Payoff Credit cards before first RE Purchase?

2 Replies

Hello!  

(So I am trying to exercise the ACTION items I heard on the Podcast the other day.  One of them is to ask at least one question a week.  This is easy as I'm new, so I have LOTS of questions.)

I have some money available to me that could be used for down payment on first RE purchase.  However, I also have some Credit Card debt that could be paid off.  If I use the money on Credit cards, it will pay the debt off completely, but nothing will be left.  

To get started in REI, should I pay off my debts first or take what seems like an opportunity to build my asset column? What level of financial stability should I be in for the first purchase?

Thanks for any input

This all depends on your risk level. What are the interest rates on the credit cards and what is your current job situation?

In my opinion i would use the money for a down-payment on an investment property. One strategy that i am a fan off is to have others pay down your debts. I.E. i have student loans that i could have paid off but it would have taken all my cash. I used the cash to buy a multi-unit and the rents from that are paying off my student loans (and also covers the property payments including maintenance and cap ex). Long term i believe that i would come out ahead with this route. However my student loans are also lower interest so factor that in.

Hard question to answer.

interest rates matter, the higher the rates the more this needs to get paid off

reserves matter, keeping a credit card balance that you could pay off anytime makes paying it off less valuable. BUT, if you have no reserves and high credit debt, you may already be overleveraged.

what will the property pay? The closer the ROI on the purchase is to the credit card rate the more it might make sense to buy the unit.

How will you sleep? I hate this question because my pragmatic mind says "if the math is right, there is nothing to lose sleep over" but that is never the case. If you have 15k in debt and add another 100k, will you be able to cope with it? It's certainly harder to deal with in the beginning.

When I bought my first place I had NO financial stability. I could barely come up with $1000 at the time (TY VA LOANS!) and had a car payment that was 30% higher than my mortgage payment was. I was a mess, but it all worked out. My advice is to analyze the situation, decide what action you think is best and just move forward. No decision is far worse than a bad one (most of the time!)