100k in the bank and 100K in debt

42 Replies

Hello all! This is going to be a rather long post, but I am very perplexed on what I should do with my very current/upcoming situation.

Long Story Short, for all intensive purposes I am about 100K in debt

6k left on car loan-$225

3k left on a personal loan used to pay off a delinquent student loan-$230

7.5k personal student loan-$90

49K unsubsidized student loans consolidated at navient-$150

29k Subsidized student loans consolidated at navient-$100

I got that degree though! lol Monthly payments for all combined total $800 per month

Another long story short I was involved in a very bad accident with a tractor trailer and will receive after lawyer fee's and medical bills paid somewhere in the neighborhood of 100K. Sometime in the next 7 days

A little about me and my situation. I currently work for a State Government Department in Law Enforcement (Ohio) and have done so for the past 5 years. I make approximately 45-47K a year. I have read finance books and real estate books, I received my Real Estate License in September of this year (Ohio) and am now along with my full time job a realtor at a Brokerage. Just starting out trying to build clientele and income to help assist and hopefully do this full time along with investing.

I make all of my payments for each of these loans every month and on time.

I have read that  successful and wealthy people buy assets, receive cash flow , and use that to pay their liabilities. I am really at a loss as to weather I should take all the money and pay off debt and be debt free, or pay off half the debt and invest the other half making money on it and use that to pay down debt or Use all the money for investments and try to gain as much leverage with it as possible using it to pay off debt. Many options out there, I am ready to start investing in real estate, and I could use a portion of this to really get me started.  There are also lots of money market accounts offering 2-3% interest rates. On 100K thats about 2-3K a year. There is the stock market. There is Hard money lending. 

The Car loan and the person loan (total 9K) are flat, the interest is pre determined and included in the loan paying it off early will not save me any money . They are paid directly from my check and come out every month as long as I continue at my current full time job that will be guaranteed to be paid every month. Kicker is I hate my job it is a very stressful grueling un-thankful job, and I want out badly very badly. But I have Health, dental, and eye insurance to consider along with everyday bills that I have been viciously working towards lowering every single one of them. My current monthly expenses total Just under $1950 which includes all debt payments and everything you could think of to live on.

My initial thoughts are.... Pay off $50K of debt (car, personal loan, personal SL, and Subsidized SL) Freeing up about $580 dollars per month. Keep my current jobfor 4-6 more months in order to secure financing. Also using the remainder of money for rehab and down payment on a possible live in single family flip, or a duplex. Left over money put into an account for 6-12 month emergency living expenses.  

 I am open to all possible ideas and suggestions. I am looking for feedback to consider. I feel I am finally in a situation where financial freedom is close and I don't want to make a grave mistake. I want to be able to make the best decision possible that gives me the best chance at achieving financial freedom and or following a career that I don't despise.

I do apologize in advance if people find this post ridiculous or annoying for mistakes or lack of information.

 Thank you

Others may comment on the finances, I don't think it matters what you choose to do, so I would prefer to touch on employment.

Based on a possible down turn in the economy in the next couple of years giving up a solid paying job for real estate sales may be a grave mistake. The grass is not greener. You are in a position similar to many in that you do not appreciate what you have. The purpose of a job is to trade your time for money to allow you to do what you want in life. You need to change your mind set and when you do it will no longer be stressful or grueling. Go to work, put in your 8 hours while thinking and planning your investing and receive the financial reward of a paycheck. You also have a opportunity to change jobs. Giving that up could be a mistake.

Concentrate on the money not the job.  

Hi Gerry,

I'm new to BP and am looking to start investing in RE sometime next year. The reason for me is that I want to be debt free besides my mortgage before I start investing. I am following Dave Ramsey through baby step 3 at which point I'll be saving money like crazy and conservatively using leverage to build my portfolio. I also HATE my job but I'm looking at it as a means to build my portfolio. 

