My Financial Snapshot - What Would You Do?

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

7y

I wouldn't touch any investments where there are tax implications if you removed the money. Use the $45K from your grandparents (nice gift) and some of your savings. How much money will a bank loan you?

George W.

Investor · NJ · Member since 2018 · 869 posts · 921 votes

7y

Maybe a good first step would be to find a decent paying w2. Also I'm not sure what kinda freelancer you are, but is there any way that you can start a business and earn more money that way? I'd imagine It's gonna be hard for you to find a loan most likely if you don't have employment. Having a gift for a down payment is a very good head start and you have money saved up too which is great! It shows that you're able to save/budget.

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@Lee Ripma

Thanks, Lee. Yes I understand only I can answer these questions based on my goals. Now do I need to live in LA? That is the million dollar question I have not yet answered!!!

I moved here 2 years ago and I love it - the weather, hiking, job opportunities, interesting people, and endless activities. Plus I work in the entertainment industry in wardrobe and it’s the best place to be for that. I will say more and more big productions are moving to / filming in places like Atlanta which may be a better market for me as a newbie and limited capital. But in my gut I do feel like I’m LA right now for a reason and I’m not sure it’s time to leave quite yet. I’m also single and could relocate fairly quickly if need be.

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@Theresa Harris

Thanks, Theresa. I appreciate your insights. If I have another year where I make $40K in income (not a great goal to aspire to) I may potentially be able to avoid capital gains taxes on my stock gains. If the information online is correct, if I make less like $39,375 in 2019 I pay 0% in long term capital gains taxes. If I make more, I pay 15%. That could be huge for me considering I bought shares of Google and Amazon in 2000 (wish I bought a lot more though!!).

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@George W.

George, thanks for the feedback. I work as a wardrobe assistant on TV and film projects. Usually I’m paid through 2 major payroll companies from which I review W2s. So for 2018 I think I had 5 separate W2s with total income of $40K or so.

I’ve never heard of anyone in my role starting their own corporation / business and I’m not sure that would fly but I like the creative thinking. Ultimately I would love to have my assets under a corporation for tax purposes.

You touched on a big concern of mine which is obtaining a good loan. I had my first conversation with a lender yesterday and I'm hesitant to get pre approved because I've had gaps in employment the last 2 months. So now I think I'll hold off on getting pre approved until I have a TV job that will employ me for 12-18 weeks (typical). On those projects I typically gross $4000 per month which isn't great but it's consistent income. Worst case, in order to get a loan (preferably FHA) I might ask dear ol' dad to co-sign as he does have consistent (much higher) income. But I don't really want to go there unless I'm in a pinch.

Podcast Guest on Show #373

Lee RipmaPro Member

Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes

7y

@Daniel Whitmore

Okay you might love it. But 40k a year and buying a duplex, even with a gifted down payment, it’s not happening. Think about what you can do to earn more, move elsewhere, or both.

Damaso Bautista

Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes

7y

Originally posted by @Lee Ripma:

@Daniel Whitmore

Okay you might love it. But 40k a year and buying a duplex, even with a gifted down payment, it’s not happening. Think about what you can do to earn more, move elsewhere, or both.

I kind of agree with Lee on this but I never down play a person's resolve when it comes to reaching a seemingly impossible goal.

Here are some of my thoughts if you want to stay in the Los Angeles.

1. Find living accommodations that require little to no money. Living out of your car, couch surfing at friends, living in the shed of someones back yard, live with grandma, live with mom and dad. You get the idea. Try to find a way to live here without spending the majority of your money on rent and food.

2. Live like a hermit and save every penny you earn. Get side hustles! Work 24 hours a day if you can. Earn and save every penny!

3. Try to find the best safe place for your money to earn as much interest as possible.

4. Your timeline is going to be long but figure out how long it will take you to save up the down payment if you were able to save every penny you can get your hands on.

5. Once you get make your plan stick to it without fail. This is the hardest part because its not going to happen overnight.

I wish you all the luck in the world. I hope you are single and don't have the responsibility of a wife and kids because if you do I don't know what to tell you.

George W.

Investor · NJ · Member since 2018 · 869 posts · 921 votes

7y

Originally posted by @Daniel Whitmore:

@George W.

George, thanks for the feedback. I work as a wardrobe assistant on TV and film projects. Usually I’m paid through 2 major payroll companies from which I review W2s. So for 2018 I think I had 5 separate W2s with total income of $40K or so.

I’ve never heard of anyone in my role starting their own corporation / business and I’m not sure that would fly but I like the creative thinking. Ultimately I would love to have my assets under a corporation for tax purposes.

