Be Patient, Learn the Ropes and Build a Financial War Chest?

Question

Hi folks, Like so many members and lurkers, I stumbled upon BP while surfing for info on real estate investing and what an amazing information resource it is!!

My goal is to derive sufficient income from doing real estate deals so that eventually, I wont have to worry about losing my day job and be able to retire comfortably in the later years.

My question as a newbie is about my particular situation and plan:

I am 41 yrs with a low six-figure income and I have excellent credit. Realising that not having easy access to money have inhibited many people from achieving their entrepreneurial dreams, I decided to embark on an ambitious savings goal and was able to save $200,000 in 5 years. Starting this year, I plan to save another $350,000 in 5 years which would result in a total of savings of $550,000 by the end of 2017.

So, with the record low interest rates and low house prices, should I get in and try my hand at REI before things change?; OR should I stick with the original plan of building a financial war chest while networking and learning more about this business?

BTW, I became an accidental landlord 2 years ago when I rented out my home in So. Florida after discovering that the associated monthly expenses related to owning a house was affecting my ability to maintain an aggressive saving schedule.

I would appreciate any insight or opinions and I hope I too can become a successful contributing member on this board in the not too distant future.

Thanks!!

Sean F. · Answer

@Vincent, check PM. Also sent you a colleague request.

Daniel Fisher · Answer

In the meantime, I'm already lined up to attend my first REI meeting on Wednesday so I'll see where it leads...
Way to go on this. Networking with local investors that have an intricate knowledge of your area is another key to success.

Vincent L. · Answer

No, no, no; I'm not planning on spending a dime there. I have enough books to read already and I've taken to heart the advice of members on this forum that say a better resource can be found here and its free!! I like free......

Just going in order to network and step out into the REI world.

James H. · Answer

HAha! Well, I don't care who is speaking. I wouldn't pull out my wallet at my first REI meeting even if Warren Buffet was speaking.

Steve Babiak · Answer

Find out who the speaker is ahead of time, and do some research before attending - that way you will know for sure whether to keep your wallet in your pocket when the line forms at the back of the room.

Vincent L. · Answer

@Brian Yes, you are correct that this money currently languishes in low interest rate prison and should really be out working. As you alluded, and as I saw in another thread of this forum, great deals that were once the norm are getting harder and harder to come by so we'll see.

In the meantime, I'm already lined up to attend my first REI meeting on Wednesday so I'll see where it leads...

@Brad Thanks for the input...

In the meantime, I'm already lined up to attend my first REI meeting on Wednesday so I'll see where it leads...

@Brad Thanks for the input...

James H. · Answer

You can qualify for 3 more traditional mortgages relatively easily. I'd take half of that savings (100K) and use that as DP money for three solid rentals.

If you paid 30K down on 3 seperate houses purchased for 80K at a 20 percent discount (you'll have to look hard for this), you would then have 3 houses with 50K in equity (150K all together) for the price of 90K. Plus, it is not unreasonable that each house would clear about 300/month after expenses (including mortgage). That would be a 12% return on your money in the first year adding another 10,800 to your savings for a total of equity plus existing cash of 170,800. Yeah, you can't eat equity, but it doesn't sound like you are using the cash anyways.

Additionally, you will benefit from mortgage paydown, possible appreciation and possible tax benefits. All the while you will have at least a 110K cash reserve. Plus you'll be diversifed. A somewhat enviable position IMO.

Brad Z. · Answer

If you have that kind of financial discipline and the simple fact that you found this website are pretty good signs that you are going to be successful at whatever you do. I would spend some time learning your local markets, meeting with local banks, etc. It sounds like you are a conservative so leveraging a portion of that $ may be a good balance to take advantage of record low interest rates and home prices.

Good Luck!

Vincent L. · Answer

Thanks folks for the very thoughtful replies. Each one touched on a different aspect and point to consider and that will help me in the decision making process.

@Nathan I like that affirmation that waiting year or two while learning more may be an overall better strategy.

@Bill I wish I was was financially savvy. I have read some books and surfed online about money and investing etc but it all makes my head spin as it has gotten so much more sophisticated and uncertain. What I have learnt though is to not get into something you don't understand...

Thanks again all. I'll contribute when I can to this board but I think for now I'll mostly be reading and bugging you guys with questions as I embark on my REI journey...

Bill Gulley · Answer

I suspect you are some what financially savvy. If you are familiar with bonds, it's not a giant step to buying notes. But you will need to value the collateral, due diligence will include knowing real estate and some financing laws as well as business principals.

Depreciation and losses in RE may not be a great benefit for you, you need to speak to your CPA and see what type of business entity might suit your needs best, espcially for long term savings.

You need to do some studying, from the basics first to build a good foundation for RE investing. A quick way is to attend an RE school for RE agents, you don't need to be an agent, but with your investment, you should know what they know at least.

Good luck....

Be Patient, Learn the Ropes and Build a Financial War Chest?

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