IMO once you become debt free you will have the freedom to either stick with your current job and save for investing like crazy or move to full time realtor with 1000% less stress. 

Jason

@Jason Belovich

I appreciate the reply and understand the thought process, Dave Ramsey's program is a great one and wish you the best of luck.

@Thomas S. I appreciate your response and understand the idea that you are trying to put across. I can understand giving up a solid paying job in the Mid West is very risky for most, the pay check is very nice and most people would be glad to have a job with that salary. As you pointed out  which I think I should do is to take a lessor paying job  or something part time to cover the bills and supplement income through real estate. I do respectfully disagree to the comment of not appreciating what I have. especially from my upbringing. I wasn't very detailed in the work I do as it does not really pertain the the post. Lets just say the time I trade for the paycheck, isn't just 8 hours, it is life threatening line of work and over all life span shortening. Average life expectancy for my line of work is 58 years old, far cry from the 82 year U. S. average. And most people would take time over money.

Again I appreciate your input

Sincerely

Gerry

in order to do something you have never done you have to become someone you have never been.

@Gerry Harris in my opinion you have to weigh in happiness. I too despised my job, it was terrible. I quit my job to go back to school to become a professional pilot and now I’m about to start working on my real estate license for Colorado. My wife and I are moving out there before kids to just have an adventure. Sure, we could stay in TN and work crappy jobs and save or we could chase happiness and career simultaneously. We love the outdoors so that’s why we chose Colorado. She just became a licensed nurse practitioner and I’ll be starting in real estate, even though job security for me won’t be strong in the beginning we decided that we would use it as a way for me to learn more about real estate before we start investing. I also decided against full time flight school which is what I was going back to school for because I can’t stomach the idea of adding $75k of student debt to our already $50k.

Thank you @Nathan Recchia I agree happiness is key to a good life which is the goal. I can see how 75K of extra student loans would be hard to stomach. I wish you and your wife the best in your career and happiness endeavors! Any recommendations on what options to consider with the money/debt/finance options?

Don't quit your job till it starts costing you money. When you start losing money because you could make more being a realtor full time or flipping full time, then you quit.

You'll need that job to get loans on properties. You should be able to do a few (at a minimum) flips, rentals, etc. before the job gets in the way. Same with being a realtor. Show houses on evenings, weekends, etc. Being an agent takes years to build a business. You could eat up your nest egg while you're trying to build that book of business. Right now the market is lousy with agents too. Anybody with a pulse is an agent and presumably making an ok living at it. When times are good, it's easy. We're coming up on the times when it won't be so easy to be a new agent, at least in my opinion, and many will fall by the wayside. 

 I know you feel stuck, trapped, and you hate the job but quitting now or even in 4-6 months is a huge mistake. It also sounds like you don't have a track record and I can tell you that there are many pitfalls along the way when you're just getting started. Make all the mistakes you can while you have a nest egg and a day job. I'd say 1-2 years is best case scenario before you can quit, IF we weren't in a slowing economy. Not sure what your market looks like but mine looks to be slowing and I wouldn't want to leap into a no job situation in a slowing economy/market and not have a track record and already have income producing assets or have proven you can make a living on flips or commissions. You will likely have a hard time getting loans without the ability on paper to repay them. Sure you can get a HM loan on the strength of a project but if you have to refi and rent because you can't sell a flip, you're not getting a loan without a W-2. That's a grave mistake. Once you're in biz for yourself, banks want to see 2 years of PROFITS as a biz owner before they'll lend on the strength of the business. 

If I were you, I'd only pay off the things that are stupid high interest rates, like 12% and up. Cash is king and instead of going out and borrowing money at 8% or 10% or 12%, paying points, filling out apps, and dinging your credit to do a project, use your own cash. Don't pay off an 8% car loan to go and borrow money from a bank at 8% to do a flip. Plus, if you do this right, your projects should make you more than 8% on your money anyway and you can churn it twice in a year if you can do two projects in a year with the same cash. 