You touched on a big concern of mine which is obtaining a good loan. I had my first conversation with a lender yesterday and I'm hesitant to get pre approved because I've had gaps in employment the last 2 months. So now I think I'll hold off on getting pre approved until I have a TV job that will employ me for 12-18 weeks (typical). On those projects I typically gross $4000 per month which isn't great but it's consistent income. Worst case, in order to get a loan (preferably FHA) I might ask dear ol' dad to co-sign as he does have consistent (much higher) income. But I don't really want to go there unless I'm in a pinch.

Okay sounds like you got a passion for what you do to earn a living. Is there any particular skillset involved with it that you can capitalize on? Maybe it's possible to find another part time job that involves those same skillsets and pays higher? I'm not sure what market is like in la because I'm from nj, but I'd imagine it's a very expensive city to invest in.

Adam Michael Andrews

Investor · Austin, TX · Member since 2017 · 107 posts · 89 votes

7y

It's going to be tough to achieve significantly positive cashflow in the short term in the LA market without putting a lot down. That may actually be to your advantage however, as the more you put down, the less reliable income you need to show a bank (lower mortgage balance).

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

7y

Normally I recommend high leverage. This implies as little down as you can get a decent rate loan. However, @Lee Ripma is correct that at your income you will be challenged to obtain a decent rate loan (maybe any loan) that can buy a residential RE in your market at a high LTV. So then what happens if you put more down? Your reserve gets reduced and your returns get reduced. Investing is properly balancing return with risk.

I suspect you are planning on house hacking this (live in one unit and rent the other). I suspect when you figure out the financing, your options will be limited because I do not believe at your income you will qualify for a high LTV loan. This implies the financing will require a large down whether it is what you would prefer or not. Fortunately, you have a decent amount of money for a down payment but remember to make sure you have access to some money as reserve. This could be family that would lend to you if something unexpected happens, just make sure you can cover a large unexpected expense if you are unfortunate and encounter one.

Good luck

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@Lee Ripma

@Dan H.

@Adam Michael Andrews

@George W.

Thank you all for your feedback. I needed a dose of the difficult truth. It’s hard to hear but much needed. I think it is probably unrealistic to focus my search locally in LA. Because I’m not willing to cut my living expenses by living in my car, I think I will either have to move to a cheaper market (doable because I’m single) and/or find a better paying W2 job. This is probably my biggest takeaway from all the feedback here - get a better paying job! Sadly I quit a good paying corporate job 2 years ago to move to LA. I really hated that job but in hindsight not the wisest move.

Back to the rat race as one step towards financial freedom!

SLC, UT is at the top of my list of places I would consider relocating. I also have family in TN, KY and NC. I may need to seriously consider a move and also start looking for jobs in these markets.

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@Damaso Bautista thank you for the generous advice Damaso. I forgot to tag you above. As much as I love LA, I don’t think I’m willing to live in my car so I think I will start exploring other markets and a possible move.

Kalyanii K.Pro Member

OR · Member since 2016 · 55 posts · 42 votes

7y

Hmmmm. Sounds like you have to save up more or look for property that needs a lot of work and maybe do a live in flip. You could do side gigs like Lyft or Uber for extra money. If your work is intermittent and you don’t have a family or kids, you have a lot of time that you can find other work. You have time to hustle!! I’d ask around your job about where other people doing wardrobe work between jobs. I think it’s possible to be successful in your LA market but it’ll involve sacrifice. Minimize all living expenses. Of note I remember that David Greene mentioned on one of the podcasts how he helped a guy in southern CA buy a house where the guy was going to house hack I believe and didn’t have conventional financing but was able to work something out. I’d reach out to him for advice.

@David Greene

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@Kalyanii K. thanks for your positivity and creative thinking. If I do decide I want to continue living in LA, I realize more sacrifices are necessary. I need to cut my expenses significantly. I need side hustles like you mentioned. Where there is a will, there is a way. I just have to stay confident and get more creative. It’s the self doubt that is my biggest stumbling block and inhibits my ability to act. Thanks also for the tip to connect with @David Greene

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@Eric Carr I would love to hear your thoughts on this question of mine as well. Will also give you a snapshot of my current financial situation. Most of the advice pertaining to investing locally is discouraging but a healthy dose of reality.

Adam Michael Andrews

Investor · Austin, TX · Member since 2017 · 107 posts · 89 votes

7y

If you begin investing long distance, you can live in LA and still invest where the numbers make more sense. Even better, you won't need to get together a $200k down payment necessarily. It's not all upside, but it makes a lot of sense. You could even focus on areas where you already have family.

