Fort Worth, TX · Member since 2016 · 15 posts · 4 votes
Ok, I have read through the student loans posts and didn't see anything quite like our situation, so I figured I'd lay it out and see what you all thought.
My wife and I have about $230K in combined student loan debt. She's a doctor of anudiology and I'm an engineer and both went to school full time and lived off the loans. Seemed like a good idea at the time I suppose. Most of it is private through Sallie Mae and Wells Fargo, so not much hope in the way of loan forgiveness or a settlement unless we go into deferment, which we won't do.
We also moved into our first home a few years ago and have about $140K owed on the property. Credit card debt is around $4k and we have one car payed off and one with about $10K remaining on the loan.
We make enough to make the minimum payments on everything and have maybe an additional $1.5K a month.
A lot of the suggestions in the student loan posts were to move into a duplex and rent the other side out. That is not something my wife and I are willing to do. What, do you think, is the best way of going about getting into real estate? Should we work on paying down our student loan debt as much as we can or continue making the monthly payments as we always have and use the extra to finance our first property?
I don't think this is a math problem anymore. Analyzing rates of return on RE vs the student loans, the cc's, the car, etc would've mattered years ago at the point of decision, but not anymore. Choices have consequences.
I challenge you to demonstrate you are serious about this. In 3 months' time, pay off the stupid credit cards and car. $1500/mo isn't sacrificing nearly enough. Brew your own coffee and brown bag your lunch. Every day. If you're not willing to cramp your style enough to plex hack, let's see if you can do small things every day to improve yourself.
Rates on the cards and car don't matter. Take action, James. See you Nov 30th!
Our budget: We have been following the Dave Ramsay approach for monthly budgets for a while now and have had a lot of success. Monthly bills have been reduced to a minimum (or they were last year anyway. It might be time to negotiate better rates again using the Tim Ferriss methods)
Credit cards: We only carry a remaining balance we've been working on for a few years. Only one credit card left that we haven't used in years. Out of principle, we don't use credit cards. Once this one is payed off, I don't see us using it for anything. No self control issues there.
Cars: One car payed off, one car has about $8.5K left. (I was conservative on my estimate when I made the initial post)
Current Living Situation: Bought the house a few years ago and we want to stay here. We love the house and have no interest in moving or renting it out. One of the requests my wife made was that we don't move from house to house every year or so just to get the FHA loan. Our house is practical and not expensive. If it was a huge liability, it would be one thing, but it's a very modest house and very affordable.
Cash Reserves: Easily able to put 25-30% down on our first property in the price range we are looking for with enough to cover the holding and rehab costs.
REI Aspirations: SFRs, passive income to cover living expenses and re-investment and, of course, financial freedom.
Questions: Even though we have a lot of student loan debt at low interest and banks would be less likely to give us more than a few loans on different properties, wouldn't it be a step in the right direction to at least obtain a few properties to start the process? The cash flow would either serve to pay of our bad debt faster or put back into the properties (or get the ball rolling on another property, given we can find a lender)
Someone mentioned that wholesaling is a full time job, but several of the guests on the BiggerPockets podcasts have done wholesaling part time to start. I understand the learning curve is steeper when starting this way, but I am not in the habit of jumping the gun on a project before doing my research. I know, not all scenarios can be considered before starting in on this, but there are amazing resources and lots of people in my life I can turn to for advice. Has anyone here done wholesaling while holding a full time job? i would like to hear your 2 cents.
I am very appreciative of everyone's advice so far. I am happy to see that some of you are being blunt and trying to tell me 'how it is' rather than sugar coating it, also. I want to hear as many opinions as possible to get a better handle on what is the right move for me and my wife so we can take the next step.
James Edmister As an inspiring investor myself, I can only give you advise on your personal finance situation. I would have to agree with most of the other commenters. If I were you, I would focus on paying down your debt and increasing your current monthly income. I would start by paying off your credit card debt. If you have 20% or more for a down payment on a rental property, then you have enough to pay that card off right now. Credit cards charge somewhere around 15-25% in interest every month. You are throwing away money every month by not paying that off ASAP.
As for your student debt, there are a couple of options out there, but I think you should change your payment plan over to a graduated repayment plan, or an income based plan. With the graduated plan the monthly payment starts small and increases every year, but these options could help reduce the amount you owe per month right now, opening up some more cash each month for investing. Also, paying off student loans early typically incurs a penalty. Have you read the fine print to know how much that might be? If there is a penalty, it might not be worth taking a HELOC out to pay your loans. Some loans also offer a 0.25% decrease in your interest rate if you set up automatic payments, which can add up to thousands of dollars saved over the ten year repayment plan.
