Cash Management Help to Fund Next Property Acquisition
Hey BP Community,
Recently graduated and have been in the working world for just under a year now and am seeking advice on how I should be allocating money. My goal is to acquire my next property in the next 3 years. Further context below:
Current income is around 82.5k.
Assets:
- 10k in a ROTH IRA
- 15k in semi-liquid investments
- 12k in cash
- 2.5k in a 401k
Liabilities:
- Mortgage of 197k on my current unit
- 1k in student loan and retail debt
I am currently house hacking in a 2 bedroom condo. My company offers a decent matching program, but I am wondering what % I should be putting away for that? I am currently allocating 10% pre-tax to the 401k but considering bumping this up to 15%. I am also taking 10% of after-tax income and routing that into a savings account to have cash available for my next property.
At this point, I would like to buy one unit in a triplex and build enough equity to purchase the entire triplex. How would you allocate the income to prepare for this? Is there anything I should be contributing to that I'm currently not?
Happy to hear any thoughts, similar stories, etc.
Thanks!
The real question is how much cash -- after all expenses and retirement contributions (Roth, 401k, etc) -- are you able to save each month? Take that number and extrapolate if you'll have enough after 3 years of saving it in cash to put towards your next place, if not, maybe it's worth cutting back on those retirement contributions; though personally I think contributing to a Roth is a no-brainer. For your 401k, it's always worth contributing up to the match. I would just eliminate the $1k student loan and CC debt for peace of mind.
What is your budget for the next place? Have you spoken with your lender about how what sort of financing options would be available for your second property? I ask because your DTI may be too high for 80-95% LTV financing, though if you have a lot of equity in your existing property you could leverage it to purchase your next one.
"I would like to buy one unit in a triplex and build enough equity to purchase the entire triplex." - I am a bit confused by this statement. If you buy one unit in a triplex of condos, how would go about purchasing the other owned units? What if someone doesn't want to sell? Or are you talking about owner-occupying a triplex and renting the other two units out?
I would consider delegating all of that $12k cash as your emergency fund, as surprises tend to pop up when owning real estate, less so with condos, but there are still plenty of variables that can disrupt your financial growth.
What is your holding period for the $15k in semi-liquid investments? Are those long term investments you won't touch until retirement or will they supplement your down payment? If they're "semi-liquid" (private REITs?) I would look into the difficulties and time needed to liquidate so you don't cause any delays in the (future) closing process.
@Elliot Rudmann is right on. Pay off the 1k in consumer debt. I would contribute to your 401k up to the point to get the full match of your employer. After you've done those two things then just figure out your budget and see how you can save or cut in certain areas to help accomplish your goals.
