New to Real Estate · Trenton, NJ · Member since 2016 · 18 posts · 15 votes
Hi all,
I’m interested in purchasing my first property by way of house hacking a multifamily property. I’m pre-qualified for a mortgage. My question is should I pay down debt (student loan, car) before investing or just jump right in?
Sound like you think the only way to invest is to go to a lender for money ----- you might want to use some creative financing methods to CONTROL real estate before you have to go beg a lender for money, before you pay retail for a property ----
Some ideas:
Consider the Control and Roll method of investing - find a property (using guerrilla method of marketing), use a "skinny contract - one page - control the property, offer it at public auction. You keep the overage at settlement. You never have to own the property while walking away with cash. Do this a few times a month and you'll have enough money to pay cash for your next property. Make full disclosures.
Try a "Front Porch Clause", tell the seller XY and Z needs to be repaired before you buy, estimate it at$15,000, tell seller to write you a check for $15,000 for the repairs, you endorse the check and give it back to him as your down payment.
Offer to buy the property with a 45 day study period - with right of possession - flip your contract by private treaty or public auction, assign your contract for cash.
Ask the seller to refinance - he gets the cash, you take the property subject to his new mortgage.
Ask the seller to take back a mortgage for 100% of the purchase price - you help him find a note buyer, sell the discounted mortgage ---- nothing down.
Make an offer with a delayed settlement - like 6 months with the right of possession - you fix and flip during your possession.
Have a partner with real estate (maybe some junk properties), offer those properties as a down payment..... your partner friend get an interest. Make it subject to the sale of his property.
Create a note on something you own, offer it for a down payment on the house you want.
Hope some of these ideas will help and get you thinking that you can do deals without banks.
@Brieer Doggett, BP has great webinars to watch that show how to work the #'s. THe books by Brandon and others are invaluable. Scott Trench's Set for Life has his story of starting out house hacking. Lastly, the podcasts are great. YouTube has lots of the videos plus many others.
I personally like the idea of house hack if its costs are less than renting and the cashflow covers the bills. You will be building equity. Make sure your credit is good enough to get a decent rate on your loans. I like the creative choices above also. Good luck. Keep us apprised.
@Brieer Doggett if it makes your current expenses a lot cheaper then it definitely makes sense. In the big picture of things you ideally want to minimize risk.
@Brieer Doggett My advice would be to pay down debt first. Real estate is a cash intensive game. You need money to play and that's hard to do if a lot of your money is tied up in unprofitable debt. And then what happens if you need to do repairs, something unexpected happens that requires money, or just trying to get a mortgage and your debt to income is all screwed up. It's too easy to drowned with all that excess debt. Pay down debt, live without the toys for now, make smart buying choices and then real estate will be the result of the way you have been living your life not a means to change it. Good luck with your investigation!
Pay the debt. No brainer. When the house is empty and no renters, you still have the debt. When the furnace dies and needs replacement, you still have the debt. When the market crashes and your equity dies, you still have the debt. Now replace the word debt by cash (because you dont have the debt and have built cash reserves) and see how the sentence reads.
@Brieer Doggett
I disagree with most comments. It wasn’t until I bought my first rental property that I began to see the huge long term impact real estate could make on my financial future. It motivated me to work on avoiding unnecessary debt so I could buy more units. Read “The richest man in Babylon “
Definitely get rid of the car lease and buy a cheap used car. A loan on that, if needed, should be only about 3.5%. See if you can get your student loans consolidated at a lower interest rate. For student loans, near 7% seems high. Other than that, it's an easy answer to me. House Hack. Why wouldn't you, when the rent can pay for at least half of your mortgage. Doing any math on a house hack should equal better returns than 7%. Now, if you had said credit card debt, you always have to pay that off first...
Lots of advice to pay down all the debt. I'm baffled by this. This isn't a Dave Ramsey website, it's BP! The site where leverage is king! Currently, I have two car loans. One at 2.55% and another at 3.25%. Should I have paid off those car loans before I bought my duplex and SFH this year? Should I use the cash I have now to pay those off, instead of looking for the next multi family? Hell no!! What are your current returns on your investment properties? 10% 15% 20%?! I will take all the loans and money I can get at 3, 4, 5% interest rates in order to buy real estate. Or, I guess he could take 10-15 years to pay off his student loans and not let his money work for him...
@Anthony Wick Would it be wise to pay the have substantial cash reserves first? I would not want to have to take out a loan to fix anything that goes wrong in the property. Also I can’t create a plan to have the student loans paid off in the next year or two
I 100% agree with @Eddie Werner , but with the competitiveness in today's market, chances are you will not get a better return then paying off your bad debt first.
It's also a good idea to consider securing at least 3 months of emergency funds to hold you down if S*** hits the fan. (Because it will and life happens) This is just my personal opinion of course, everyone has their own risk tolerance.
For me, it took me 5 years to get started. I wanted to kill all of my debt and create a 3-6 month emergency fund before I got started in any kind of investing. When those goals were met, I jumped into the rental business as another investment vehicle for my future.
This is all my personal opinion of course as everyone is different and has their own risk tolerance.
@Brieer Doggett
No on this site ever talks about risk. Blows m mind. If your interest rate is 6.5 and you go earn 10 percent, that sounds good but at what risk?
With the numbers you posted above, start with student debt, then the car
@Brieer Doggett I obviously don’t know your situation, but I have student loan debt & am choosing to invest in real estate first. The only reason I’ve chosen to do it that way is because it’s on track to be forgiven in about 7 years. If I just had the regular student loan debt that gets forgiven in 20 years (I think that’s what the standard is), then I’d focus on paying it off before incurring more debt.
