Embarassed to admit this but here it goes.

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Embarassed to admit this but here it goes.

Heather Pelletier
MA · Member since 2008 · 199 posts · 1 vote

OK, here is is...It's time for me to get real and do something drastic. We are broke, I just went to the grocery store and needed to use my credit card. I have been married 11 years, we have 2 kids. I work part time, my husband works full time. Up until recently we have been able to make ends meet, crawling into deeper debt over the years because of our poor choices.

We hit rock bottom last year (which was a good thing) we almost ended up divorced, went to conseling and worked on our issues. We realized we felt trapped in our current life and decided together we were going to do what it takes to change our lives. We made a big decision to use our credit card to invest in some education together. We paid 16K for some classes in REI and are currently taking them together. We knew we wanted to invest in RE, it's always been our passion, something we always talked about but never had the guts to do. (that's what I mean by hitting rock bottom was good for us, it forced us to get out of our comfort zone).

Recently we bought our 1st investment property with a partner, a REO for 55k. We are working on it now, our budget is 40 K and we hope to sell if for 150K. Once it sells we plan on putting our profit directly onto our credit card to pay for the classes we are taking. We have stopped buying things we can not afford but we ARE living outside our means which is why I needed to use my credit card for groceries today. The cost of living has increased so much we are forced to use our credit card to buy necessities.

My question is, how many of you found yourselves in embarassing situations like this and were able to dig yourselves out? I never pictured our life this way. We have good jobs, we are educated and are very hard working. What should we do to fix the mess we're in? Do we move (I'd hate to move our children from their home), Do I try to get a full time job? (then we'll pay more for daycare and our lives will be very hectic. ) Do we continue "floating" and investing in RE and putting our profits toward debt? Seriously...we know we need to make changes but we don't know where to begin. Obviously we'd like to keep our home. Quite honestly, I'm willing to move buy my husband is not. I am open to your harsh comments. Like I said, we have learned from our mistakes and are desperately trying to fix it.

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  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    18y

    If you intend to dig your way out of your hole, you are currently digging in the wrong direction.

    If you don't have enough money to support your lifestyle, you aren't getting out of debt until you cut back on your lifestyle.

    If you ever make any money with real estate, which is a big if, since you sure sound foolish to me, then at that point AFTER you've made the money, you can spend it.

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  • Richard Warren
    Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
    18y

    I’m going to STRONGLY recommend a book to you. It is The Total Money Makeover by Dave Ramsey.

    http://www.amazon.com/Total-Money-Makeover-Financial-Fitness/dp/0785289089/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1214159988&sr=8-1

    You need to make some serious changes or you will be facing financial disaster. Hoping for a windfall to bail you out does not change the fundamental basics of your situation. The good news is that you can turn things around. Many years ago I went through some rough times financially and came out of it in much better shape. That happened because I made some serious changes to the way that I operated financially.

    You may also wish to read the following blog post:

    http://www.biggerpockets.com/renewsblog/2008/01/29/getting-your-own-house-in-order/

    8)

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  • Heather Pelletier
    OP
    MA · Member since 2008 · 199 posts · 1 vote
    18y

    I know we've been foolish, we have been making changes, reading books about improving your financial literacy and cutting back where we can. I guess the one thing we have going for us is the fact that we have learned from our mistakes and are willing to do what it takes to get out of this situation. It took a lot of courage for me to admit this to all of you but I wanted to hear from people who have been down similar paths. Perhaps you might think it's foolish to invest in classes but from our perspective we had nothing to lose. As far as the rehabbing project goes, we had the same philosophy...IF we don't do something different how can we expect different results? I know I said I could take your harsh comments ( and I can, please keep them coming) but I also reserve the right to defend ourselves. We are not bad people or stupid. We were simply uneducated when it came to money management unfortunately like most of america. As I said, we hit a rough patch in life which helped contribute to our financial demise with that being said...Live must go on.

