Can you evaluate my plan?

Question

I have a wife and three kids, and I am 28. My wife is a stay-at-home mom but has her teaching degree. Once all three kids are in school, she’s going to start teaching at their school. One is in kindergarten, and the others are 3 and below. Long story short, I just got out of the military. I make just under $4600 a month from the military after getting out. I just started out as an electrician and only make $18 an hour. So give or take 80-90 thousand a year. As my pay goes up as an electrician, I want to wean off my military pay. In 5 years, the max pay for an electrician in IBEW is $52 an hour. Of course, in 5 years, it will probably go up.

My plan is to pay off my house as soon as possible using my military pay. Because I want to keep my family safe and not have to worry about ever losing a house for them. We are about to start building; we are currently in her mother’s basement, so no overhead. We have quite a bit saved up at the moment. After I pay off the home, I want to invest in multi-family or possibly build multi-family. I never plan on stopping work. This is for my children when I die.

I currently am not utilizing a 401k or Roth, etc. I have $18,000 in a Roth from the military, but I don’t know if I should roll it over or cash out (I can’t contribute anymore until I roll over somewhere else). Should I be utilizing my 401k my company has? They don’t match. Am I an idiot for not using it? Should I not use it and invest totally in real estate? Thank you!

Ryan Spath · Answer

Wyatt, congrats on starting out at your age, alot of us did not start unit after 30. Often times the longer we can hold off on gratification the easier things will be later.

You mentioned you were in the military, thank you for your service. Going against the grain here. Have you considered purchasing a multifamily dwelling with your VA loan that can offset your living costs? You may be able to buy a 2-4 unit and pay little of no housing costs....I know you mentioned you are about to start building, just throwing an option out there.

Nothing wrong with paying off your house if this is what you want to do, you can sleep better with no debt. You just need to look at the opportunity cost of the funds not invested and make the right decision for your family.

My family is 100% in real estate and cash. I used to be in the market and found that real estate is better for what we need.

You sound like a go getter, you should look up local meet ups in your area and surround yourself with people doing what you want to do. You have alot of time on your side. Investing in real estate in like planing fruit trees, the sooner you start the sooner you have fruit bearing trees that can feed you. This is not a get rich quick game, it is long and slow. It does not take tons of properties to replace income if you start soon and are patient, with 4 kids your days must be moving at warp speed (I have two daughters 4 & 7 and sometimes i don't know how they have gotten so old)

Im 41 we have a dozen doors in two states and have achieved FI from real estate. If you ever have any questions or I can help please feel free to shoot me a dm. Best of luck with your journey!

Sam Kahl · Answer

Hi Wyatt,

First of all, we share a few things in common: stage of life (raising a family: we have four young kids at home) and age (I'll be 30 later this year). I am in a very similar head space right now in terms of thinking about my family's future. It's a very exciting time but also comes with a lot of decisions!

I think your focus on having a clear plan on income is paramount. My financial advisor frequently says that in his experience with a variety of clients, it's far better to have high income and no assets (yet) versus a lot of assets but low income. There could be no greater investment in your financial future than in activities that allow you to increase or secure your income. Likewise, be careful with investments that take too much of your time away from income-earning potential (you need to especially watch this around RE investing).

Secondly, focusing on paying off the house you're in, while not popular with many in these forums who love their leverage, will allow you to not only secure your family's shelter but give you sleep at night, better cash flow month-to-month, and a much cleaner balance sheet as you pursue investments down the road. You don't have to do it all at once, and doing things in the proper order is going to be far better than taking chances with too much debt in an effort to accomplish all of your goals at the same time. As Ecclesiastes says... "a wise heart knows the right time and procedure".

As for your other investments, I think it's wise to have plenty of exposure to stocks in tax advantaged accounts like a Roth. I would do your best to max out an IRA for both you and your wife each year, but I realize that is a lot of money. Maxing out a 401k also works, but that's a bit more than two IRAs combined and I think it's easier to have an IRA versus 401k if you switch jobs. Certainly, I would at least contribute enough to max out any match your employer may offer in the future for a 401k - that's free money! (Obligatory disclaimer that I am not a financial advisor, just providing personal perspective)

I recently passed up a rental property for us because I think I have some better opportunities to put that cash to work in stocks right now with the recent market action. While the property itself was a decent investment in and of itself, I simply felt there were better returns in another asset class at this time. Look, I'm a real estate agent - so I naturally love to buy/sell homes, but that doesn't mean it's always the alpha investment at any given time for your particular circumstances.

Congratulations on your family and all that you guys have accomplished so far! You're young, and have a lot of life ahead of you. You are by no means falling behind and seem to off to a fantastic start.