brand new member, question about starting out.

Starting Out
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brand new member, question about starting out.

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Member since 2008 · 1 post · 0 votes

Hi, I'm a new member, and I'd like (probably need) some advice.

My girlfriend and I are thinking about investing in real estate. Our idea is to buy relatively cheap condo's and renting them to students.
We've only just bought our own house, and lacking a down payment we needed 100% financing. I still have a lot of credit card debt to pay down, before I can even start saving for a down payment for an investment property. Our plan is for me to pay the credit cards down to a comfortable level, and then send money to our principal as much as we can.
We will then get a home equity loan to use as down payment for the next house.
I'd want to keep the loan to less than appraised value of our current house to keep all interest tax deductible.
The question is, is there a compelling reason why this would be a bad idea?

Thanks for your input.

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  • Calixto Urdiales
    Residential Real Estate Agent · Los Angeles, CA · Member since 2008 · 1k+ posts · 9 votes
    18y
    Originally posted by "dutchie":
    Hi, I'm a new member, and I'd like (probably need) some advice.

    My girlfriend and I are thinking about investing in real estate. Our idea is to buy relatively cheap condo's and renting them to students.
    We've only just bought our own house, and lacking a down payment we needed 100% financing. I still have a lot of credit card debt to pay down, before I can even start saving for a down payment for an investment property. Our plan is for me to pay the credit cards down to a comfortable level, and then send money to our principal as much as we can.
    We will then get a home equity loan to use as down payment for the next house.
    I'd want to keep the loan to less than appraised value of our current house to keep all interest tax deductible.
    The question is, is there a compelling reason why this would be a bad idea?

    Thanks for your input.

    Well Yes!

    Time is of the essence my friend and your young for so long, so by doing that your making things a lot harder on yourself! Imagine that it would take you a good four years to get to where you need to buy your next house: what could you have done in those four years? If you and your girlfriend work together you can find that it is easier to obtain a down payment than it may seem. If you can bird-dog a couple of deals a month and wholesale some too you will find yourself in a better position than you are right now! Thank you for your time and have a wonderful biggerpockets day, you can two links below that I think will help.........

    Wholesaling Forum:
    http://forums.biggerpockets.com/viewforum.php?f=93

    Making Deals & Bird-dogging etc. Forum:
    http://forums.biggerpockets.com/viewforum.php?f=69

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  • Richard Warren
    Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
    18y
    Originally posted by "dutchie":
    We've only just bought our own house, and lacking a down payment we needed 100% financing. I still have a lot of credit card debt to pay down, before I can even start saving for a down payment for an investment property.

    100% financing is not so easy to get anymore. You should probably put your investment plans on hold for a little while until you pay down those credit cards. How will you be able to handle unexpected expenses, vacancies, etc. if you don’t have any reserves? What you are looking to do could very well be a path to financial disaster. Spend some time educating yourself and create a plan for getting out of debt. Time is on your side, use it wisely.

    8)

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  • Account Closed
    Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    18y

    dutchie,

    1. I think you have the tax rules wrong. It is not that critical so I will let someone else figure it out.

    2. You really misunderstand the debt side. Do not focus on paying down the mortgage while you have credit card debt.

    If you pay off the cards you likely will lower your cost of funding. You also can deduct the interest from the mortgage but that is not a benefit. Nice but not great. More important is liquidity. If you pay off the card you likely can use them if there is an emergency. If you pay down the mortgage you might be able to get the cash out with a HELOC but you still will need to leave some equity in the home (a HELOC is rarely 100% LTV).

    3. Focus on finding deals you can flip to others. While 'waiting' for the CC debt to be paid down you are (a) learning to find deals, (b) making small lumps of cash when you assign a deal, (c) building your network of contacts for future deals.

    John Corey

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