Need advice from veteran investor.. what is my next move?

9 Replies

Hello BP,

First off I apologize for what may be a very in-depth/lengthy post. Sorry. :) I will try to be very direct.

I purchased a SF house, in a nice town, that's 20 mins from a bigger city about a year ago using a VA Home loan. Essentially, my numbers are:

-  $126K purchase price with no money down. (1,000 for earnest money is all I paid for anything)

-  Mortgage with Escrow comes out to $826 monthly, utilities about $230, and all that yada comes out to about $1150 in expenses monthly.

-  When I ran the calculator on BP here, it states my cash flow is about $300-440 a month if rented at $1300-$1400.

Those numbers don't look too bad to me. I made the best decision I could when I went to buy my house. My monthly income is about $3338 minus ~$2k for expenses.. leaving me about ~$1338 monthly.

Here is my predicament.

1. I have no emergency savings. I used it all for my house essentially and paying down my car loan which is set to be paid off this February 1st.

2. I have a GI bill that expires within 9 years. Meaning if I want a 4 year degree at any point, I only have 3 years left until I have to go back to school.

3. I don't know how I get into my next property. By that, I mean I don't know how taxes will affect it, what home it should be, what circumstances am I looking for? I was thinking of finding a multifamily in the nearby city and house hacking it, but I know SFH make decent investments.

4. The kicker. I have a family member with a one-time significant amount of money that wants to get into investing, that isn't opposed to partnering and wants to rent my house but only at break even......but they also want to invest in a vacation home on the east coast by the ocean ( I personally think its a bad move). Is there a way I could cut a deal to get a new property here without getting another loan? My credit is only about 660. And I can't use another VA Loan.. unless I can..

5. I feel like getting a real estate license would be a good idea. I tried 2 years ago but got un-enrolled from the course during a management changeover and never tried again.

6. Oh, and I work a full time 40+ hour a week factory job that includes holidays and weekends.. so I am strapped for time daily.

So, that's my situation.. I have quite a few options and I am interested in what an experienced investor would recommend. This year I am itching to get moving on this. I think about this stuff everyday and try to make the right choices. This time I am genuinely stumped.

Thanks for any opinions or beneficial advice you people may have!

Highly appreciated!

Travis

I can't seem to edit my post so, apologies for the bump.

Just wanted to add that I also have a house my grandparents are trying to sell as they now live in Florida, that my family member who wants to invest is currently in right now. They are all trying really hard to sell it, but I believe it isn't in terrible condition and could be a decent rental property if I could snag it on a deal. 

Also, if I didn't mention it, this is taking place in Minnesota.

Looks like the Starting Out section is very busy.. anyone?

I'm still rather new to investing but have a great mentor and have been stumped with similar problems before so I'll try and help with what I can here:

1. Put a budget together and get some emergency savings in case anything comes up. It might mean a few sacrifices but it's worth it. 

2. Depends what you want to do. I dropped out of university twice and ended up with a job I like. Others have had different results.

3. If you don't have any emergency savings another property might not be a good idea. It might work really well though it depends on a range of numbers such as what you are paying now vs what you would end up paying. If you don't know what to do with taxes hire a CPA but make sure they are also own real estate.

4. This sounds like a few points here. I've seen someone take on investor money and end up owing a lot of money because they got in over their head and lost everything.

5. This is similar to point 2 it depends what type of work you want to do.

6. You could make use of weekends or if your employer will let you you could ask to work 4 days a week. It's a great way to get extra time for real estate related stuff for example meeting with CPAs and attorneys. You could also use the extra time to work on a flip but I wouldn't do it without some emergency funds.

Hope that helps. I am sure others will have different opinions and suggestions.

Thank you for the response David! I kind of figured the emergency savings would be first as a must-do. I am saving from now until June before I continue on. My owner-occupancy clause expires after mid June, so I can focus on getting a tenant in at that point. My biggest dilemma after that point is where to live.

Although I will have the emergency savings, and the tenant.. I am unsure of how to get the next place. Or if I even can.. Like I said, I have a VA Loan, 660 credit, and a possible investors money/building. I guess if I had to simplify this, it'd look something like this:

1. Save money from February to June. Emergency savings completed. Somewhere in that time frame, hire a CPA and go over tax implications, budget and expenses, etc.

2. Come June, I can either choose to rent or not, I really want to rent it out, but I will have no new home to move to. Which means: A. Move someone in, and I can find a cheap place to rent or be homeless? B. Don't move anyone in and save money again over the next 6-10 months for the next house purchase.

3. Depending on #2, I can start to achieve some more goals.. If I can get the second house to cash flow as a multifamily, it will substantially boost my cash reserves. 