If you don't live in a multifamily and aren't house hacking, that'd be my first step, as long as your spouse is on board. Live in flips are ok but unless you're a single dude with no kids, I don't recommend them. I've done two. A fixer upper would be ok but I don't recommend something too drastic to live in if at all avoidable. My first purchase was a quadplex I house hacked and it was the absolute best decision I could have made at that time. You want to cut your living expenses, that's the place to start. 

You're a smart guy, you'll be successful but you have to get your head right. Quitting any time soon is a mistake. Get your own MFH bought, do a couple projects and learn a few lessons, get a few commissions, then reassess. Maybe you can switch jobs but even that could hurt you on the loan front. Lenders want to see 2 years in the same line of work so even if you went and got a job in construction, which wouldn't be a bad move, banks may not approve you since your line of work changed. That's how it used to be, maybe someone else can chime in here. I had a job I hated and took a big pay cut to leave and went into construction and loved it. It also helped my investing career in the long run but it was a struggle financially for a couple years as I took a near 50% pay cut at first and it made getting a loan till I had two years of W-2's in the same line of work very difficult. There are always ways to get money and loans but it's another hurdle to think about. When I made my transition, lending rules were much looser. If you absolutely can't stay at the job longer than 6 months, at least buy the MFH now, cut your living expenses, and pay off any stupid high interest payments you have. Then look at getting another job that has some flexibility and you don't hate but still covers your bills. Flexibility is key. When something pops up on the MLS you want to be able to run out and see it same day if possible and have an offer in that afternoon.

Sorry for the novel here but you have a great opportunity and I can hear the passion in your words and I've been in a similar position. I don't want to see you screw it up! 

I'd do a hybrid.,

1) payoff the car and the small loan.  this frees up 400+ of your 800 payment spend, without sacrificing much of the 100K

2) buy a duplex to live in, put 25% down and live for free. if you own an SFR, turn it into a rental as well or sell if it doesn't cashflow.

3) keep the rest of the capital for future purchases, but keep the job for now and now focus on paying down the debt with extra money from your job.

4) if you do decide to change jobs, roll your 401k into a self directed IRA and it can own a property too.

@Troy S. Thank you so much for your advice and the novel! I appreciate every word of advice and it will not fall on deaf ears. So much of what you said makes sense, and I will hold on to the job as long as I can. I will for sure hold on to the job until after my first purchase, and hopefully my second. I cant promise keeping the job/career for more than 1 year. But with all of the knowledge you have graced me with I will put in double the time and effort to make sure before I go I have some ducks in a row. You gave me great insight and I truly appreciate your breakdown and advice. 

The paying off debt just to get more debt at the same interest rate makes a lot of sense. Much to think about

I have been trying to get on some other finance sites for more opinions on possible options for it.

I do have a 401k through my job and I am very curious what I should do with that when I do decide to quit.  

Thank you again! wonderful advice and great information to help me take into consideration.

@Maurice D. That is solid and sound advice and something along the lines of what I was thinking. very much appreciated!

Think "minimizing" your payments by getting rid of the larger ones and minimizing your housing costs.  This gives you a solid and safe foundation to ride out any potential downturn while you focus on the college debt and any career retooling/new job transition.

earlier this year I did something similar and setup for a much better 2019 :)

@Maurice D. I also have another dilemma up coming which is my better half wants to be back in her home town of Houston Texas by start of 2020. lol leaveing me job changing and needing to get my RE license in Texas and rebuild clients. but before that happens we have discussed that she needs to secure a RN spot at a hospital down there, thus giving us at least one decent income.

Thank you for the added tip of the roll over I was wondering which account would allow me to roll over and own property.

The only issue with house hacking is I already have such a minimized payment now because of the route I took. I live in an apartment with my gf and a co worker, A very cheap apartment, although small it works. i only Pay $240 a month for rent, utilities, water and cable and internet. So most of the deals I am looking at wouldn't actually change or minimize my outgoing expenses, but it would build equity.

