Newbie from Annapolis, MD

[Tanner Henry]

Alright guys, after being stubborn and beating my head against the wall on dozens of potential scenarios I have decided to seek out some help from those that have been down the same road I am about to venture down.

I am 33 years old and my wife is 30. In 2 years we will be moving from the Annapolis area back to my hometown of Indianapolis metro area. We have made some poor financial decisions and we are scratching and clawing our way out of debt now while raising two girls under 24 months. We are moving for the obvious reasons: cost of living, slower pace of life and better school systems for our daughters. We will be selling our townhouse here and after closing costs I am estimating around $35k in pocket.

When we move we will be renting temporarily and then looking to buy a house that will be in the ballpark of $175k. We will keep this house until 2021 when my wife's student loans are paid off and another $1k in disposable income becomes available plus our daughters will both be out of daycare and in school. At that point we will be looking to build and the house will be sold to free up monies for the new house. The mortgage for the new house won't be an issue by itself but I don't want it hindering my plans to buy and hold real estate investments.

My questions lie in how to best utilize the $35k. There are some near south/southeast Indianapolis areas that are being revitalized. You can still find 3 bed 2 bath houses with 1/4 acre for under $80k. My thoughts are to buy the $175k house with minimum money down and pay the PMI, then use the remaining funds to put down on a cheap rental home on a 5 year mortgage.

The information I have been unable to find is if additional payments are able to be used on a balloon mortgage. Are there advantages/disadvantages to doing this? I would love to have the first rental home paid off prior to building.

I have a goal of owning enough real estate properties by retirement age to give us a passive income of inflation adjusted $12k/mo.

[Christina R.]

Originally posted by @Tanner Henry:

Ryan,

Thanks for the reply but I married an only child. Do I need to say any more? ;)

This is from an only child, who is the child of an only child (mother)....

use leverage to the best of your ability. You need to repair your credit because good credit opens a lot of doors with real estate investing. I HATE debt but that mindset enabled me to build an extremely high score that, ironically, I now use to leverage my credit cards for real estate (this is something I do and wouldn't necessarily recommend it to anyone as you have to be extremely disciplined to do this effectively). You also have young children and believe me the costs only increase with them. I would get the debt-monkey off my back. Keep the 35K liquid, continue paying down your debt as you are now.. .build up that credit score because unless you paying cash for th entire build, you're going to need good credit score for the banks... kick the money you pay off debts with towards your house build or some other liquid fund. As far as investing, get involved with your local REIAs and meetups. Build relationships and over time you'll have people willing to invest in you -with their money. You'll have the knowledge on how to do it right (BRRRR or another rinse-repeat strategy). Ask me how I know... :-)

Good luck!