Debt free with 50k to play

21 Replies

I've been a fan of Dave Ramsey for quite some time.  I've lived my life pretty much debt free even before I heard about him, and was looking for some input on getting started.  Here's where I'm at:  sold my primary residence and profited 100k.  I just bought a fixer upper that I intend to live in (I'm a carpenter by trade) and that will leave me with 50k to start my rental company.  My credit score isn't great (lack of history mostly), and it's at 618.  Does this even qualify me for a loan?  Or should I stick to straight cash purchases.  Thanks for the help. 

The question you are asking is, should you stick with Dave Ramsey or not?  He would probably recommend that you have an emergency fund.  He would also recommend that you not use debt to buy investment real estate.

I am sorry that I am not answering your question.

Good Luck.

Bill

What is your plan with your current home?  Do you plan to fix it up to sell/rent or live in it long-term?  Either way I would take care of it first, before looking for an investment.

I recommend getting a credit card - pay it off every month - to build up your credit score.  You won't get good terms on loans with a score that low.  The good news is your high enough it should be fixable in to the prime range, especially if it is a lack of history that is dragging it down.

@Jaron Tibbe  

I challenge you to talk with 3 bakers this week and find out what options you have. Don't buy all cash if you CAN get some good financing.  I would recommend your small time local banks or credit union. They are usually the most helpful and flexible. 

650 credit score is usually required for conventional loan. but again see about an in house loan, rates may be higher but if you find a killer deal it might pay out.  

Just don't let inaction stop you. 

I would look for a 80k house in your area that you can rent for $950/month. Take 30k of your 50k as a down payment. Finance 50k for 30 years. Your principal and interest payment is approximately $300/month. That would leave you with $650/month cash flow on the rental house. Out of that you of course have to pay taxes and insurance, but you would still have some cash flow coming to you that would be more than just leaving it in the bank. The next 25k or 30k that you get...do it again.

thanks for the help.  I forgot to mention that I have 10k set aside for the remodel, and I plan on living there until I had enough saved up to renovate my next one.  I also have a 15k emergency fund set aside for my personal finances.  So with that being said I have 50k to work with.  I've always been really conservative with debt, so this whole process is really new to me.  

Originally posted by @Blake Densmore :

I would look for a 80k house in your area that you can rent for $950/month. Take 30k of your 50k as a down payment. Finance 50k for 30 years. Your principal and interest payment is approximately $300/month. That would leave you with $650/month cash flow on the rental house. Out of that you of course have to pay taxes and insurance, but you would still have some cash flow coming to you that would be more than just leaving it in the bank. The next 25k or 30k that you get...do it again.

 If I use the 50% rule, wouldn't that work out to 7% roi?  950 x .5 = 475 - 300 for mortgage = 175 x 12 = 2,100 net.  2,100 / 30k = 7%.  Or am I missing something?

Originally posted by @Jaron Tibbe :
Originally posted by @Blake Densmore:

I would look for a 80k house in your area that you can rent for $950/month. Take 30k of your 50k as a down payment. Finance 50k for 30 years. Your principal and interest payment is approximately $300/month. That would leave you with $650/month cash flow on the rental house. Out of that you of course have to pay taxes and insurance, but you would still have some cash flow coming to you that would be more than just leaving it in the bank. The next 25k or 30k that you get...do it again.

 If I use the 50% rule, wouldn't that work out to 7% roi?  950 x .5 = 475 - 300 for mortgage = 175 x 12 = 2,100 net.  2,100 / 30k = 7%.  Or am I missing something?

 You would want to factor in actual expenses/projections once you have a target property, but in general that seems like a good use of the 50% guideline to get an idea of cash flow on a property.

I love dave Ramsey , too, but sometimes you do have to leverage if you want to have a mid to higher income.  We were debt free, with a house and extra land, and so we took out a home equity loan, and had enough to.get started into rentals.  We do have good credit, due to past history, so I second getting a credit card to built that up.  

@Jarron Tibbe Have you considered doing some trust deed investing to flip your money a couple times per year, get a higher return and grow those funds?

Originally posted by @Ivan Oberon:

@Jarron Tibbe Have you considered doing some trust deed investing to flip your money a couple times per year, get a higher return and grow those funds?

 I'm new to this @Ivan Oberon . Could you explain more?  

Originally posted by @Jaron Tibbe :
Originally posted by @Blake Densmore:

I would look for a 80k house in your area that you can rent for $950/month. Take 30k of your 50k as a down payment. Finance 50k for 30 years. Your principal and interest payment is approximately $300/month. That would leave you with $650/month cash flow on the rental house. Out of that you of course have to pay taxes and insurance, but you would still have some cash flow coming to you that would be more than just leaving it in the bank. The next 25k or 30k that you get...do it again.