Any who, greatly appreciate the input sir! Will def take it all into consideration

Thank you

@Gerry Harris hey Gerry if I was in your situation I would pay down high interest debt, put a down payment on a 2-4 plex or something you can “house hack” to cover some or all of the mortgage. Then use the rest to go after the niche in real estate that draws your interest.

If this were me, I would invest thr 100k in something that will help pay your monthly debt payments. if you can, use it as a downpayment for a rental.  Over time the rental will kick off more cash and if you buy correctly, it will also appreciate.  This way you keep that 100k and make it work for you. 

@Gerry Harris putting a dent in your debt is definitely a very good choice to make. I would not quit my job to do real estate at least not right now. I would keep my job and if over the next couple of years real estate begins to exceed the amount that you make at your job and you're good at saving and budgeting then leaving your job may be an option however, quitting your job soon after beginning real estate may put you in another financial bind. I hope everything works out for you!
@Gerry Harris let me give my opinion as me and my wife were sort of in your position as far as the debt and what not. Depending on what your plan is if it were me. I would find a 2-4 unit preferably 4 unit. Put 3.5% down fha and occupy one of the units. Now depending on where your debt to income ratio falls I wouldn’t right now start paying off debt just yet. Get a property first then start paying the balances that have the highest monthly payment off first. Why? Because the monthly payment amount is what effects your debt to income when you go to finance a property. Get the property first then figure out how to pay the debt off. Don’t spend 50 or 100k to be debt free just yet if you don’t have too.

There is good debt and bad debt. Some of your debts are awful, with very high interest rates. Pay those off. Keep the two biggest debts because they're cheap, and then you can use the rest of your $100k as a down payment. 

Do NOT quit your day job until you've got some RE experience. Make sure it's what you want to do, make sure you're actually good at it, and make sure you can get financing. Use your provable income and remaining cash as a down payment on a house hack of some sort (BRRR, maybe) so you can get experience with rehab and landlording. Once you've checked that off, reassess and plan your next step.

@Mark Swain Thank you for the input this is for sure a very likely possibility. Paying down High interest debt would be ideal versus the debt that isn't causing me so much harm.

@Mary Mitchell I also though about this, I think I can accomplish this and also pay some debt off. Thank you

@Bernice Washington I agree quitting my job right away is not ideal and could cause some other stress. The only issue I have with keeping it for years is that it hinders me from expanding in real estate as for 45 hours a week I am unable to have access to my phone or outside world. Thank you for the well wishes.

@Remone Randolph I liek this idea very much, maybe I shouldnt rush to pay off the debt. and see what  smaller amount I can use for an investment before I make an decisions about paying it off. Thank you Remone.

@Gerry Harris plan right and you should be okay. With that said, I would recommend you put enough money aside to cover your expenses (including all payments) of at least one year. In your case that would be about $25k but let’s say it’s $30k just Incase. So now you have $70k at your disposal. With that, find a duplex but quad if you can and then use part of $70k to use for $20% down payment. Live in one of the quadruplex while renting other there let’s say at $650-$750 depending on your market. Your job in law enforcement will provide you with opportunity to get leg up in offers and better loan rates. Time this to happen by June 2019. Goals without deadlines are just wishlist. At the same time first six months of 2019, grind hard to develop your real estate career and then before end of the year you will see if leaving your current job is feasible. Scale from there and the good part, you will still have about $30k-40k left in your account.

@James Free I guess I should have listed my interest rates. Considering my car loan and personal loan are through a credit union that does not charge compound monthly interest on principal liek typical car loans . It charges 1 flat interest rate from the beginning of the loan and wraps it in for 1 total amount. So my loans through them are set, I dont save any money by paying them off early.