As for getting started in real estate, have you considered a Live-in-flip? I know you said your wife doesn't want to move every year, but if you fix up your house, and live in it for two years, then you don't have to pay capital gains tax on the profit you make. You could then take that money and either pay down debt, or roll it over into a 1031 exchange on your next property or possibly two properties? I'm not too sure on the specifics of the 1031. For some more info on the live-in-flip, listen to episode 129 of the BP Podcast with Mindy Jensen. She also talks about the importance of frugality and that could help out as well. If you are able to get a loan, and you've lived in your current property for one year, I believe you can get another FHA loan and move into another house/multi-unit. If that becomes your new primary residence then you only have to put down the 3.5%, which would leave you some cash reserves if you really have 20% to put down already. You can then use your current property as a rental property to start into investing.
Overall, I would focus on decreasing your monthly expenses, and improving your credit, which will allow you to save up cash quickly to start investing and then gain access to financing from a bank as one of your options to entry on a property.
I hope some of this is helpful!
Do you notice the recurring theme in this thread? The debt has to go first if you want to succeed. Reread the comments that were written by the experienced investors who have thousands of posts and votes next to their profile picture. Lots of wisdom there.
Consider living on one income, and use 100% of the other income to pay off debt. Don't dismiss that idea. Write it down and see what the timeline would look like if you did that. I guarantee it will happen a lot faster than you think.
Steve Vaughan
Thanks for your response! I may have missed your original suggestion to the first post. That is awesome that you have been able to achieve true financial freedom! I would love to hear your story as we all are here (I'd like to hope so at least) to learn from one another. Perhaps right and wrong are too black and white. Everyone should follow what feels most comfortable and is most logical to their situation. But I believe the person who responded after you makes a good point. Why not do both? But in order to pay down debt faster you have to increase your income. To my understanding real estate investing and the many strategies it encompasses is one of the best ways to achieve financial freedom as you have done. Hopefully the original couple who posted will keep us up to date! Happy investing to you too!
@James Edmister you said you have enough cash for a 25% down payment on a house, so I am wondering whey you have not used that cash to pay off the $4K in credit card debt and $8.5K car loan?
@Noelle Yarn I always try to be careful in advice I give people on Bigger Pockets. Someone in debt can easily dig a deeper hole by getting rental properties. I am happy to say that I am debt free (accept rental properties), so like @Steve Vaughan I am advocating something that has worked for me. I don't follow the concept that personal debt is necessary and it sure isn't good. Business debt, yes I understand that is needed to scale, but even eliminating that is a good long-term strategy in my opinion. You referenced Rich Dad books, which I have read all of them. I don't agree with everything he says, but the overall concepts are excellent. Still I don't think he advocates credit card debt, car loans, personal home loans and huge college loans. He would call that bad debt.
There are many paths to success and no one right way to get there.
James Edmister Active real estate investing, whether flipping, wholesaling, or being a landlord, is a business. A successful business requires money management skills and detailed market/property analysis. You should run the numbers. Would you invest your money with someone else who was in your situation and with your business know-how with the investment numbers? If you would, then go for it. If you wouldn't, then don't. Let the numbers and your gut be your guide.
@James Edmister I am a wholesaler with a full-time W2 job. It is difficult to balance, because the best leads don't wait for you to go on lunch break or get off work to call them back. I have returned calls within a couple hours and found out I had already lost the deal to someone who moved quicker. I have outsourced some of the acquisition tasks because of that, but you have to treat it like a business to succeed, not a side project.
My end goal is to quit my day job and wholesale full time. If that is not your goal, I would honestly discourage you from going the wholesaler route. Focus on paying off debt and growing your career. Maybe pick up a rental property or two. Don't succumb to shiny object syndrome and go after everything and succeed at nothing.
Joe, your question about paying off credit card debt first wasn't the first time in this thread the question was asked. The credit card balance is a more recent thing. My wife and I used the credit card for some fertility stuff here recently. We just haven't paid the card off yet. The month before it was considerably lower. Long story short, it's getting paid off real soon.
Everyone, thanks for all the perspective and the comments, it's given me a great deal to think about regarding my REI future. I'm going to continue my REI education and I am going to think a little harder and make sure we are in a better financial position before jumping into anything.
I'm going to go contrary to "popular opinion" here...
My advice is to use your available resources to invest for income and use THAT to pay down your debts. When the debts are gone, the income will remain.
...and as you gain income your ability to acquire more income increases. It really kinda snowballs.
You may find, however, that until your S-Corp (you will want to do one) has enough credit history and borrowing power to sidestep personal guarantees, you'll want to maintain a healthy credit profile. That might mean carrying about 30% or less utilization of your available revolving credit accounts to support a healthy credit profile - never mind scores! The CONTENT of your credit profile matters more than a "snapshot-in-time" assessment of the risk you represent as a potential borrower (textbook definition of a credit score).