Paying off Debt first or start real-estate investing?

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Paying off Debt first or start real-estate investing?

Carlo Rodriguez
Seattle, WA · Member since 2017 · 12 posts · 3 votes

Hi,

So I'm on the fence on this one.  I'm leaning more towards paying my debt off first to.

A few years ago (2015) my wife and decided that the monthly credit card/tax/medical/students loan bills were getting out of control.  We were forking out roughly 2000 a month on about 80K worth of debt.  So we decided to go nuts and pay this **** off fast.  I stopped my 401K investment per month and put everything towards bills.

Im currently paying almost 3K per month (my minimums add up to 1,400)

Today, we have only (only? lol) 40K left.  I'm on track to pay this off by mid 2018.

As a hopeful investor in real estate, I keep saying " I plan to buy my first rental next year when I'm out of debt".  

My question is why should I wait?

I currently have a ton of equity in my home that i can leverage to get a rental property.  I'm thinking, i can use this extra income per month to pay of my credit card bills faster!

Anyway, anyone else started investing in real estate while in debt?

Any advice?  Is pulling equity out to buy an investment property a bad decision?

Please let me know your thoughts.

Carlo

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David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
9y

@Carlo Rodriguez,

I'm the "voice of dissent" here.

I promote the idea that one should invest for income to pay off the debts. The idea being that once the debts are gone the income will remain.

"When the debts are gone ..." becomes an excuse to procrastinate. Then, your investing just never happens because "life happens". Invest to get more income and apply THAT to the debts.

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  • Carlo Rodriguez
    OP
    Seattle, WA · Member since 2017 · 12 posts · 3 votes
    9y

    @Joe Villeneuve  interesting.  i never thought about it this way.  im worried about risk though.  and i dont want to make a bad investment AND be in debt.  so i figured I'll just spend my money paying off the debt.  At the end, its like a pay day when the debt is all gone.

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  • Carlo Rodriguez
    OP
    Seattle, WA · Member since 2017 · 12 posts · 3 votes
    9y

    @Peter Hollyfield thanks for you post.  makes sense.

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  • Carlo Rodriguez
    OP
    Seattle, WA · Member since 2017 · 12 posts · 3 votes
    9y

    hi @Nichole Stohler thanks for your reply.  you asked what type of deals im looking for?

    Honestly, I dont even know.  I am brand new to this and just know i want to and should be investing in real-estate.  I still learning the ins and outs.  it seems like a lot of people invest in different states.  I live in the greateer seattle area, everything is really expensive.

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    9y
    Originally posted by @Carlo Rodriguez:

    @Joe Villeneuve  interesting.  i never thought about it this way.  im worried about risk though.  and i dont want to make a bad investment AND be in debt.  so i figured I'll just spend my money paying off the debt.  At the end, its like a pay day when the debt is all gone.

     OK.  Let's look at this another way.  If you make a bad move, and lose your money, what's the difference between that and just handing your money over in the first place?

    Also, you need to understand risk...what is risk, where the risk is, who is at risk,...and what is AT risk. Most REI think like homeowners and have it backwards.

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  • Carlo Rodriguez
    OP
    Seattle, WA · Member since 2017 · 12 posts · 3 votes
    9y

    @Joe Villeneuve i'm having a hard time following you.  are you saying i  am  "handing money over" when i decide to pay off my debt?  is that because I'm spending not USING my money?

    If i make a bad move and lose my money, i lose all my money and am still in debt.  If I pay off my debt and make a bad move and lose all my money, I just lost all my money but atleast i got out of debt first..

    Thats just how i register it in my brain. But you mentioned most REI think like homeowners. what do you mean? Maybe i'm just not thinking about this the right way.

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  • Account Closed
    Real Estate Investor · Marysville, OH · Member since 2014 · 242 posts · 196 votes
    9y
    I use debt for real estate investing but I would pay off the consumer stuff first one because you should finish your goals and two 80k in debt you need to get in control of your finances before adding real estate in the mix. At your rate it will happen soon. Pay it off then invest with debt.
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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    9y
    Originally posted by @Carlo Rodriguez:

    @Joe Villeneuve i'm having a hard time following you.  are you saying i  am  "handing money over" when i decide to pay off my debt?  is that because I'm spending not USING my money?

    If i make a bad move and lose my money, i lose all my money and am still in debt.  If I pay off my debt and make a bad move and lose all my money, I just lost all my money but atleast i got out of debt first..

    Thats just how i register it in my brain. But you mentioned most REI think like homeowners. what do you mean? Maybe i'm just not thinking about this the right way.

     Money, your money "seed" money that is, should never be spent.  It should be used to infinity though.  You spend your profit.  Spending means you get one use out of it.  Using it gets you and unlimited use out of it, but, you only pay for the first use...the rest are essentially free.

    If you "spend" your seed money on personal debt...it's gone, and you've only paid off one debt with each dollar.  Now you need more seed money to pay off the rest of your debt, and to invest,... and both sets of money cost you for one use of each.

    If you "use" your seed money on an investment, you get the returns continually coming back to you.  This allows you to reinvest it.  Repeat this over and over, reusing the same seed money multiple times (only costs you for the first use though).  When you do it right, you get your seed money coming back to you too, but the investment is still yours...churning out those returns, over and over again.

    This way, if you spend these returns on your personal debt, the impact of your seed money can be limitless since the returns allow you to pay off more than one debt...and after all of your debt is paid off, it keeps coming.

    Think like a REI and not a Homeowner. An example of a homeowner "carryover" into REI is how many people think their own home is an "investment". It's not. It's the biggest cost we all have.

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