Embracing debt at a young age

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Embracing debt at a young age

Travis Emerson
Madison, ME · Member since 2017 · 23 posts · 6 votes

I'd like to get some opinions on debt. I'm 23 and have 6 figures on school loans, which don't bother me a bit, matter of fact I refinanced them from 12 to 20 years to free up cash for REI (cutting my interest in half) and maine offers great tax breaks with school loans in my line of work.

I plan to house hack a 300k modular 4-plex this fall using an FHA 3.5 down. Adding my new truck into the mix that brings my debt total to around half a million at the age of 24. After I live in the 4-plex for a year I plan to buy a house I'll stay in for 10-15 years and will most likely spend 250k, bringing my total to 750k now at the still young age of 25. I should add I have a 6 figure income to support all this as well. Soon after the house, once I have the funds, I will buy another modular 4-plex, this time with 25% down. So I should be about 1 million in debt around the age of 27.

Some may ask why spend 300k on a new modular but the area I plan to invest in is the out skirts of a college town that's expanding and all my competition is new construction. (not relevant to the debt conversation)

So my question is, am I out of my mind here? I read a great book "the value of debt in build wealth" that changed my way of thinking completely about debt. I am not scared of debt at all, after all, my tenants with be paying it all not me, but I still can't help but think that taking on all that debt and then some before I turn 30 is crazy. I have to imagine though with a lot of the stories I read on here that this isn't necessarily uncommon?

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y

Wasn't going to comment because it appears you have it all figured out and won't be open to the comments of others anyway, but I just can't help myself...

Extending the term of a loan from 12 to 20 years does not 'save on interest'.  It costs enormously more interest in absolute dollars.  The new and short sighted say it would save because their payment is less. The wise ask how much. Broke renters ask how much per month.  Think in decades.

New cars early on are a sign of immaturity and insecurity.  Impressing people at a stop light you will never meet. Is that the goal?  How about when you roll up and your future tenants figure you dont need the rent obviously, driving a truck like that.  What will that truck be worth in 5 years? Early on we can't afford a $20k hit to our balance sheet. What could you have done instead with all those payments?  Opportunity costs.

Anyway, enjoy your 20yr student loans and truck payments.  I'm way on the other side of al that but don't expect you to listen to me either.

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  • Travis Emerson
    OP
    Madison, ME · Member since 2017 · 23 posts · 6 votes
    8y

    @Thomas S.

    I'm not going to disagree with you or be silly enough to think I could never loose my job, although there has never once been a period where Marine Engineers could not find work. I work away from home 6 months a year, opening up thousands of jobs all over the world without up rooting my life in Maine. The US government actually even employees thousands of civilian marine engineers with a near endless demand. In the last recession my line of work was booming, better than it is now actually. I could also work at a variety of basically any power plant across the country.

    As I said I'm not silly enough to think its not a possibility, of course I could get hurt or who knows. That is after all why I am trying to get started REI in the first place, but I am very confidant I'll have work over the next 10-15 years. Shipping is a unique line of work with endless possibilities.

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  • Benjamin Haberman
    Real Estate Broker · Ocean View, NJ · Member since 2014 · 188 posts · 82 votes
    8y
    Travis- you have a plan. Do it. Jump in. Most people your age don’t have a plan to do all of this, and most of them won’t do it. They will just hang out on the sidelines their whole life. It’s game time for you. I give you props because you are young and you have legit goals. I can’t say I agree with the entire strategy, but that is irrelevant. You have to live it to learn it. Read rich dad. Focus on eliminating the personal liabilities with your personal cash flowing assets. It’s really that simple. Good luck dude.
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  • Travis Emerson
    OP
    Madison, ME · Member since 2017 · 23 posts · 6 votes
    8y

    @Benjamin Haberman Thank you!

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  • Linda S.
    Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    8y

    @Travis Emerson,

    Debt is a tool for wealth,  but only if use correctly.   Personally,  accepting good debt was the hardest mental challenge for me.   If your debt is for income producing assets, it's good-- it will pay for itself!    You make good money, you have a good truck, and house hacking sounds like a great idea!    Especially if it's a multi-family!    You're getting overwhelmed with thinking 5 years down the line-- look at next week, next month-- how will you make this work?   These are big numbers to you now, but in a few years, they won't be.        Do you have enough reserves?  Since it's just you, and it is a lot of debt payments, you will need a lot in reserves ready.    If you go at it with a strategy and a plan, it's not scary, but you NEED this.   Determine different scenarios, and make sure your bases are covered.    I'd personally pay off the truck ASAP,  you'd probably break even at that, so I say just pay it off ASAP.   

    Also, since you are young, see if you can take some technical training classes.    Learn basic plumbing, basic electrical, basic HVAC-- that knowledge will save you TONS in the long term!     Find a good mentor who you can learn from.   You NEED a mentor IMO, for when you're freaked out (ie: now) -- they can calm you do and reassure you, or explain why it's a bad choice.    I probably called mine twice a month with different situations for the first year.    Good Luck!

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