I am considering purchasing a property. It is zoned R3 and currently has only one house on it. That house could easily be divided into a three bedroom one bathroom apartment unit and a second unit that is one bedroom one bathroom. The cost for doing the separating and for the repairs would be about $13,000.
The current owner is willing to do owner financing. I was thinking of offering $130,000 with $10k down if he would do 6% amortized over 30 years.
So far it sounds great! My problem is I I have other debt that I have been working on taking care of. Right now, I have about $6800 in credit card debt, another $6000 on a Home Depot card, and a $21,000 personal. Everything except the personal loan is 0% interest for at least another year. The personal loan is 9% fixed.
I have the cash that it will cost to do this deal but Is it smarter to pay off other debt first?
On the one hand, if I were to buy this house, I would have it forever. I can afford payments on the debt that I have and get it all paid off while it's still 0% interest even if I buy this house. The personal loan will be paid off in less than 4 years too.
On the other hand, if I pay off the $6800 on the credit card, I could move the personal loan to a 0% interest credit card and pay that off quickly too. That would save me money in the short-term but it wouldn't give me anything in the long term.
So, short term or long term???? I'm on the fence on this one. Houses owned are three with two units for $130,000 just don't happen that often! Even here where housing is relatively cheap. On the other hand there will always be another one. But will there? I can't decide. What does the bigger pockets community think?
I am not a fan of debt and honestly anyone who knows me knows that in 30+years of real estate investing I have only financed on single property purchase and I like to deal all cash, all the time.
However using leverage is also an effective strategy. I mean you have been doing it already and since you can cover you debt service buying an house that will provide you two additional sources of income if you can make it cash flow that can also help you pay off your current debt, and as you pointed out you would also have a long term asset that should reasonable go up in value as well over time. Maybe you can not know in how much time but it is an additional asset and going into the future you would have something to back you up in paying for future debt.
You have to work planning out your work and your investments but then work your plan and stick to it.
Useing leverage or paying cash are two different strategies but you have to stick to your strategy in order for it to pay off in the long run.
My chosing to use an all cash strategy means I end up selling a lot and constantly dealing with paying taxes but it works for me especialy in later years when I have built up momentum.
I personally cannot stand to deal with renting, tenants and everything that goes along with that, I hate is so I deal in all cash so that I only have to deal with properties and the market for selling my products.
Don't get me wrong I love dealing with people just not when they owe me money. I also lend money but not in the USA at rates which in the USA would be considered userous but in other places are quite common and quite legal as well.
I mean how you you like to earn up to 160% on your money year in and year out, it is not bad really but it is different than working so hard to earn 12% to 17% through renting your properties out and dealing with all the management required. I mean I do know some people that do it quite effectively and even earn as much as 24% on their money yearly.
To each his or her own I always say. What works for one person may not work for another but in your case I would not be bothered by the management implications of taking on one more property that can be converted into a duplex. I mean where can you pick up another good rental property in your area for $13,000.00 all in, and all have it be at least 50% to 90% all new construction?