 If I use the 50% rule, wouldn't that work out to 7% roi?  950 x .5 = 475 - 300 for mortgage = 175 x 12 = 2,100 net.  2,100 / 30k = 7%.  Or am I missing something?

 I think that 50% rule is very conservative and you would actually end up with a little more in your pocket. It really depends on so many variables...how much maintenance has to be done, how much you do yourself, how many units you have, how many vacancies, etc. I am just thinking you will end up with a little more. I know that on average I actually end up with a little more in my pocket each year than the 50% rule calculation shows. 

I would work backwards. What is your end goal or goals? What do you need to do to get there. I really, really, suggest you write it all down. I took me 2 days and then some to flush out my plan. I am still changing it. You need every single step to get you there. Good Luck

Originally posted by @Jaron Tibbe :
Originally posted by @Ivan Oberon:

@Jarron Tibbe Have you considered doing some trust deed investing to flip your money a couple times per year, get a higher return and grow those funds?

 I'm new to this @ivan Oberon . Could you explain more?  

 Sure @Jaron Tibbe,

For example, say you took $40k and loaned it at a certain rate, say 10% cash on cash and you could turn that money 2 times in a year.  That would give you a 20% annualized return and you would not have to tie your money up long term and could also use that as an alternative way to grow that money pretty passively.  Your money is secured by a first trust deed against an equitable real property and you would put certain other safety instruments and agreements in place.  This is how I have operated my flipping and turn key rental business since day one.

Hope that helps.

Jaron, 

I think there are a lot of good ideas on the posting. If you decide you want to buy and hold a rental property, I have a few that I will be selling using a model that will get the property free and clear within 5 years, and allow you to leverage your cash. Let me know if you want to talk in more detail.

Kevin

Originally posted by @Kevin Moen:

Jaron, 

I think there are a lot of good ideas on the posting. If you decide you want to buy and hold a rental property, I have a few that I will be selling using a model that will get the property free and clear within 5 years, and allow you to leverage your cash. Let me know if you want to talk in more detail.

Kevin

 I am interested in hearing more about this. Will you elaborate please? Thank you...

You bet. I buy properties at a steep discount, rehab the property, screen and place a tenant, then sell the whole thing with professional management in place to an end investor. Your job is simply to review the financials each month and manage your manager. 

The way we structure deals is the following: 

50% down, 50% financed by us over 5 years

- Financing/debt service is calculated so that all expenses are covered for the 5 years, then you would own the property free and clear from that point forward. 

What area are you looking to invest in? Are you open to becoming an absentee owner of a rental? 

Kevin

Originally posted by @Kevin Moen:

You bet. I buy properties at a steep discount, rehab the property, screen and place a tenant, then sell the whole thing with professional management in place to an end investor. Your job is simply to review the financials each month and manage your manager. 

The way we structure deals is the following: 

50% down, 50% financed by us over 5 years

- Financing/debt service is calculated so that all expenses are covered for the 5 years, then you would own the property free and clear from that point forward. 

What area are you looking to invest in? Are you open to becoming an absentee owner of a rental? 

Kevin

 I really don't want to be a remote absentee landlord. I would rather continue as a local absentee landlord :o)....What is the average sell price of a property purchased from you? What interest rate over a 5 year period?

That is not a bad way to start out. You may have stated this already, but where are you located? Our deals are typically $50,000 properties, so the cash investment is $25k. They range from $45 - $65k for the most part. We offer a 5% interest rate. That is very competitive for the seller financing market. 

Sounds like you are on a good track! i would definitely talk to different brokers and credit unions as everyone has their own set of "rules". That being said it really depends on your end goal. We have a good W2 income and love leverage so we buy more expensive homes and than leverage them minus 15-25%. So in this case I could buy two houses in my areas producing $300 or so a month cash flow. We don't follow the rules but we are looking for longer term investments not short term :)

Originally posted by @Kevin Moen:

That is not a bad way to start out. You may have stated this already, but where are you located? Our deals are typically $50,000 properties, so the cash investment is $25k. They range from $45 - $65k for the most part. We offer a 5% interest rate. That is very competitive for the seller financing market. 

 I am in Canton, GA. A northern suburb of Atlanta. The struggle for me is finding property in my area for that price range. Are you only in Seattle or do you know of those types of deals in other areas? If you do, let me know. If not, I am not sure if I am ready to be a remote landlord. LMK

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