    Rehab 702, thanks for the link, I appreciate it. I will purchase the book. First, I'll check our local library.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Loral Langemeier talks about the "fastest path to cash" when folks are in trouble. Rehabbing houses is a risky and long path, especially the first time. Spending $16K on a REI course if a very long path, and IMHO, most likely a waste of $15,980. Meaning you can probably learn everything you will learn in that class from a $20 book. Richard's "A Rehabber's Tale" for one.

    Honestly, I'd make every effort to get that money back. That would be a very fast path to $16K.

    What can you do to generate some cash quickly? Can you get a full time job? If you do, will it really pay? Or, will the commuting costs and day care eat up the extra income. Can you or your husband or both of you get a better job? Is there a way to take classes or get certifications relevant to your current line of work that will make you more valuable? Could either of you get another job?

    Are you treating this rehab as a second job? I just finished my rehab. I work full time. I looked at the time I had spent on the rehab for the nine weeks it took. I worked on it every Saturday and Sunday, all day, and two or three nights every week. In the end it totaled up to about 30 hours a week on the rehab and 40 hours a week on the day job. If I were you I'd do everything I can to get that baby finished up and sold, even if it means burning the midnight oil. You say you have a partner. I'm guessing that's a money partner. So, I'm guessing you're not paying hard money costs to hold the house. That's good. But, I'm also guessing your partner is getting half the profit. That's not good, and is probably a bigger cut than hard money would be. If those guesses are correct, your ARV is correct, and you stay on budget for the rehab (very hard) the profit looks to me like about 40K. If its a 50/50 split you stand to net 20K. You'll pay tax on that. So, it might just cover the money you spent on the course.

    After you get through all that, you may find it pretty tiresome. I certainly know I do. Rehabbing can generate cash, but its very much a job just like most jobs. It may well not be your best option for a income generating job. Its a lot of work, its risky, and its lumpy.

    Moving would be a big step. If you own, your costs to move are high because of the high transaction costs for a house. If you rent, its easier, but still not free and not easy. That doesn't seem like a good step to take unless it somehow generates a lot of savings. I heard a story on NPR last week where a lady said they had sold their house in the country and moved into an apartment near work. They mostly biked and walked. For them, the savings was worth it. For me, it would be nutty to try to move in order to generate any savings.

    Don't get me wrong. I struggle with this, too. I spend too much. Its really easy. No matter how much money you have coming in, if you don't control the spending, you'll always be in the hole. Making more money isn't a solution, though it can help get out of an immediate hole. Controlling spending is the real answer.

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  • Heather Pelletier
    OP
    MA · Member since 2008 · 199 posts · 1 vote
    18y

    Hey Jon,

    Thanks for your reply. As far as our partner goes he is getting half the profit and is doing half the work. We are definately treating this like a 2nd job. So far we are right on track. Our real estate agent said we could probably sell the house for 170K but we are doubtful of her estimate. Our goal was to make enough $$ to pay for our classes.

    As far as the classes go, I guess we thought if was a good move. The last class we took was in wholesaling and we have taken many steps to get up and running. We have a web site set up and we will focus on this 100% after the rehab is finished. Perhaps we were naive but the founder of our local REIA invested in these classes and said they have paid for themselves time and time again. We have 2 more classes lined up, creative financing and a lease option class.

    I agree, spending is all of the problem. We really were OK until I was injured and out of work for quite some time. Then my husbands overtime at work was taken away and gas prices went up as well as groceries, ect. Now it summer and paying for daycare is what is really killing us at this point. Up until now we didn't have to use the credit card for staples like groceries. This is what made me want to write this post. I

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  • Mark N.A
    Real Estate Investor · North Carolina · Member since 2008 · 1k+ posts · 483 votes
    18y

    Heatherp,

    There's some good advice here, and I hope you know we all wish you well.