Interest rates for personal student loan is 7.75% and the other 2 big ones are 5.65%

I agree with your 2nd part in its entirety. Especially the reassessing part.

Thank you!! 

@Gerry Harris

The first thing you need to decide is if you're disciplined enough to use the cash-flow you intend on buying to build wealth. Whether or not you should quit your job is irrelevant until you can look in the mirror and honestly believe that you have the right mindset to become financially free. 

To be frank, you should already be out of debt. $45k/year is ~$3,750 per month. Even if you were in a 30% tax bracket and took no deductions, you still have a surplus of money each month after living expenses. Had you put that surplus towards your debt, over the 5 years you've been working, you'd be debt free. What makes you think more income is going to change your life if you're not already in that mindset? 

If I were you, I'd put that $100k you're getting into a CD, even if it made 0%. Figure out how to pay off your debts, with the income and expenses you already have, and make it automatic. Once you've become disciplined enough to live like that, then you can decide if you're ready to invest or pay off debt. But until you're mentally ready to not look at the cash-flow as income, but instead a catalyst for wealth, I don't think you're ready. 

Again, not trying to be rude or anything, but I think you're putting the cart before the horse.   

@Al Pat I like this idea and will consider the monthly expenses to get a better numbers. Agreed goals without deadlines are just a wishlist!

Thank you for the sound advice!

@Gerry Harris I would pay off all of the high interest loans. Pay as much as you can and save a big chunk for a down payment. However I would keep the money in the bank until you find a property you are interested in. If you’re using a bank, they will tell you what debt should be paid off in order to close. I would make paying off debt your priority. Once you’re debt free you are in control to quit your job and do whatever you want. I currently work in LE in a maximum security psych center. I work countless hours of mandatory overtime. I hate my job. I have paid off my debt and own 6 apartments. I am going to use my job to grow my portfolio. Once I am able to live financially independent I will quit my job. My goal isn’t more money, it’s freedom. Good luck to you !!
Originally posted by @Trey Brown :

@Gerry Harris

The first thing you need to decide is if you're disciplined enough to use the cash-flow you intend on buying to build wealth. Whether or not you should quit your job is irrelevant until you can look in the mirror and honestly believe that you have the right mindset to become financially free. 

To be frank, you should already be out of debt. $45k/year is ~$3,750 per month. Even if you were in a 30% tax bracket and took no deductions, you still have a surplus of money each month after living expenses. Had you put that surplus towards your debt, over the 5 years you've been working, and you'd be debt free. What makes you think more income is going to change your life if you're not already in that mindset? 

If I were you, I'd put that $100k you're getting into a CD, even if it made 0%. Figure out how to pay off your debts, with the income and expenses you already have, and make it automatic. Once you've become disciplined enough to live like that, then you can decide if you're ready to invest. But until you're mentally ready to not look at the cash-flow as income, but instead a catalyst for wealth, I don't think you're ready. 

Again, not trying to be rude or anything, but I think you're putting the cart before the horse.   

 This is a very well said thought. Not rude at all and I appreciate the advice and looking outside the box, to some of this there is truth. The only problem is that 3 years ago when I was involved in a car accident, I was making more like 40K a year, not much of a difference I get it, but 6 thousand is about $300 extra a month. I was forced to purchase a new car and inquire more debt at that time. Doctors visits and co pays and some travel, plus time off work are all costly I also was in a different situation living with someone else and scraping by to pay bills. About 2 years ago I changed my outlook and started focusing on exactly what you are talking about. I lowered all monthly bills and got out of my previous relationship and changed living locations. To be able to afford to make all my payments with extra money left over every month. I have saved up a nest egg for an emergency, Dave Ramsey says $1000 then start throwing the rest at debt, I felt more comfortable with $3000 just in case. So now over the past 12 months I am in a position to throw my surplus at this debt. and have been doing so. You are correct it is a mindset and thank you for reminding me of that. 

I needed that! 

Sincerely

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here