4. If I can get these to all work without me going broke and dying from the Minnesota cold, I think I will talk to my employer about switching to 4 day weeks or part time and go and get my Real Estate license within the 3 year window. If I can't get any good investments going from now until then, I may look at going to school for 4 years in a nice major.

I am young, single 24 year old, and with essentially no debt.. so I realize the potential I have. It is just a matter of not screwing anything up.. which is bound to happen, I am just trying to mitigate the impact of it haha :). 

Again, thanks for the advice, if anyone else has input it is also welcomed! :P

@Travis W.

It seems like you are trying to do everything...

  1. finding a second investment property
  2. Partner with a family member on a deal
  3. go back to school
  4. work a full-time job
  5. obtain a real estate license
  6. increase your emergency savings

Trying to do everything can spread you very thin(you might be able to do them all but will you be really good at one of them?)

I think you should focus on 3 of the above and try to do them really well.

Also how did you go from $1,300-$1,400 in monthly rent and $1,000 in expenses to $3,338 in income and $2,000 in expenses?
is the $3338 your W-2 income? or W-2 income + rental income?
Is the $2,000 your living expenses? does it include the rental expenses?

Basit Siddiqi, CPA
917-280-8544

@Basit Siddiqi

I think you may be right. Now that I look at it all it seems less like a next move and more like a long term plan....

I am sorry I didn't clarify those numbers. I meant to. The 1,300-1,400 was the approximate rent that I could most likely get. The 1,150 is expenses i pay for the house itself (mortgage, utilities, etc). The 3,338 was my W2 income plus a disability compensation that I receive, no rental income included. The 2,000 expense I referenced was my monthly living expenses with the combined house expenses..

So, my monthly budget is $3,338-$2,000=1338 more or less, in savings roughly per month with no rental income. So as you can see, the 1150 of that 2000 expense is just my house... If I rented, it would offset a lot of that and put 300-400 extra in my pocket.. I just can't rent it yet because I have no secondary residence.. Which is killing me knowing that I am living in my investment which does not help me at all hah..

And if it was a multifamily, it would be perfect.. because then I could get that extra unit and live in it..

Since I can't tackle these all at once (i am overly ambitious at times i admit.) I think you may be right. If that is the case, this is what I gather.

1. I can't find a property until I know the tax implications/have the funds. So wait on that.

2. The partnership may be risky and I have no savings yet. It would allow me to get a new residence quicker but at some unknown possible expense.

3. I have a 3 year window until I have to use my GI bill without losing it. So I might as well wait.

4. My job is my investment income until it can be offset.. so, i'm keeping it...

5. Real estate license may be able to be done on the side, but takes time (which I don't have)

6. Increasing savings is probably the first task and a must-do.

So in order of priority... 4 and then 6... i''ll be really good at saving money for the next 6 months to a year I guess.

Then from there, I can become a pro at searching for a property and maybe using a partnership to get the next building.. Was hoping I could cut a deal to get a second house in <1 year, but if it can't be done, it can't.

Keep soldiering on I suppose, thanks for the insight! :P

A couple of thoughts:

The one thing I learned the hard way but has helped me immensely in life: you have time for what you want to do.

Unless you’re working 80 hours a week, it’s not that you don’t have time, it’s that you aren’t using your time effectively. Set a goal, spend 80% of time you aren’t using working on reaching that goal. When you get home from work, give yourself a set time to relax and then a set time to do your “homework”.

If you have a GI bill that means you aren’t paying for college, why not start now, one class a semester? Since you want to be an investor, focus on finance/business classes, maybe.

Lastly, you’re 24 and it sounds like you’re single? Instead of moving out of your house, why not bring in roommates? If you had 2 roommates and the each paid $600 a month all inclusive, you’re gonna probably find you have a lot of free money all of a sudden. Throw it in a savings account and call it whatever keeps you from spending it. My husband’s is his Tesla fund...

Would you consider renting rooms out in your home and living with others?  That could help you get some additional cash to develop the emergency savings you are looking for.  It could also help support a rental history to help qualify for a loan down the road assuming you report those rents on your tax return.  

Also, I'm not sure what rents are in your area, but you really need to factor in your cost of finding another place to live if you decide to rent your place out.  I don't think you would qualify for another home loan even if you rent it since you don't have a proven rental history or a lot of income.  If you will need to pay a similar rent to what you will be renting the house for, there won't really be any benefit.

It is possible to rent out my basement albeit I'll have to share the kitchen which isn't a huge problem. That is one solution I've not considered suprisingly.. But hey, that's why I made this post :P. And Leanne had a great post. Deep down I know the real estate license will come in great. I'm sure I could find time for it. I wasnt aware you needed rental history to pull a second house. I figured the bank would be okay with it all as long as you had 20% of the price and what not.. that incentivizes renting my basement now I guess...

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