    A random thought or two:

    You seem willing to invest in your education and that is great. But REI is a 'get rich slow' strategy. And it's damn hard. And it's not for everyone. Although at times it may seem that your competition seems to be 'everyone'.

    What if... you invested in alternative education? Nursing quickly comes to mind because you can get your RN in two years from a community college; plus, as an RN you can make excellent money working nights, or weekends, or part-time. Leaving you time for family and real estate, while earning good money.

    There will always be RE deals out there for you. But put your own 'house' in order first and build a solid base to grow from.

    Let us know how everything turns out. And best wishes.

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  • Aly W.
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    18y

    I don't know what your interest rate is on the credit card, but you might consider getting a loan from your credit union to pay it off. I had credit card debt many years ago and needed to take a loan from the credit union to get rid of the debt...twice! Sometimes it takes a little longer to learn when you're young and foolish :)

    After that, it was all about saving more and spending less. That's hard and painful to do no matter what gas and food prices are. You simply have to cut back or find less expensive ways to do things. Shop at warehouse clubs, use coupons, buy store brands, shop for food *with a list* and stick to it, brown bag your lunches. Trade neighborhood babysitting for one less day at day care or less hours at daycare. Ask for a better rate there...sometimes just asking for a better price will get you one.

    As for spending $16K on real estate classes...well, the generous folks on BP are a wealth of information, there is the library, many web sites, and local REI clubs. Don't spend more money to learn about real estate...save the money and get out of debt.

    And there are always second and third part time jobs..

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  • Tom NA
    Real Estate Investor · Mountain View, CA · Member since 2008 · 234 posts · 32 votes
    18y

    Very brave of you to post about your predicament, Heather, knowing that it provides an opportunity for people to pile on and tell you how poorly you have managed your money. I'll try to keep it as constructive as possible as you need help, not a lecture. That said, here are some of the common places where people spend money that I would look:

    1. First and foremost, any possible way to get back any of that $16k - that's your best bet at a big win. In an attempt to keep it constructive, I'll just state that in my opinion, you would have been just as well off betting it all on one spin of the roulette wheel in Vegas.
    2. Do you have cable or satellite TV? If so, drop it.
    3. I assume 2 cellphones for the family? No need - 1 max or live without like we did for many years. I know it sounds like sacrilege, but we all lived without cellphones 10 years ago and somehow we all survived.
    4. High speed internet? Use the library unless you truly have the need.
    5. Buy groceries and perishables in bulk; store brands - it all adds up.
    6. What type of car(s) do you own? Can you trade down?
    7. Vacations? I would put a hiatus on these for the near term. Visit local friends and family instead.
    8. Magazine or newspaper subscriptions? Not necessary.
    9. If either of you are smokers, I know that's very hard to overcome but a lot of money gets thrown away on that habit.
    10. Find the lowest rate credit card possible or as someone else mentioned, perhaps even a bank loan - whatever can get you the lowest cost of money. Once you start paying interest charges on a Credit Card, watch out.
    11. Take a critical look at your housing situation and sell/move if it makes sense.

    Good luck.

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  • Heather Pelletier
    OP
    MA · Member since 2008 · 199 posts · 1 vote
    18y

    I appreciate all of your kind advice, we have made many cut backs and are continuing to look for other ways to save $. I don't think we'll be able to get our $ back from the classes, I've heard many people in our same situation say it's near impossible. I will say, we have learned a lot from our classes and continue to do so. As far as continuing my education in nursing goes, that's very ironic. I already work in the medical field and while I was at the seminar I was saying I was thinking of going to nursing school. A man at our table encouraged us to sign up for these classes, he seemed very knowledgeable and said we need to learn how to invest our $ not make more. So...that's what we did. (and no, he did NOT work for the company) I think part of the reason I decided to post was to admit this to myself. Kind of like standing up in an AA class, acknowledging what you've done and making a promise to the world that you will get out of this situation. We are young and I do believe we can get out of this. Some people never learn but I believe we have. Yes, it sucks but we have our health and our desire to make things better. One of the good things is I am no longer afraid, I almost lost everything that was important to me last summer (my family) now I am willing to risk everything to change our current living situation. My husband and I finally have a common goal and interest and are allowing ourselves to dream again, to me that is worth more than 16K.