Pay off the debts, then build up some cash. Property values are rising now in many markets. So are interest rates nationally. No need to jump in now when you still don't know how to run the numbers on a deal. Take your time. Patience can make you in this game; impatience can break you. Learn how to steal a property using all cash offers. Do some leg work with experienced investors as a "go-fer" and ask for education in return. Learn the trade, make some money bird-dogging for other investors or wholesaling, then move into buying and hacking. Don't worry: there will still be plenty of real estate to buy when you're ready. And if you can wait a bit, I think it's going to get cheaper in the coming years as hot markets cool off a bit. I don't think we'll crash any time soon, but a correction is overdue in many big markets.
Ok. And how many of you are paying cash for all your properties, and have zero debt? Dave Ramsey does NOT give good advice 100% of the time. Ramsey gives advice for people that are deep in debt and he gives advice for human nature. He's not wrong most of the time. Meaning, most people cannot control or manage debt. Most people will go way beyond whatever they think is reasonable. And most people do not leverage debt for profit. But BP people shouldn't be most people.
Let's as the OP another question. At your current rate, how long will it take you to A) pay off your student debt; B) then pay off your car; C) then pay off any other remaining debt; and D) save up enough money to start investing in real estate? And, how old will you be by the time you start making returns on real estate investment?
@Brieer Doggett Alot of detailed answers here when your ask is more high level. If you can house hack and generate enough rents to pay what would be your rent or mortgage pmt plus have left over to start paying down the other debt, that is the absolute best thing you can do for yourself now and for the future... Cash flow is King plus you get the benefit of equity while others pay your mortgage... And finally, you get the experience needed to branch out into other properties and can leverage the equity to do so... You'll look back in 10 years and realize it all started here and pat yourself on the back :-)
@Craig Dell I’m completely new and I don’t even know how to run the numbers for profitability
There are a number of free calculators here to run your numbers on the home, though you should pay down as much credit card & consumer debt as you can before you apply, and do not apply for or refinance ANYTHING less than 90 days from when you want to buy. A low debt balance makes your loan higher Good luck!
@Craig Dell I’m completely new and I don’t even know how to run the numbers for profitability
I think you should watch some bigger pockets youtube videos, as well as grant cardone videos to learn how to run the numbers prior to using the calculators. The calculators are a cool tool however if you learn to run them by hand than you will have a better understanding of what running the numbers consist of. Good Luck
@Brieer Doggett I'm in a similar boat. I'm starting out by wholesaling property. But I am also not opposed to house hacking a duplex. Numbers must profit enough to cover maintenance over the year. This will only work if the cash flow is great once you move out (or even while still living there). Cash Flow is your Profit minus maintenance costs. Usually maintenance costs are a certain small percentage from your Profit that you put away. Use the BP Calculator!
@Caleb Heimsoth 100% agree that no one ever talks about risk... it's all the highlight reels, like when people post about buying X number of doors in D class neighborhoods and they are a year into investing. I wish there was more shared about when things go wrong to balance out the success stories. It creates a false sense of security for us beginners I think.
@Brieer Doggett I personally look at worst case scenario. If (when?) sh*t hits the fan (job loss, medical emergencies), are you able to make your car payment, student loan payment, and float a vacant rental property? Personally, that's way too much stress for me.
You know what people have when they don't have any payments? Money. (Dave Ramsey)
@Brieer Doggett
If maximizing return on investment is your goal, buy the investment property first. You’ll make a whole lot more than 6.55% on it. Then I would continue investing in real estate and making minimum payments on the low interest rate debts. You can increase your net worth fastest this way.
If being debt free is your goal (which I wouldn’t recommend because it diminishes your ROI), pay the 6.55% debt off first. Then invest in real estate. Pay the lease in your regular monthly payments and do not accelerate paying off.
There are just so many ways to make money, control real estate and build equity on an accelerated basis using real estate as a vehicle (houses, lots, land, commercial and non-conforming properties) --
Sometimes, most of the time, we need to look at creative ways to buy and control real estate without having to apply for a hard or soft money loan. The sad thing for new investors is feeling like we are at the mercy of lenders (this is not the fun part of this business)
For over 40 years now I have been creating methods to do real estate deals without banks, without mortgage brokers, without hard money lenders or other types of organizations who want a chunk of your equity - those money people who on the surface will lead you to think that they are helping you, the investors, but the real bottom line is that they make millions of dollars connecting with you, the new investor, the developer, the seasons investors - you the person on the street - using bandit signs, direct mail, tax sales poaching, foreclosures - you who are busting your butt trying to find that one out of 20 sellers - that one who we call the "motivated seller", those lenders are like a ticks, sucking the green out of your wallet - those who want a piece of your action, your profit, your equity and your hard work and dreams of making it in this business! I say NO - have it your way without those who want to be your financial partner without a commitment.
But you, as an investor, will soon realize that if you miss a payment that they will come with a legal warrant to take your investment, bugger up your credit, go after your assets and force you in foreclosure.
Please don't take this post as an attack on lenders, only as a heads-up about the reality of this business - I love this business - at 76 years old - there is nothing more I want to do (well I am also an artist) -
This business becomes more fun and profitable as you experience grows, as your portfolio gets bigger and your cash flow really begins to FLOW ---
Thanks again for reading my thoughts ------ enjoy this business --- and take advice only from those who can prove to you that they really made it in this business - not from those who want to take some of your money for useless programs.