All Forum Posts by: Shawn Q.

Also the methodology on the study seems a bit thin. No way of telling if these numbers are just from their company, or aggregated from somewhere else. And really the number in this case doesn't matter. They're tracking who is paying to move in and out of the state. What you really need to worry about is overall population growth/decline and household formation. 

I would strongly consider 'house hacking'. Buying as an owner-occupant adds a lot of financing options, and allows you to buy HUD homes, which can be pretty stellar deals.

Mine pay for everything themselves, except for sewer. Champaign requires that be paid by the property owner. You might want to check with your utility providers to see if there are any special issues like that. At least here, that information is printed right on the bill. 

@Kate Johnson it really depends on the lender. My lender credited 85% of the income on a signed 1-yr lease against the PITI mortgage, but another lender I dealt with required 2 year seasoning on rental income. So it really depends, and it's worth checking around.
Based on the numbers you've stated, though, I don't think you'd have trouble supporting a second property in the eyes of a lender, especially if they credit a signed lease against the mortgage expense. I'd check with a mortgage broker in your area - that would probably be the best way to get access to the most lenders. Look for a realtor in your area that works with investors and you'll likely get a few recommendations for brokers that can work with you. 

I agree with @Joe Villeneuve - spend a few months learning (it never hurts). 

My path would be to stick the funds you have for investment in a brokerage account in low-cost index funds. Put any excess payments you would be making to the mortgage into that and let it grow. While it does, take 1-3 months to educate yourself. Listen to the bigger pockets podcast, go to open houses, and start analyzing deals. You're in St. Louis, which will likely be a good cash-flow market, so no need to go elsewhere. Once you've analyzed 100+ deals you'll know your market cold and you'll be able to recognize a screaming deal when it hits the market. 

Personally I'd focus on finding a small multi (1-4 units) for a house hack, or buy a HUD home undermarket to live in as an owner-occupier. Live there for a year, sell for the tax free gains, repeat. But there are as many strategies as there are investors!

I would plug your current home/financials into the rental property calculator. That will give you a good idea whether you'll make money there. 

As for buying and keeping your old house as a rental, I think it's a fine idea. I did it myself. However, I wouldn't restrict yourself to a short sale. I like HUD homes for an owner-occupant, but because you'll be living there you'll have more options. If I had it to do over I would aim for a small (1-4 unit) multifamily to live in and rent out the rest.

One issue you're likely going to have is financing. I would work with a few banks (or a mortgage broker) to see what you can do. Your current mortgage is going to eat up some of the income you have available to finance a purchase. If you can't get a loan, your plan is off the table. 

After running the numbers and seeing what loans you can get, it might make the most sense to sell your home and use the proceeds as the down payment on a 4-unit. You get a new place to live and really jumpstart your REI journey that way.

Good luck!

Don't forget to add in capex (major system replacement - roof, appliances, windows, HVAC, etc). If you're including that in your repair estimate, then that number is way too low. 

@Joe Splitrock - I can see your point, but taxes aren't much of a concern for me at this point. I think Scott's point (now that I get it) is a really good one. Until you're at the point where you have $100K in financial runway, you don't need to worry too much about taxes, you need to worry more about being nimble enough to take advantage of opportunities. 

Like the example in the book I make $50K a year. If I can live off $25K I can have $50K available savings in two years. If I contribute fully to the Roth, I'll have $39K. That $11K can be a down payment in my area (or whatever example of an additional income-producing opportunity you'd like). It's more important for me to be able to use that $11K (plus whatever I earn on that $11K over the course of saving it) to further grow my income. After all, at $50K if I double my income I still fall below the limit for a single person investing in a Roth, and I know there are many ways I can earn much more than $100K and still manage the tax bite. If (when!) I get to the point where I'm stable and in financial freedom, then I can decide to manage tax risk for the future. 

The other point, which I think is a subtext to Scott's reply, is one of focus. This is a very One Thing idea, but if your goal is financial freedom as Scott describes in the book, then Roth investing before you've achieved that goal is a distraction. And anything that distracts from your goal should be eliminated. 

Seems like the answer in this case is one of balance: how are you balancing your progress toward your goal against your tolerance for risk, or at least that's the way I'm currently thinking about this thanks to this thread. Very glad I asked the question!

@Scott Trench - I think (maybe!) I'm getting what you're saying. I'll paraphrase, and please let me know if I'm close - ultimately you're saying the Roth's limitations increase opportunity cost risk because you don't have the freedom to deploy the gains in the Roth toward anything that has a chance of radically increasing your returns. So a Roth only allows a negligible increase in investment gains over a brokerage account (investment choice remaining equal), but you sacrifice the ability to use those gains for anything that can make a meaningful improvement to your life right now (at least until 55)? 

I just finished @Scott Trench's Set for Life (as you can no doubt tell from how often I reference it) and I had a thought/question I'd like to put to everyone. What do you think about using a Roth IRA as a component of the savings vehicle for the $25K-$100K initial steps? Any of your contributions can be withdrawn without penalty, the money would have an opportunity to grow, and there would be a tax advantage to your contribution. I know the limits are fairly low per year, but the rest of your savings could go elsewhere.

As long as I'm aware of and accept the risk, is there a downside to doing this I'm not considering?