    Is there anybody who has turned their lives around for the better? Is there anybody who found themselves in a similar situation?

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  • Minna Reid
    Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 632 votes
    18y

    I got into a major financial situation just last year and got to where you are today. I'm still digging myself out of that mess, but have managed to get on top of it and soon will be able to invest my money again.
    However I had to reorder my financial priorities and you should do the same-
    1. Get enough coming in to continue to support your present lifestyle FIRST.
    2. Set aside enough reserves to get through say a 3-6 month period.
    3. Then and only then start using the extra to invest and pay off debt.
    Its really very simple and makes sense to do it in that order but that doesnt mean we all do it or dont try to take shortcut somewhere.
    When you start investing money while youre living off credit cards you're setting yourself up for disaster. One wrong move or unexpected expense (or layoff, or medical problem, or legal suit, or new baby, or new roof, or whatever)and then what? The credit cards are maxed, and you already cant pay your bills and theres no reserves.
    You'll have bigger problems in no time.
    And let me tell you how much banks today like to give you money if you're maxed out or have a high DTI (even with good credit).Not happening.
    Tell you what I WORK all the time lately. I have three jobs right now (realtor, contractor and i have a sales job) and am still constantly trying to generate other streams of income. And I am a single mother with two kids. Don't ask me how I found the time, but it had to get done and if thats what it took, well so be it. It feels good to not be hanging on the brink of financial ruin. And very soon I can invest again.
    Just not before I know that I have it all else down first. I'd suggest the same.

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  • Heather Pelletier
    OP
    MA · Member since 2008 · 199 posts · 1 vote
    18y

    Thanks Minna,

    I appreciate your kind advice. Your story is one of inspiration and I plan to impliment your stragety into our lives. I never thought of putting 3-6 months of living expenses aside BEFORE I pay down my debt, it does make sense and it's great advice. It's nice not to be judged on our past, a lot contributed to our financial demise and I'm not making excuses but we did what we needed to do to get by. I admit the 16K on classes was not a necessity but something we felt would only help improve our financial situation long term. I have yet to find out if it was worth it, only time will tell. We are taking our classes with much enthusiasm and are working hard at changing our future.

    Thanks again,

    We really appreciate it!

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  • Tom NA
    Real Estate Investor · Mountain View, CA · Member since 2008 · 234 posts · 32 votes
    18y

    I also want to thank Minna for giving some advice as someone who's been there. I know that's much more meaningful than someone like me suggesting a bunch of things that I don't do myself because I've been more fortunate. I also want to wish Heather the best of luck as she is obviously taking in the advice and trying to improve her situation vs. focusing on why she can't.

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  • Heather Pelletier
    OP
    MA · Member since 2008 · 199 posts · 1 vote
    18y

    Thanks TBone!!!! That means a lot!!!!

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  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    18y

    You've misunderstood me. I don't think it is foolish to invest in real estate. You've over-paid for your education, but education is a good thing.

    I think it is foolish to not even have money to eat, yet to not look for a full time, and even a second, job to increase your income.

    I think it is foolish to stay in a house you can't afford just because you don't want to move-- you've got a very good chance of losing that house.

    I think it is exceptionally foolish to buy groceries on your credit card. If you don't have money for food, cut back. You can buy a 25 pound sack of dry lentils for $8 and that is enough food to feed a family of four for almost a month. Give up the goodies until you have money to pay for them.

    Credit cards are for convenience, not to support your lifestyle when you don't have any money to pay for your needs. If you don't even have money for food, how are you going to make that credit card payment?

