Should I buy? Need major advice

Question

Short back story, my brother convinced me to start in real estate in 2020 right after I sold my house. Been looking (1/8 to quartered assed) for a couple years now. This just fell into my lap, by him…..

I completely trust my brother (just want to make that clear). He just bought this one side of a duplex, he was waiting for the neighbor to want to sell and try to buy the other half (older lady). He also owns a business and has lately been thinking to sell his business by next year and start something completely different. As you can see this fell into my lap, because as he was about to put it back on market he thought of me and asked me first. Of course I got excited and ran to the opportunity. My wife and I checked it out today and it’s small for us, 950 sqft. If it was just us, too easy but it’s not. I have my wife, 2 little girls (4&1), and just found out a 3 baby on the way. It’s 2 bed 2 bath with an unfinished basement.

I did the numbers and they aren’t great. Cash flow would be $111 and Cash on cash ROI would be 2.226% if I put a tenant in it (of course this is a guy that has never owned real estate property so number could be off). But if we live in it, the mortgage would roughly be $1,150. Which is totally affordable for us and we could fix it up a bit more.

The reason why I say all this is because I am transitioning out of the military after 9 1/2 years. Going from a very guaranteed paycheck to “I really hope someone hires me in the profession I’m looking into.” I’m thinking let’s move in and make this work for now, not a forever home, 3 years max (plus this is where she wants to live, this town and this school district). My wife left the house crying and said “don’t ever take me back there again.”

Am I thinking about this wrong or is there a better way to explain this to her? I want her to be on board and its hard for me to explain to her we can’t have the 2 story house with a big red door and a swing on the tree yet. It’s unfortunate but it’ll help us keep our head above water and get us into real estate.

Theresa Harris · Answer

If it would rent for $1150 and cash flow $111, I find it hard to believe your return would be 2%.  If you buy it, clearly it would be a rental given your wife's reaction.  I'll say it as I am a woman, but her strong reaction could also be partly due to hormones if she's pregnant, it could also be her thinking about a family of 5 in a 2 bedroom house.

Now is a good time to buy while you have your income from your current job. $111 cash flow may not seem like  a lot, but that is typical for many rentals with mortgages.  Tenants are also paying down your mortgage over time.

As for your wife, sit down with her and go through your finances now and where you think they will be a year from now and have a reality check.  Ask her what she wants to do and talk to a banker about what you can afford (don't let them know about the job change).  then look at a few places that are within your budget.

Steve Milford · Answer

There is something we investors call a "buy box". That is what you are comfortable with as an investment, all things considered. The buy box of what you and your wife want - needs to jive.

The question I have is, "Is your wife on the same page?" I am not trying to be a jerk, but if your wife and you are NOT on the same page with this investment, it is irrelevant how good the deal is - because if she doesn't believe in it then she won't be supportive. And she will let you know EVERY DAY - it will kill your marriage.

I would say that you have to figure out what she wants regarding stability, and you have to go slower, baby steps. With my first wife, I really wanted a house ASAP after marriage. I convinced her to buy, planned to stay a few years, but was bankrupt in 3 but able to stay 7 because they don't take your primary residence. We could never get on the same page regarding money, and thus we could never claw our way out. We finally sold, for bigger and better, in our minds anyway, but 2 years later were more broke and in foreclosure. We survived that by a miracle but within a few more years - we were divorced and with more debt than ever. My desire to save money and be an "investor" did not jive with her desire to "live today".

With my second wife, I really wanted to upgrade last year. However, I found that she had too many fond memories of where we live to "allow" a renter to move in and potentially ruin the place. She said no to every house I brought forward. Then a friend suggested I let her pick the house - and none has come yet, lol. I took a step back and just decided to change focus to fit the situation. Now I help others buy and sell homes, and do other projects for "cash flow". It has really worked out for the best.

Travis Kallay · Answer

Congrats on getting out!  I remember how tough it was for me and I wasn’t even married with kids, yet.

I see you have 2 problems not even related to your separation (other than the fact that you’re moving because you’re getting out). The first is your inexperience with real estate investing. The second is the distance between your wife and your vision of the place you’re moving into. Closing that gap is more important than making the first investment property purchase, imo. I’m not exactly the most experienced, myself, but I’ve bought 3 houses from completely different eras and I can say that it’s not easy when there isn’t even a short term profit in mind.  Making it a job would make it a lot more complicated when you’re really supposed to be defeating that big elephant on you that’s named “Going Civilian.”

I would say that your #1 priority is comforting her with a good, strong move to a location that she’s clearly indicated she likes. This may not be a permanent solution, but as you might have noticed with the other 2 kids, it’s about what she thinks is needed. Ask her and look around for what she wants, at least as close as you can get and afford. You’re already creating some instability by getting out and moving all at the same time, when she needs more stability. So, it may be a better move to invest in the kids’ space. If you push too much too soon, the stress could be way too high.

If you end up buying this place, make sure you have a couple sound exit strategies.  One that allows the property to not cost you money when you need that cash!  The other maybe being that it’s sellable if you need to offload it. So, I would make sure you can do that. Get that job you need and work in a good investment strategy after you’ve established some post-service roots. Believe me, man, I’ve been there. It’s hard to make a sales pitch right now, but the opportunity will come up if you prioritize the home front and establish some savings and/or develop a solid plan.

Abel Curiel · Answer

Hello @Wyatt Anderson,

Thank you for your service and congrats on baby # 3!

Do you HAVE to move or do you just really want to move into this to take advantage of the opportunity?

When adding closing costs, rehab costs, maintenance, cap ex, utilities, landscaping, hoa (if applicable), trash removal (if applicable) and other expenses, is this property still affordable?

To answer your question, I would incorporate projections/calculations in your explanation. BiggerPockets has some great rental calculators to utilize to explain the long-term benefits of the deal (i.e. rental income growth, equity from mortgage pay-down and annual appreciation, etc.).

Share the pros of this deal with her and highlight how much $ you expect to have saved after year 3. This way, she can be reassured that your plan is to find the big red door once you're all ready to move out.

With 2 young children and another on the way, it may be a challenging time to speak about this and get your point across - I had a rough time speaking with my wife about ANYTHING while she was pregnant.

That said, it isn't impossible but you might want to check out other potential deals nearby to compare to this one. If she doesn't want to set foot in it again, you may have to sit this one out but at least you'll potentially have her curious about other deals.

All the best to you and your family on this decision!

Abel

Wyatt Anderson · Answer

@Abel Curiel thank you for the reply!

Wyatt Anderson · Answer

@Travis Kallay thank you for the reply!

Wyatt Anderson · Answer

@Steve Milford thank you for the reply!

Wyatt Anderson · Answer

@Theresa Harris thank you for the reply!

Should I buy? Need major advice

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