living arrangement, Cable/satellite TV, and shopping just to name a few. Somewhere in their are some luxuries you can probably live without. Getting rid of them will allow you to save more and pay debt down faster. Then you will be in a much better position to invest in Real estate.

Converting my traditional IRA into a self-directed one was a huge bonus. Using those funds alone I am able to invest in real estate on many different fronts (i.e. trust deeds, real estate rentals and armchair investments, etc.). Get your hard earned money out of wall street and onto main street where you can control your investment dollars. I earn 10% to 12% on trust deeds alone and up to an additional 39% yield on my Montana investment.

@Patricia Velez

another option to explore is to use self-directed Solo 401k. There are certain qualification requirements that you must meet, however it will give you more options and more control. One of the things that you could do is to take 'Participant Loan' tax and penalty free and use those funds outside of a retirement account (not available with SDIRA). Just an idea... Keep exploring (BP is a great place to learn and get many ideas) and if you are determined, you will find the solution!

Dmitriy Fomichenko, Broker
(949) 228-9393

Thank you everyone! This is all such great advice!! Thank you.

Welcome to the BP family and as you have seen you have received some very good advice. The old saying "where there is a will, there is a way", you will make it happen. Review some of the old podcasts, the ones that are of interest to you, go into the learn section and pick and choose; attend the NYC meet ups' , they are announced on these pages or use your "keyword" tool to keep informed. Again, welcome aboard.

If you have no extra income even after you look into your financials...then one possibility is wholesaling houses so you can generate extra $3K, $5K, or even $10K. It's not easy but it can be done even when you have a full time job.

Stay away from banks and hard money. Go raise your private money. Pay people 6-9% on their money and work on finding great deals! Build your team, attorney, CPA, realtor, and your business plan. Get these first, you'll do well!

HI, Just to give another example. My husband & I used our tax return and a 401k loan to pay for the first property we bought together.

Best of Luck!

Thanks Christine!

@Jarrett Harris That day is coming soon, I'm sure. So far, with two kids and the amount of expenses we have had, we still get one. This year's will be slim and we don't expect one next year unless we adjust our withholdings from our full time time jobs to compensate for rental income. Our goal when it comes to taxes is to come close to a break even point. I don't mind not having one, but I don't want a huge tax bill either.

@Patricia Velez I know this may not be what you want to hear, but "Look at that no extra income statement." kind of hits the nail on the head... How does one invest when one has no additional money and high debt? This would imply that you must then get deeper into debt by borrowing more money to invest. Key word here is "invest", not "earn". That borrowed money will come with strings in the form of payback with some form of interest. Once that happens, what will be left for you? It sounds like you are really asking how to invest other people's money. Is that really what you want to be doing? More importantly, is that really what other people want you to be doing with their money considering you have no experience doing that?

Borrowing against retirement money is also a bit of a gamble for at least two reason:

1. You admit to having no experience (same hear so not a judgment against you). So you could potentially lose any retirement money you may already have.

2. If not executed correctly, you could pay early withdraw penalties and taxes on that money even though it came from a 401k or IRA. Definitely speak to a pro about this one before acting on it.

Not trying to be a negative Nancy, just being open since you did ask for opinions.

Regardless, report back with whatever you decide to do.

Best of luck!

Personally I don't think it makes good financial advice to risk going even deeper into debt to start a career in real estate. You have 120k in debt and no extra money. I don't think that is a wise decision to have no security blanket should things go bad. You have two choices in order to pay down that debt. Either to reduce spending or to find higher paying jobs. Student loans aren't bankruptavle so to me those are the most important thing to get rid of before you invest in real estate. Patience will reward you ten fold.

Thanks for your reply Rick.

I was not asking about borrowing peoples money. I genuinely wanted to hear peoples opinions in reference to my situation. And that's what I received.

Thank you.

...if I was you, I would put all my focus into paying off the student debt. You have to get that monkey off your back. Imagine how much money that would free up for investing! I agree with @Joel Owens on the school debt. Blows me away how much debt people get into for school.

Do a search online for Dave Ramsey....he has great material for helping people through that process.

I'm with @James Mudd on this one. Focus first on paying down your debt, since you can't ever get rid of it any other way. If you have multiple loans, pay down the highest interest loan first.

A solo 401k is great per Dimitriy if you are self employed and have extra income to put away, but it doesn't sound as if either of those are the case.

As you pay down debt, I would next look at buying a duplex or 3 unit and living in one of the units. You get the benefit of owner occupied financing plus the income from the other units reduces your housing costs. You already know something about property management if you do that for a living, but doing it on your own properties is completely different and will open your eyes. Same issues, different perspective and it's now your money that they tenants are spending.

Doing all this in NYC is even more difficult. If you personal situation warrants it, and you are open to it, and you are truly committed to investing in real estate, you might consider relocating to an area where the barriers to entry aren't so ridiculously high. Reducing the cost of living will probably produce a commensurate drop in income, so this is not necessarily the way to go, just something to think about.

Good luck to you.

Originally posted by @Patricia Velez:
Thanks for your reply Rick.

I was not asking about borrowing peoples money. I genuinely wanted to hear peoples opinions in reference to my situation. And that's what I received.

Thank you.

Perhaps I was a bit too blunt? The point I was trying to make is that you asked about getting started in RE "Investing". As you know, investing involves taking money and putting it somewhere with hopes of gaining some sort of return. Having the debt that you mentioned and no additional income to invest, one can only assume that money must then come from another person or entity, such as a bank. Since people typically do not give other people money without expecting it to be returned, by definition that's borrowed money. Therefore, it's not unreasonable to assume that you would have to borrow money to invest.

In hindsight I could have clarified better by simply saying, if you wanted to get into RE investing or the business as a whole, you could probably start out by becoming a Realtor, or working in a Realtor's office, or any other RE related job. That would provide good experience and help grow contacts at the same time, while still making money to pay down that debt. A win-win-win?

As others have already said, imagine what you could do with the money after you've paid off the debt. That is until kids come along, or the car dies, or the roof needs to be replaced, etc... ;)

Slow and steady wins the race, so don't give up!

@Patricia Velez

I'm going to go against the grain here and say do not wait until after student loans are paid off to invest. I guarantee you I did not pay off the mortgage on my home or student loans first. To do so would have require more sitting on the sidelines than I could handle. Ask your self this question, "Is the rate of return on REI higher than the interest rate I am paying on my loans?"

I do believe you need to fix your perception that you have "no extra income" before you can dive in. Read 'The Richest Man in Babylon' as you begin to save money to invest. Part of all you earn is YOURS to keep. Money that is spent on miscellaneous bills was never really yours to begin with.

I kinda agree with Jason. Waiting until you pay off you other debt might take a long while. (My wife's student loans are not paid off) I do think you should reduce expenses any way you can before investing first. However to pay everything off before you invest is a looong safe, slooooooooow road. I just think you and your husband just really need to take a look at your personal financial situation before you complicated it with another investment.

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