    I suspect you are ruining your credit and you are going to have a very difficult time being a real estate investor without good credit. If you want to invest, take care of your credit score-- and that does not mean charging a bunch of stuff you can't afford and have no way to pay for on your credit cards.

    Turn off the cable. Turn off the lights. Have the land line cancelled. Learn to eat economy food. Be careful how much you drive the car. Find cheaper housing. No more new clothes. Cancel the kids' cell phones.

    Get back on your feet, get your new business going to the point that it supports itself first, and after that you can take some money out and maybe return to your previous lifestyle if you earn enough to pay for it.

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  • Heather Pelletier
    OP
    MA · Member since 2008 · 199 posts · 1 vote
    18y

    Thanks PNW,

    Thank goodness this was the 1st time I needed to put our groceries on credit cards, it was a wake up call for me. We've been able to pay all of our bills every month and our credit score is 778. I have asked my employer to give me an extra 8 hour/week at work which will help tremendously IF it's approved. The good news is yesterday we found out my husbands overtime is available again which is HUGE. If he does one extra shift a month that will make things MUCH better. You're absolutely right about cutting back on groceries, I need to do that. What's hard for me is I agree about cutting back on everything 100%, I don't know how to convince my husband to give up some of these luxeries. I've mentioned cancelling the cable, he thinks it's a sin. I need him to realize how dangerous this situation could potentially be on his own as I have. I've talked to him about this but he seems to think it will magically get better. I need to talk to him again and tell him how serious I think this is.

    Thanks again!

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  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    18y

    Heatherp, fingers crossed for you and wishing you the best of luck.

    You certainly aren't the first to be in a tight spot. It's hard, but you can get out of it, all you have to do is to make the effort. It's surprising how many will just watch their life slide away without doing what it takes to stop the damage.

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  • Aly W.
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    18y

    Heather, you make a good point about convincing a spouse to get with the program. That's a really difficult challenge. You're on the right path, but you both have to be on it to make this work. Giving up cable sounds painful for him.

    Maybe you can suggest a dollar value goal to cut back each month, and then together figure out a mutual cutback to achieve that goal? It's easier to deal with a number than a thing. Give up cable? No way! But ask him to find a way to save that $100 a month? You might be surprised.

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  • Tom NA
    Real Estate Investor · Mountain View, CA · Member since 2008 · 234 posts · 32 votes
    18y

    It sounds like you have your work cut out with your husband. If he can't make a rational decision between putting food on the table and having a luxury such as cable tv, well... good luck. Keeping your head above water is one thing but without some serious sacrifices, how will you ever help the kids through college or finance your own retirement and healthcare when you get older?

    I think Aly is right, if you set a target, I suspect you could find all kinds of ways to save money. I know if money ever got tight for me, I could very quickly find $500-$1000/month and then some that I could cut out almost immediately and it would hardly have an effect on my quality of life.

    Sorry, I know that this post, like many of mine, is more Finance 101 than Real Estate 101 but honestly, I feel like there are way too many people on this board (and in this country) that don't even know the basics about money which to me should be a minimal requirement to even getting into Real Estate.

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  • Heather Pelletier
    OP
    MA · Member since 2008 · 199 posts · 1 vote
    18y

    This post is about finance 101 and I know I am not alone. It is hard to change your lifestyle, I can understand what my husband is saying. There are things I don't want to give up either but sometimes what doesn't kill you makes you stronger. Thanks for all of your support and suggestions.

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  • Catherine Coy
    Lender · Huntington Beach, CA · Member since 2008 · 154 posts · 30 votes
    18y

    Heather, there have been a lot of platitudes tossed about here, but the practical reality is that you need money now. Going to nursing school and other time-intensive suggestions are not going to get the job done and that is to get money--not more education--at this time. Since you need to make money now, you may as well figure out a way to make it in the real estate business--for which you already have a passion.

