Realistic Real Estate expectations?

Question

Hey everybody,

I've been researching/reading up on everything REI for the past Month or so. I'm super excited about starting, even went to look a distressed houses in a neighborhood I might like to invest in.

Here is something I more intently started thinking about just today (Little late, but I was still in the dreamer phase of REI). Is it realistic for me to want to start this year? The reason I ask is because I have a good amount of debt.

Currently, I'm a master's student and have around 50K (70K by next year) in student loans (I don't have to start paying on this till I graduate ~2years, but does still gain interest at around 5.4%), just bought my primary residence 114K, have Car debt 18K, and my fiance (we get married in March) has about 55K in debt.

50 + 114 + 18 + 55 = 237K all together currently.   257K if you include future incurred student loans.

Currently I have about 4K in the bank (I expect to go down to 2K when the wedding is over), and I can realistically save about $500 a month currently with a job paying 50K/year before taxes.

Once I really start to think about the amount of debt I've amassed, I start to get discouraged about the financial possibility of investing soon . Anybody have any similar situations and made it work? I'd really love to hear them :)

Account Closed · Answer

Hello everyone, I am a new REI as well and I also have a similar question. Though I have no debt, mine is more about how much in savings you need? I decided to start my new career in long term holding rental properties instead of flipping, in pursuit of the financial freedom aspect of it. I have one very important question that has been on my mind and would like to get cleared up before I jump in with both feet. At the moment, I put aside about 40-60k in start up capital to start this new venture and I am wondering if that is actually enough to make this a viable business that can sustain my life and pay all my bills? I have decided to sell my current company and go full time into REI, but in order to do so, I would need to at least make a minimum of 50k-100k a year.

My main question is this... say for example I am looking to invest in du or triplexes and I found one that I would like to start with that is around 100k and will need 20% down(20k). After running analysis I find out that the cash on cash flow will be around $300 a month. This means that essentially I would need to have 14 properties in order to make enough cash flow to support my lifestyle and pay my bills. I understand that, but what I am having trouble with is the amount of cash needed for the down payment each time you purchase a new property. If I did need 14 then it would mean I would need around 280k in cash. Going with this formula it seems that it would take years before the properties where generating enough cash flow to save and buy another. That is why I am starting to wonder if after the first property am I able to use the equity as the down payment? Also, is it better to just buy larger properties with higher rent instead of multiple properties with lower rent? Before I jump in with both feet I really would like to get a strong understanding of this. Any advice is greatly appreciated. P.S. I am also in the process of joining a local REIC, but I wanted to try and get the answer before then if I could. Thanks again.

Dan Genzel · Answer

Been where you are at.  I enrolled myself in college, paid for it by working part time and started buying dupes and 4's.  It's all about how bad you want it.  Find 25 people with $10k laying around and your off to the races.  Boil it down to simple things like that.

Paul Honen · Answer

@Shane Baganz - that is some pretty good advice, I have been going to the REIA meetings, they only meet once a month which isn't really enough for me, so I've been doing a ton on my own. I think BP might be a good place to reach out, I think I'll make a post about that :)

@Russell Brazil That is impressive, I don't think I will be moving to a higher income area anytime soon since I just bought my first house. I've been going through some extra budgeting to try and reduce my debt footprint. Car will probably be the first thing I try to pay off.

@Michael Evans I'm glad you pointed out the difference between Bad and Good Debt. I currently take full advantage of my employer retirement contribution to my retirement. I think paying off my car first is a good idea before I truly commit to taking on more debt, I'll have to run the numbers on that.

@Dan Genzel wholesaling does seem to be more and more a logical choice to my situation. I here it is a full time job some I'm wondering where I can fit it into my current work and school schedule. If you have any tips on starting out doing that I would love to talk to you through private message.

Dan Genzel · Answer

I would start by wholesaling.  I always recommend that people get their real estate license way more benefits than negatives - earn fees and learn real estate (not how to buy and sell).  Also the people I met in class 20 years ago are friends to this day and we do deals together!

Also find the right mentor!  It will shorten your learning curve big time and give you quicker success

Michael Evans · Answer

You need to focus on getting your financial house in order first before you focus on real estate investing.  There's good debt (mortgage and student loans) and bad debt (auto and consumer).  Focus on paying off your bad debt first and foremost.  You also need to make sure you have an emergency fund. Once you've accomplished those two things, now you can focus on investing.  You're good debt is actually an investment.  Your primary residence is an investment and your collage loans are an investment in yourself (and you income ability).  If you have an employer who matches your retirement contribution, then you want to make sure you take advantage of that free money.  Next you want to max out your pre-tax retirement contributions, then your tax-free contributions (ROTH).  You can establish a Self-Directed IRA that will allow you to invest in real estate using your IRA (has to be setup right and managed properly via an IRA custodian).

This is a very brief, down and dirty overview of getting your financial house in order.  Do some research on personal finance.

Stay Blessed!

Russell Brazil · Answer

I had about  $60k in debt when I finished school in 2003. I think I was able to pay it off by about 2008. Learn to budget and save, get a side hustle to make some extra money and just focus on that debt reduction. It's completely doable. Your debt will seem smaller too if you move to a higher income area so you can pay it down quicker. I lived in Boston and DC when I did so. ( I still live in the DC area)

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