Paying off debt prior to investing

[Tyler Northrup]

Currently I have a plan to pay off all debt accept my home prior to investing in real estate. I want to focus on Single family homes around $50,000 which I plan on paying cash for. Basically I would live off of a single income (my wife's) and put all of mine towards investing. With this method I would be able to purchase one home per year. My end goal is to quit the 9-5 and live off of my investments; however at this rate it is going to take years to accomplish especially since we will not be debt free for another 2.5 years, meaning I will not purchase my first investment property for another 3.5 years. All of this stems from Dave Ramsey which I'm a big advocate for. I know there are other discussions on here about him and paying cash for investments. I realize the difference between good and bad debt and will possibly still use some financing for future deals but overall it will be cash. I guess I'm just curious on other opinions/ advise on how to go about this and if it's a viable option. I don't want to wait years before investing yet I want to be out of debt and have financial freedom. Have any of you bought properties this way?

[Cindy Szponder]

I love Dave Ramsey and think he has helped a lot of people get back on track financially. That said, I believe his audience is people who have run into serious financial problems due to a lack of basic financial knowledge and money/personal management issues. One advantage to financing your properties is that the rate of return is much higher and you have less money at risk. You can also purchase more properties. That said, start slow with one property and get used to managing that property efficiently and well. Set up cash reserves for each property so that when repairs and/or vacancies occur you won't be put into a tailspin financially. I like to have six months of mortgage payments in the bank as a backup. Sounds like you have the financial wherewithal to begin investing and I'd recommend you do so. If you can afford to live on one income and invest with the other, you'll figure out a way to invest in real estate and pay down your personal debt, too. If you haven't already done so, read The Book on Rental Property Investing from Bigger Pockets. They outline 4 strategies for building your portfolio safely and realistically. Much success!!