Purchase Home, Consolidate 15k Debt, or Purchase Rental Properties? Maybe ALL 3

16 Replies

Hello All,

I have been really contemplating on what to do first and cant figure out which so I think ill just give my reason to each. Im looking for some really good sound advice. Real Estate Investing will be my full time career in a year or two.

Purchase a home: I want to use my VA Loan so I don't have to put money down and my mortgage is less than my current rent. $400 less. Also, so my mom could move in with me.

Consolidate Debt: If I added all of my interest  rates together it would total 37 PERCENT. That's too high. I can pay off a 15-20k loan off quicker.

Purchase Rental Properties: As obvious as it is I would like to be a landlord, have extra income, and build a goal for savings. Plus be financially free.

ALL THREE: Is that going to be hard to do? I was thinking of purchasing my own home, then consolidating my credit, and finally getting a rental property. Does that sound doable?

Okay, so I'm no expert, and my credit is in the state of repair (working on that now), but I've been learning a lot, and since no one commented, I'd figure I'd respond to your post. I would say house-hack, meaning purchase a duplex or multi-plex (up to four units) and live in one of the units. As far as consolidating your debt, if you are able to save $400 a month once you purchase a home, pay off debts starting from either lowest amount or highest rate and work your way up (or down, depending on the method chosen). Also, what you may want to consider as far as debt consolidation is that of the payment you have to make in order for them to consolidate your debt (as I heard sometimes a pay out is required). As I said, I'm no expert, I can only go by what I read/experienced. I hope this helps as I believe I covered all topics (buy a home, renting a property and debt consolidation). Happy learning and earning! 

Regards, 

Stephanie Dobbs

37% is debilitating. Get rid of it as quickly as possible. An extra $400 a month would help you realize this goal much faster, so I would encourage you to make the home purchase your first step. If your mother lived with you, you would be saving even more money since I assume she would be contributing to utilities, groceries, etc. Is that correct?

None of the above. 

Pay off that debt. Simply consolidating it does not address the problem. I agree with Dave Ramsey when he says that debt is a symptom of the real problem, which is your spending habits. Consolidating your debt and not fixing your spending habits doesn't help anything.

I am assuming it is credit cards with the interest rates you stated. If you have money to buy a home (even with a VA loan you need money for closing) or rental properties, you can pay down a good chunk of that debt. If you buy a home or rental property without first fixing your spending habits, it exponentially increases your likelihood of failure.

402-965-1853

I would like to house hack but i still need to figure out whether to puchase or consolidate. I would really like to purchase a home with a ton of equity (which i found), refinance, renovate, pay off debt and just have to pay the refinance mortgage. That sounds great to me especially because i can put more towards my mortgage and pay it off sooner due to the low interest rate. 

The purpose of consolidating my loan would be to have a lower interest rate to pay off the loan quicker not hide poor spending habits. I dont go out, buy shoes, clothes, or anything unecessarily. Honestly my sons daycare is what kills me every month but thankfully i found a daycare that i pay 500 bucks less. (I could cry because im so happy). Also my car loan interest rate is 13.24% (the highest ) my credit card is 12% and my student loan is 11%. Why not just have one loan at 13 to 22%. It may sound high but man it sure sounds better than 37%. I prefer to save rather than spend due to my goals in real estate and life in general. Thanks all for the advice. I know this isnt a financial advice website but i really needed to ask a good bit of people. Never know others experience. 

@Shaniqua Dupree - you wouldn't add the interest rates together. You are not paying 37% of the total debt, you are paying an average of the three, which is lower than the 13-22% that you are hoping to pay. Wrapping those three loans up into one at a higher interest rate would only make matters worse.

house hacking sounds right. Thinking of it as a business. Using a duplex for example. Live in one. Rent one. The rented one should nearly cover the p&i. You will be living virtually free. Stash some savings for repairs and maintenance then throw the rest you're used to paying in rent at your debt. That will accomplish all 3 at once. 

Andrew. Thanks for informing me of that. 

Michael. I would love to house hack but the area i want to live in doesn't have any multifamily homes that are move in ready. I would use my VA loan for a multifamily.

@Shaniqua Dupree

Hope I'm not late to the party!

The way you calculate your weighted average interested rate is by multiplying the rate of on each debt by the proportion of that debt to your total debt, and then adding up that sum.

For example, say your 15k debt is spread at 4k Car, 5k CC, 6k Student loan.

