New to the site, but love all the information on here. Really looking to educate myself in finance as school/parents/friends all mean the best, but don't have sound advice anymore imo.
So my situation; I've made almost 100k for the last 8 years, but badly mismanaged my money when I was younger so all I have to show for most of that is bar tabs and memories. I currently rent, cheap for Pittsburgh area $500/m + utilities which is convenient and close to work. I have a car payment that's $700/m, to which I still owe $30k @2.8%.
I've been looking to buy property instead of renting as I have been, but there may be a job and location change in the near future so I'm hesitant to buy especially in a local up market with uncertain futures; even though I know if I buy I can rent that place out, I don't want to make a mistake with my nest egg Ive saved.
My question is, With $50,000 in the bank, in an up market, and considering my work situation, what would be the best thing for me to do with cash? Pay off lower interest debt? Keep liquid for a down payment on a personal residence? Look for investment property? Put in stocks when the market is the way it is?
Note, I have a emergency fund aside already. Pension, separate 401k that gets heavily contributed to, and not other debt than auto.
Any advice or direction would be appreciated, thanks in advance.
well your properly capitalized to buy a sub 100k rental.. although if you want to be a little more aggressive if you have contacts and can hook up with someone that is doing some flipping you maybe able to provide equity and make substantially more than you could with cash flow on one rental. however you need to be uber careful who you would do this with... and don't let anyone talk you into put the equity in for a measly 8 to 12% if your the equity you should get a good share of profit.
thanks for the reply Jay and that's more of what I've been looking to do is a rental that fits my budget to start me off, but is my cash going to serve me better in a rental that provides relatively little cash flow vs being used for my own residence as a down payment?
I would look into buying a multi-unit property. This way the tenants can pay the mortgage and you can live there for free. This would also allow you to use a low money down fha loan. Then, be sure to save more money and not spend it so that you can have a reserve for any issues that may arise. After that you can continue to build your real estate or pay off some of your higher interest loans. I personally would prefer to build, but paying off debt might be a safer option for you.
You should consider buying a multi family and living in one unit. You can get a low down payment FHA loan, live for free and know that if you had to move, you could rent it out and make money.
And get rid of that $700/month car payment! That's just crazy!
@Robert Tumulty Kudos to you for analyzing your finances and taking a closer look at what you want to accomplish. It takes guts to make a change. You're on the right track.
You mentioned your car payment. I think you think you might want to get rid of that too. Can you sell the car for more than what you owe? I wouldn't pay it off with your 50k. But if you can get rid of that car debt and buy, say, a 5k car. That'll help your monthly personal cash flow.
Others have mentioned multi-family property. That's a great way to leverage. Make sure you're analyzing is so that you're accounting for all expenses still. Not sure where you are moving, but some areas are more conducive to this strategy than others. In my area, there aren't many multi unit properties available to buy. So I've just been buying discounted townhouses or single families as a personal residence.
For investment strategies. It really depends on what you want. It sounds like you have a full time job. Do you want to be more active or passive when investing that 50k? You'll get a larger return if you flip a house with that money, but that's also a very active real estate strategy and is more like a job. You can buy a rental... You can house hack... you can lend to other investors.. you can invest in a syndication.
If I were to imagine myself in your shoes. With a full time W-2 that I want to keep. I would likely buy rentals with that money.
I would sell the car immediately and buy a used vehicle cheap for what you get out of it. That $700 is just going right down a black hole. I would immediately decrease the 401(k) contributions to their minimum point. I think you'll agree after studying the matter more carefully that your 401(k) is just a Wall Street device to steal money out of your pocket.
I would actually stick with the rent. $500/month is very nice for the area. You're not going to do significantly better on rent here.
Then I'd give myself a few months to learn about real estate investing and wait for the job and location change to sort itself out. What kind of investor do you want to be? What kind of strategy do you want to use? Why are 401(k) investments bad? Buy books on personal finance. But books on real estate investing. Thing your way through this. Then make your first moves with confidence.
Thanks for the advice, traditionally I was thinking townhome or SFH to buy and live in, but there are most definitely advantages to a multi-unit that I have to consider and see whats out there. Flipping feels like too much risk currently as I'd like to be hands on, and I don't have that much time to put into something like that right now.
I'm going to have to research some of the terms you used Arianne as I'm unfamiliar with "house hacking". Yes I'd like to keep my job, just maybe not work as much OT and secure my retirement instead of count on pension and 401k. Also noted I've already reduced my contribution to just above the minimum the company matches.
Also on the car note, it's a truck, it has good utility, if I became a home owner or landlord it would have excellent utility. I know I'm moving sooner than later no matter what so it'll serve there. I require reliable transportation for work, and also it gives me the ability to put my boat in and out of the water so its not something id like to sell or sacrifice at this time.
Paying $200/mo more for your ride then your crib is not wise especially when you can rent a truck when you need utility.
I would use the 50k and buy a multi family. Rent it out completely. Cash flow and have your tenants pay your bills and mortgage. Take the money you make from it every month and forget about it. Just stack it. Then repeat.
I’d like to share what some one I met while tending bar a while ago told me. She was an owner of a real estate investment/building company. The most important thing when buying any real estate, is an EXIT STRATEGY!! You make money when you buy. I made the mistake of over paying for my first rental. I’m learning but wish I knew better.
If you buy right it’s essentially coming into free money.
Let’s hear a little more about the bar tab memories....maybe you had something good going ;)
@Robert Tumulty Talk to a Financial Advisor to determine which route is best for you. If then you decide to go the real estate route, there is a lot to discuss.
@Robert Tumulty , it sounds like you have some direction but if I were you I would figure out why I want to invest and keep learning. There are several ways you can make your capital work for you, what you decide to do should depend on your goals, timeline, network resources and personal skills. Can you sell your car and buy a cheaper one? You could be saving/reallocating so much more with that car payment each month.
Pay off that car loan today.
Buy and live in a multiunit is the thing that I will tell people forever, but at $500/month you have cheap rent and you could buy an investment property and still live there. Then again if you house hack you can take advantage of a lower downpayment.
As everyone else said the car has to go, but if you make more than the 2.8% on an investment then it's a net gain to keep that payment rather than put more money towards it. Depends on how that debt impacts your DTI for investment and how comfortable you are with it.
If you don't want to invest in real estate then there are always other options, but obviously we are on a site for REI so most everyone here including me is going to say invest in Real Estate.
If I was in your same situation I would buy and live in a 2-4 unit as an owner occupant with 5% down conventional (or look for seller financing, etc.), use the money that I now save on rent to pay down my other debts, then move forward with my preferred investment vehicle. I'd preferably buy something that needs some work and can achieve the 1.3-1.5% rule range so that you make some good cash flow if/once you move out. If you aren't familiar with the 1%/2% rules just ask. Sometimes we talk and forget that people don't know haha.
I’m not selling my truck, I need it. If I said I have no money and can’t save maybe then that would be good advice.
I more less made this post to get several strategies on how to break into RE investing with my given situation. I think the best advice was continue to research, don’t rush, and go into my first deal with confidence which to do I still have more to learn.
Any future responses; put yourself in my shoes, in that situation, what would u do in hindsight considering the experience u have now.
Thank you for all the responses though, I’m enjoying this site
Buy an all in investment property for 30k in a low income neighborhood and rent it out through Section 8. Use the other 20k for more bar tabs and memories. Good luck!
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