Currently, me and my wife live in Smyrna, GA and we want to dive into the world of real estate investing. I recently read Scott Trench's book "Set for Life: Dominate Life, Money, and the American Dream" where we are trying to ensure we have plenty of true capital to ensure we can dive into the world of real estate investing without debt.
Here's our plan, right now we have a house worth roughly 400k with a loan at 300k. When we sell we will probably net 70k-80k after all fees are taken out, which we plan to pay off all our liability debt (student loans, cars, etc...) that totals to about 40k.
We plan to live in an apartment for a year to save extra money while we use the 40k to place on Multi Family properties in the area.
Overall, is this the wrong way to go about investing? Should we not sell our house? We figure by selling our house we can double or triple up on the amount of real estate we can purchase along with eliminate all our debt.
40k is a small pot to be playing with in MF. A general rule of thumb is to have around 10-15k in cash in case of emergency repairs for every property you have. This means only a 25-30k down payment for that property which will most likely only get you one around 150k. Of course a MF in that price range is absolutely possible but it will most likely be in a lower class neighborhood and/or need rehab. Just something to think about
Selling your 400k house is a pretty big first step in your RE career. Maybe someone can weigh in more on this subject.
OK, well I have said in the past: if I was starting from scratch, what I know now, I would live in my van,save up some cash, buy a basket case, live in it and rehab it, sell it or keep it as a rental, go back to the van, repeat until I had enough cash flow to eliminate the need for a job, then I would probably look at buying my primary residence.
That said: you're already married and probably live in a pretty nice house. What kind of tolerance does your wife have for living in filth for a long period of time?
PS: If possible, get rid of the other debt outside of the home value. Sell the cars, save up and pay off the credit cards, etc. That alone could free up enough money to get together a good down payment on a MF.
I purchased a SFH 4 years ago with the intentions of making it an investment property. Long story short it was a horrible deal and cash flow would have been very weak. My wife and I decided to sell property two years after purchasing. We made very little money on the deal. Our vision was to purchase a MFR and live in it, which we ended up doing. We did not have much money at the time (still dont) but now our unit is rented paying for the bulk of the mortgages leaving us with a $600/ month payment for a 4 bedroom 2 bath unit 25 minutes west of NYC. Our first property was a mistake, if we still lived in it right now it would be an even bigger mistake. At the end of the day living in a SFH got us nowhere, we took a major risk with little money and found a property that works. It was intimidating at first because renovating cost a large chunk of change but we figured it out and we made things work. Right now we are saving a large portion of money and have awesome built in equity. We came across many obstacles but we just looked at them as part of the journey. @Louis Pagan-Rodriguez I do not know what drives you or motivates you but if it were me I would sell and find a MFR. I made it work with little REI experience, I just have the drive to keep moving forward.
best of luck
Awesome info everyone and as moving forward with this approach seems to be the best option along with ensuing we have enough cash reserves to handle all the expenses that occur with properties (i.e. Cap Ex). Me and my wife are fully committed to our journey of becoming financially free and it seems that we may house hack (with a duplex) instead of just moving into an apartment. Our motivation stems from seeing our families live in poverty their entire lives and us wanting to have early financial freedom to provide back to our communities by breaking the system of generational minority poverty. Thank you everyone for the feedback!
Suggest put in the bank your savings until you have more savings to figure out what is best for you. Frankly what is saved is reserve funds for a family.
@Sam Shueh totally agree. My apologies the 40k is what we consider outside our emergency fund. Our breakdown of available assets are as follows.
Bank: $10k (emergency funds) plus the $40k (if we sell the house)
Stocks: $5k (index funds)
Retirement Savings: $5k (Roth 401k), 19k (Roth IRA), 9k (Traditional IRA), 10k (401k)
Possibly a townhome or condo to get a feel what is like as landlord. You need to have ~6 months cash reserve.
I expect a recession and home price erosion in ~24 months. Timing to get in is not optimum.