    I suggest you become a negotiator for a short sale investor. With short sales becoming so commonplace, you should be able to find someone in your community for whom you can perform the grunt work involved in short sale investing. When you find that person, he or she will either train you how to work with banks or ask that you get yourself trained. If you need training, you can either get it here or I'll send you a short sale investing course. (I would, however, prefer that you find someone local to mentor you.) Then commit to spending two hours a day in learning how to negotiate short sales.

    You can work from your home on a card table in the corner of your bedroom. The last thing you need is a job that requires car/gas, daycare, etc.

    Once you learn the rudiments of short sales, you can graduate to finding a property of your own to short sell for larger profits.

    Best wishes, Heather. Here's another platitude: it's always darkest before the dawn. :wink:

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  • Account Closed
    Tucson, AZ · Member since 2008 · 945 posts · 45 votes
    18y

    I agree with all the above, esp PNW's suggestions. ("...If you don't have money for food, cut back. ...buy a 25 pound sack of dry lentils for $8 and that is enough food to feed a family of four for almost a month. Give up the goodies until you have money to pay for them...
    Credit cards are for convenience...Turn off the cable. Turn off the lights. Have the land line cancelled...eat economy food. Be careful how much you drive the car. Find cheaper housing. No more new clothes. Cancel the kids' cell phones.")

    One action that I have not seen suggested here is not only what kept us afloat but has enabled me/us to be in the position(s) I/we are. (which is really pretty fantistic, considering everything.

    Tithe. I strongly suggest you begin tithing now. Give the FIRST One tenth of your income to that place that you see is doing the Lord's work--not necessarily a church or a ministry.

    It's difficult until the results are seen. Give it a few months, and see if things don't improve for you.
    The basic rules are:
    Give the FIRST 1/10 (before any other bills are paid).
    Give anonymously, ( I used postal money orders without my name).
    Give joyfully.

    Best wishes to you.
    Edited to add that all the time even one kid was home, we were either WAY below, just below, or just above the poverty level. We always used the free gov food giveaways just to supplement the rice.
    For a long time, we didn't have electricity because I couldn't afford it. After the second one left for college, my wages still did not increase much above the poverty level, and now I had her expenses plus college loans as well as my own living expenses.
    tithing is what kept our heads above water and paid the bills.

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  • Catherine Coy
    Lender · Huntington Beach, CA · Member since 2008 · 154 posts · 30 votes
    18y

    That's how I tithe...through my taxes that go to social entitlement programs. It's not voluntary, but ....
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  • Brice C.
    Real Estate Investor · Oroville, CA · Member since 2008 · 107 posts · 2 votes
    18y

    Frequently in life we have the butch and sundance situation.
    Take a leap of faith or die.

    It sounds like you were there..............Just remeber that all you need is a roof over your head food in your belly and a family you love.

    What else in life is needed or important.........NOTHING

    so if you lose everything it is a lesson life has thrown your way.

    You just keep getting up dusting yourself off and getting back on the horse until it is broken.

    Your best bet is to find a mentor. Unfortunately most people today do mentoring with the expectation of lots of pay up front.
    I learned this business through the school of hard knocks as well as paying for mentoring.

    just remember 1 in 4 millionaires in the USA come from real estate investing.

    So once your there remeber to give back.........

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  • Heather Pelletier
    OP
    MA · Member since 2008 · 199 posts · 1 vote
    18y

    You guys are all great, I appreciate the support tremendously. I agree, pick yourself up, dust yourself off and start all over again!!! My mom used to sing that to me when I was little and I still live by those words.

    As far as the advice on tithing goes...Can I give my time instead of a monetary amount at this point? My dream is to give generously to cherity, I just don't know if now is the time to start giving away $ I don't have. I do believe in karma however money is tight right now. Does that make me selfish?

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  • Catherine Coy
    Lender · Huntington Beach, CA · Member since 2008 · 154 posts · 30 votes
    18y

    I think your time counts as tithing.

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