The car is 4/15, the CC is 5/15 and the SL is 6/15.  You multiply each of these ratios by the interest rate associated with each and add them up (visual diagram below):

In this example, your weighted interest rate is around 12%, meaning that if you do consolidate your debt, you want the interest rate of that consolidated loan to be lower than this 11.93%.  Re-consolidating @ 13% actually moves you away from your financial goals because you will be paying more in interest.

In your situation, I would do the following in this order:

1) Pay down debt.  12% is pretty high and while you can definitely find deals that beat 12%, it puts you in an awkward liquidity situation and an early failure in investing could debilitate you for quite some time.

2) Look for debt consolidation below this 12% threshold (or whatever your true threshold is based on what the real numbers for car loan, cc, and SL are)

3) Buy your own home.  House hacking has been recommended as a good place to start.  I'd recommend doing this before buying rental properties since you get extra tax incentives and a better interest rate on your primary home.  You don't necessarily need a MF property, you can go for a 5-6 bedroom instead.

4) Purchase Rental properties.

Best of luck!

Hi Shaniqua Dupree,

      You must be knowing that a debt consolidation  loan allows you to move your existing balances from the high interest credit cards into one with low interest account. It goes without saying that with a loan you’ll be availing even better interest rates than what you might be able to qualify for, on a credit card. You’ll surely need to have a good credit rating to opt for this measure. 

      Even then if you want to follow this path and if you have enough confidence within you, you can yourself negotiate with your creditors or you can also take the services of debt negotiating companies. These companies discuss your matter with your creditors and if proper negotiation is done then you have to pay the creditors whatever the amount is negotiated. 

Immediately call all of the credit card/loan companies and say "I need help." Ask them to lower your interest rates. Additionally, can you get a 2nd job or increase income at your first job?

A debt consolidation loan pays off your existing debts and combines those balances into a single monthly bill with a new interest rate. The main goal is to reduce the number of bills that you want to keep track of and reduce the total interest rate on your outstanding obligations. http://www.vantageacceptance.com/credit-card-debt-consolidation/

Here is the order I would do things and why.

1. Pay off all debt minus student loans. Write down a plan and estimate how much you can pay on your debts each month, and determine how long until you are paid off. Start with the smallest one and put every dollar you have left over on that debt. After that one is paid off, move to the next one. It may take a while depending on how much debt you have, but you can do it! Imagine how much money you would have left over every month if you didn't have a car payment or credit card payments!!

2. Build up an emergency fund of 3 months worth of household expenses. At this point you don't have any debts to pay, therefore you can save up cash soooo much faster. This step won't take you long, and is VERY important for the next step.

3. Buy a home with your VA loan. The reason I put this last is because buying a house with a bunch of debt payments and no savings is just asking for trouble. Imagine if you bought a house first, and then 6 months later the furnace goes out and requires $5,000 to replace. You couldn't afford it, and you'd go even deeper into debt. But, imagine if you had no debt payments and $7,500 in the bank. New furnace, no problem!! No stress!!

5. At this point, you own a house, no car payments, no credit card payments, some savings in the bank, and extra money at the end of every month. How great would that be? You can do it!

Keep renting for now and let your landlord handle those big expenses until you have your debts gone and some savings in the bank. Otherwise, owning a house can easily turn into a nightmare instead of a blessing. Good luck to you!

First thing is to get an emergency fund, you should have this weather you rent or own property. Then purchase a house to live in. You save the $400 a month you are talking about and you start to pay yourself vs paying a landlord. You get the mortgage tax deduction, paying down your loan, and then hopefully appreciation. Add that money to pay down your debt, and be looking to consolidate your debt during all of this.

In a perfect world yes pay off all debt first, then you can buy your personal home, then start investing in real estate, but how long down the road is that going to be?

Thank you everyone for your wonderful feedback. This post is so very old. I have actually found a solution for this situation. I hope it helps someone else in the future.

Originally posted by @Shaniqua Dupree :

Thank you everyone for your wonderful feedback. This post is so very old. I have actually found a solution for this situation. I hope it helps someone else in the future.

 That's great to hear Shaniqua. Sorry, I guess I didn't realize that your original post was nearly a year ago! :)

How consolidation of the loan will lower your interest rates? Have you ever taken the advice of debt negotiating companies in this regard? In such a case rather than taking any step yourself, you must go for professional advice. This will save your time and you will also get correct advice. 

Source: http://www.debtpro.co/

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