Not sure what the exact financial details are, but have you thought about refinancing and cashing out the $100K? You can either stay at your home or rent it out and use the post-debt paydown available cash to invest in.
Want to make sure you explore and exhaust all available options.
Hi @Henry Perez haven't thought of that yet as we are pretty new to this. Could you explain how we would go about refinancing and cashing out the $100K? Not too sure on how all the details work out.
As mentioned above, you can do a "cash out refinance" or "HELOC" to be able to keep the house and cash out the property's equity.
Got it and thank you everyone for the due diligence for a newbie. In our case we our looking to have no (bad debt) and want to avoid any further interest payments. Seems that our best option is to sell, get cash, pay off our bad debt, then use our extra savings after a period of time to hop on some rental properties using leverage. The cash flow from those new rental properties would be our new passive income since we would not have any bad debt.
@Louis Pagan-Rodriguez how is it going? I am curious to know how things are going. I would have suggested to continue working and throw everything at your debt for some period of time, this would relieve any stress that might arise if things don't work out right away. I hope.it is going well.
@Chris Lucero It's going great we are now (bad) debt free with a 3bd/2.5 bath townhome being rented out netting us $150 cash flow (after expenses). We now moved on to another SFH in a great area poised to increase rent along with appreciate over time.
Our plan now is to have our current house as a rental in ~2 years and then look for small multifamily properties to invest in during the interim. I have to say BiggerPockets helped us confidently make our decisions and along with align our strategy!
@Louis Pagan-Rodriguez AWESOME! would you be so kinda as to share what route you took. I have virtually no debt except my primary and my now 4 rentals are all paid off. I am looking to take my next step in towards leaving my 7-4.
You mentioned that you moved on, did you end up selling the $400,000 home or did you do some sort of refi?
@Chris Lucero our strategy for the time being is using leverage (5% down) by making our investment property our primary residence in up in coming markets where we are the "early adopters" of new construction that is in Phase I of development. Our next plan of action is to move towards B class turnkey (or minor) improvement multi-family homes that make sense numbers wise. We want to ensure that we are not over leveraged with our current strategy.
@Jack Moran we ended up selling while the market was hot so that we could alleviate all our bad debt and have plenty of cash on hand for investment purposes.
Is a $400k in your area an "average" home? You might consider downsizing- personally, I wouldn't consider renting an apartment. If you are looking to get started with limited resources, you are in a perfect position to house hack. Downsize, but a SFH or townhouse that needs some rehab that will cash flow appropriately when you move out, rinse and repeat. You don't need huge reserves to do that, you'll be paying living expenses anyhow, might as well pay yourself.
@Corby Goade absolutely not and we did the classic mistake thinking our primary residence was a lifelong investment for our first home purchase out of college. It was not until I joined the BP community when the light switched to where we realized we needed to sale in order to start our financial independence journey. You are absolutely right on downsizing where in the past year we moved to a turnkey town home ($200k) which now is nice cash flow rental and we plan to do the same with our current new construction SFH ($300k). There a certainly better methods to get better margin/cash flow, however, this is what is working for us. With us selling our first home we are extremely happy on being "bad" debt free (i.e. Student loans, car loans, etc...) as it truly lifted a tremendous weight off of us.
Your thread is awesome and I love your story - I only wish it had more views and inter-action for readers. Congratulations to you and your wife on creating a plan and then executing. That last part is the hard part and you guys did it. It also looks like you have continued to adapt your game plan.
I wish you guys lots of luck and look forward to hearing more. Best ~
@Louis Pagan-Rodriguez , sounds like you are well on your way! I always tell my clients that even an okay deal today looks pretty awesome if you sit on it for ten years. Unless a grand slam lands in your lap, I'd stay the course. Slow and steady wins the race.
Hi Luis my husband and I are thinking about doing the same thing. Everyone thinks were crazy for selling our home but you gave me more motivation!
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