First Time Home Buyer Advice

[Eric Lyles]

Hello Everyone,

I'm 26 years old. I'm from Sacramento, CA, and I am new to Real Estate Investing. I've been reading and listening to multiple topics here on "Bigger Pockets;" it's amazing how knowledgeable individuals are and how much they're willing to share to help the next new upcoming investor. That's a huge reason why I decided to make a profile after many days and nights looking over the information that is provided. This community makes a huge difference and definitely sets up the individual for success. I was hoping to get words of wisdom as I move forward in purchasing my first property. I'm an open book and I believe that giving you the details of my financial situation will let you see the whole picture. I'm currently unmarried with no kids. I work at Comcast Corporation as a full-time employee, and my annual salary is approximately 60k-70k (overtime included). I've been working at my company for 3 years now, and have a lot of room for growth. I will continue to work at my company while investing in real estate, considering my work schedule is a set 4 day 10 hour shift(Sun-Wed). I have a lot of time on my hands when I'm not working or volunteering for overtime at work. I think it helps in a way with real estate.

I've always been on top of my finances, it's something that I enjoy doing actually...yes..I like paying bills haha. It's just an OCD thing that I have when it comes to sorting out the bills. I have 5 credit cards to my name, all of them have a zero balance because I pay them off monthly. Each of them have a purpose to my life which includes; gas, groceries, restaurants/bars and emergency. I've been told that a high available credit limit could look bad on my part when applying for a loan. Here are the cards and limits for each one, will I be okay? Amex( Unlimited), Amex (5,000), Discover (23,400), Golden1 (8,000 oldest), Chevron (3,000). I also have an installment loan to my name, which was one of the biggest financial mistakes I have ever made which couldn't potentially prevent me from getting approved for a loan. Its a 35,000 dollar car loan that I'm aggressively paying down. My monthly payment is 580, but I just started paying 1,000k a month because I realized buying aftermarket parts for the car isn't giving me any type of return, it's just a hobby. Performance cars have set me back to where I threw away 25k within 3 years, which could have been invested in real estate. I try not to beat myself up about it, I've learned, and now I'm here to invest it into real estate which matters. I would also like to add that I track my credit score weekly: my Equifax (767), Transunion (764) Experian (760). Aside from my Revolving and Installment payment, the only other monthly expenses I have is rent which is 786 along with my utilities. I just started building my savings account with a total of 5,000 dollars as of today. This is the overall picture of my finances.

As stated in the subject, I am a first-time home buyer and my goal is to buy a multi-family as my first property. After looking at every aspect of real estate, I've been attracted to the cash flow side of it. I'm hoping you guys can guide me in the right direction before making a decision on buying property. Is there anything I need to work on? Is there something I said above that could possibly prevent me from accomplishing my goal? Is Sacramento not a good area for what I'm trying to achieve? I have so many questions, and I never know who to ask, but now I know where to go =)

Thanks to the Bigger Pockets Community!!!

[Wes Blackwell]

@Eric Lyles

Building off of what @Chris Mason has said, that car payment is really hurting your purchasing power. There are only 7 multifamily properties in Sacramento priced below $225k. But there are 31 priced under $310k. 

Depending on the rents you might possibly qualify for more, but you get the idea. Your options at that price range are going to be severely limited, and likely either in a state of disrepair (won't qualify for FHA) or not somewhere you'd want to park that pretty ride of yours haha.

But don't knock yourself for having an expensive hobby you were passionate about, we've all had those (and some still do!). You probably got a lot out of it since you started and made a lot of friends along the way too. 

If it's something you've outgrown or are no longer interested in, consider selling the car and getting rid of the expense. I know that's pretty drastic, but even if you could just sell it for what you owe you'd free yourself up of a lot of debt. 

In the book The Millionaire Next Door I believe there's a part that talks about the kinds of cars most millionaires actually drive. And the basic premise is why go spend $50k on a new car (depreciating asset) that loses value the very moment you drive it off the lot when you can get something used and reliable for under $10k? 

You could get a 10 year old Toyota with less than 125k miles on it for less than $5k and it's super reliable. Sure, it feels like you're driving a couch instead of a rocket, but it's already taken all the depreciation and you could probably buy it cash. So that makes for no car debt, and now you can drop down to liability coverage and reduce your monthly expenses even further.

I've found that the more you get into real estate investing, the more it becomes a lifestyle rather than just an investment. But you don't have to become a penny-pincher, simply make some better financial choices. If you do, your portfolio will continue to grow and one day when you have $10k per month in passive cash-flow you can drive whatever car you want :-)