I recently got approved for two loans totaling $48k. I was thinking of using about $30k to pay off my car loan, credit cards, renovate current home (putting up for rent next year) . Then I would use the rest to try and secure my 1st multi family property.
Then the other part of me wants to use the about $40-$45k and dive straight into real estate.
Would love to hear how'd you use this money!
im a fan of paying off bad debt
It’s a numbers game. Hard to tell when no interest rates are mentioned or opportunity cost of deploying that cash one way or another.
I imagine your credit cards are high interest so there’s a start.
A car is a losing investment that will lose value over time. An investment in a piece of real estate on the other hand, will, if done right, create cash flow, get you ahead enough to pay your car loan, likely increase in value over time (appreciation, thus increasing your net worth), and maybe improve your credit rating. I would not pay off the car but right it off as a business expense as you use it for your business. Putting the money towards a property purchase would be your best bet in my mind.
Highly recommend paying off consumer debt that is costing you every month in cash flow and potentially adversely effecting your debt-to-income ratio.
Then look for ways to invest the rest.
What type of loans did you get approved for and what are the interest rates? Your answer will greatly impact everyone's response. If these are unsecured loans, then I would imagine the rates are high and do little other than consolidation of current debt.
@Malivai Washington Glad To Know I'm Not Alone!
@Frank Geiger That's what I was thinking
@John Brownlee Thanks for your input
@Chris Coleman I feel like that's the best was to go. Then I don't have to worry about other expenses
@Timothy Colman Both rates are below 5%
@Sheila Campbell student loans I'm guessing. But that is a good rate and does give you freedom to make some smart moves.
I suppose your next move is dependent on how much risk you are willing to assume. The smart play is paying off debt and using the remaining for investing. The riskier version is using it all for investing.
My vote is for paying off debt and using the remaining for investment.
Either way, good luck with your endeavor!
@Timothy Colman No I have no student loans. I have a car, house and credit cards.
@Timothy Colman I think I'll go with the debt way 1st. The cost of the loan payments are cheaper than my car note and credit card monthly payments. Thanks for your input!
To truthfully answer your question would depend on one question, Do you have an amazing deal in front of you that requires your $40-45k soon? If the answer is yes, then invest (after you triple check the amazing-ness of the deal). If not, I think you'll find the most benefits from your first decision. Although it's clear to see the obvious financial benefits of paying off consumer debt, you may also realize a few underrated psychological benefits. Those underrated benefits will help you through the emotional rollercoaster that comes with doing anything for the first time.
@Lawrence Chun Thanks for that. I have a lot to think about
@Sheila Campbell I would invest in valuable assets that could pay off the loans and create a residual source of income.
I can get you into ownership of an already fully filled 12 unit multi family for that much.
Pm me for details
@Robert Tucker sent you a connect... i mesnt to PM but unsure how the app works in those regards... I would be interested in some details.
Not intended to highjack thread.
@Sheila Campbell I'm risk adverse... read that as willing to gamble. But only on property, not the roulette table.
With that in mind, I prefer to own good money making, cash flowing, deals. With those you can mop up the debt. One way I have done that in the past is by creatively financing consumer debts into mortgages when refinancing the property. But this takes some thought and number running. The problem with specifically paying off debt is it robs you of opportunity to grow assets. But! If you're already using a loan to pay off essentially other loans, in my opinion you could creatively use that to purchase an asset that pays the debt, which can be a better long term play and teach a ton about moving the numbers around.
Since you are starting out, the thing to remember about advice in these groups, is that it very much depends on your own aptitude, creativity, and how much sleep youll lose worrying about various things.
I sleep great at night. But I know my deals. And I also know that if everything went to hell tomorrow, sleeping in a tent is no problem for me!
You're essentially robbing Peter to pay Paul. Work hard, pay off all consumer debt, build up a nice cash reserve. Most importantly, control your spending. Once all of that is under control, then consider real estate.
That money can easily turn into bad debt in real estate. Be sure to spend time learning your market and how to market. Once you are proficient in both, you will know exactly how to apply that money to make sure it ends up working for you and not against you.
Pay off all of your consumer debt first! Jumping into real estate with consumer debt and no experience is just asking for problems. I was $40,000 over on my first deal because I underestimated the repairs and deferred maintenance, hired the wrong contractors, and overall had a poor understanding of rehab costs. Things like that happen when you are still learning the ropes.
You want to be prepared for those kinds of things when you start investing and having consumer debt paid off is the first step
@Sheila Campbell Depending on what your state rules are as far being a recourse or non-recourse state would have an impact on what I would recommend to do with the money.
GYAN #1:- Sit down and calculate on a piece of paper.
On the left side put down all the loans, interest rate and monthly payment. (Left $)
On the right side, you put down the target property. The investment that you would put into it. And the return ( RENT - interest $- taxes-other expenses ). (Right $)
If the right $ covers the outgo on the left $, invest in the property
1) you should do this for many properties. Or better still , find the break even $ value( the left side $) . Then evaluate homes.
Cravat : I would even go to 75% of the left $ . As your investment would appreciate in 10 years time. Etc.
GYAN # 2:- : It is better to buy a house stay in it , and work, to pay off your loans. Than to pay off your loans, work and pay rent.