Eric Carr

Real Estate Broker · Los Angeles, CA · Member since 2017 · 655 posts · 293 votes

7y

@Daniel Whitmore

Self employed status will be a complication with a bank lender - they will at least need 2 years of freelance tax returns, FT job income is best for getting solid approvals. $70k is 20% of $380k, which means we'd be looking in areas where we would find SFH in that range. You could also put 10% down on a $600K purchase price, keep in mind you payment and interest will be high compared to putting 20% down, you would need a qualifying income. Renting rooms and/or an ADU, would basically offset and subsidize your living costs. IF you bought a 3x2 w ADU, and rented two beds and the ADU, you'd be in a much better spot. You could start investing out of state, maybe those markets you have family, and let the cash flow from those subsidize your cost of living here. Then you could buy here later.

Or we look at all types of lending options until someone says yes and the math works for you, or you chose another path.

Let's figure this out. I own a primary home and rentals in LA and OOS, I see a couple of sides to this

Darius Ogloza

Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes

7y

There may be as many risk profiles as people. That said, here's my two cents:

Given the inconsistent income, I would first reserve no less than 6 months of living expenses. Trying to make it in LA, I would consider reserving 9-12 months of core living expenses. I would put that sum in a high-interest checking account or somewhere similarly liquid. I would reserve capital dedicated to beefing up the retirement account. 62-65 seems like a long way off from 37, but it's not. Right now, a $40K IRA will conservatively throw off $1,600/year under the 4% rule. I would reserve enough additional capital to ensure maxing out the IRA out for the next 3-5 years. I would then allocate the remainder between real estate and index funds/stocks anywhere between 30/70 to 70/30.

Jim Chuong

Rental Property Investor · Toronto, Canada · Member since 2012 · 102 posts · 95 votes

7y

@Daniel Whitmore I would leave California

Tanner Marsey

Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes

7y

Your income isn’t going to go far in LA or anywhere in so cal. You stated that you need current cash flow.... not the market for that. At least not when talking about single family for even small multi. Look out of state for cash flow.

Or another investment vehicle entirely.

Option 2... house hack. Be happy paying far less than market rate to live. Cutting your expenses by 1k/month is better than 1k of cashflow a month. Allows for saving. Allows you to learn how being a landlord works. Get tax benefits and build equity. I know people on here talk about it a lot but I think a a lot of people miss just how beneficial this could be. And you’re in the perfect situation to do this.

Good luck, man.

3 Reply

Matt M.

Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes

7y

I’m no mortgage guy, but I’ve bought enough houses in my day to be able to tell you a $40k job won’t qualify you for much of a mortgage, especially in your area.

Phil Kessel

Rental Property Investor · El Dorado Hills, CA · Member since 2017 · 12 posts · 6 votes

7y

@Daniel Whitmore Hey Daniel,

I admire you for opening up about your finances. I think it’s an important step on the path to financial freedom and it really helps to get feedback. That being said, when I was looking for some solid direction, I found The Millionaire Real Estate Investor by Gary Keller to be an amazing resource as it really lays out a great path and models to follow. If you haven’t already read it, I’d recommend it. I think it may help bring some clarity and direction to you for your specific scenario.

Btw, you mentioned SLC as a place you’d consider relocating, that place is so rad! I go whenever I can. Best of luck

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@Phil Kessel thanks so much for your feedback. A lot of the feedback has been a bit harsh and discouraging. I appreciate your empathy and support. Even with my humble financial position, if I think creatively, and maybe find the right lender or partner, I know I can make things happen, create a deal, grow my assets and achieve financial freedom.

I have not read the book you mentioned but it is on my list of books to read. I’m gonna check the library tomorrow and if it isn’t there I’ll probably buy it. Again thanks for your kindness.

I went to college in UT so it holds a special place! I have some friends that work in real estate there (attorney, property manager etc) so I feel like I might be able to build a solid team / network there. And of course the mountains are epic!

OP

Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

7y

@Tanner Marsey thanks for your insights. I agree with your points. House hacking is exactly my goal. Not sure if you are referring to house hacking a SFR specifically. My focus has been a duplex as a straight forward first deal with the goal of positive cash flow. But to your point, finding one in LA with my financial position is going to be very difficult. Positive cash flow will be even harder to achieve. Based on all the comments here that is abundantly clear.

I now need to identify a market where I can successfully find a duplex or SFR under $200K and house hack. I'm looking at SLC, AZ, KY, ATL, TN. I have family in some and potential job opportunities in others. If you have any market recommendations, I'd love to hear them.