Want to invest but not in great financial situation

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Want to invest but not in great financial situation

Brent B.
New to Real Estate · Charlotte, NC · Member since 2018 · 19 posts · 5 votes

Just started getting interested in real estate investing and was curious about your guys' thoughts on next steps for me.

Here is my situation: Two of my friends are interested in partnering with me on a house hack in about 6 months. My worry about getting in now is that I have $21k in student loans, $14k in a car loan, $6k in a personal loan, and $6k in credit card debt (I was dumb with money in my earlier 20s) for a total of $47k in 'bad debt.' I'm currently 29 and make $100k annually from my job. I have minimal savings but could save some $ over the next 6 months for the down payment. Or borrow from my 401k as a last resort.

I guess my question is, do you think I have too much debt to get in the market at this point or is it better to just get in now? I have gotten better with managing my money, am no longer growing my bad debt load, and have already paid a significant amount of it off.

Thanks!

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Jason Powell
Beaverton, OR · Member since 2014 · 118 posts · 119 votes
7y

@Brent B. This is a situation where I would throw math out the window and focus purely on behavior for now. If you're serious, you need to go on beans and rice for about 2 years, and then you'll be in a super solid position to invest, grow quickly, and never look back. Year one, you should be able to knock out about all the debt. Year two, you should be able to save enough for an emergency fund and FHA loan down payment for your OWN property. Partnership for you is a cop-out for wanting to invest while broke. You've got way too many awesome tools still at your disposal to do that.

Change your behavior patterns BEFORE you sign up for a massive loan on a property in a period of time where asset prices are very high. Fear and greed are strong emotions. You're young. If you buy your first property at age 31, that ain't so bad. Don't build your house upon the sand my friend.

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  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    7y

    @Brent B. Your best investment is to pay down the highest interest rate debt first. You have to start there. You have to crawl before you can walk, and walk before you run. RE investing is more of a jog. Not trying to be mean, but buckle up and work on this. You can do this and then invest when the market turns down, which it will eventually!!

    0Reply
  • Chace Fraser
    Realtor · Portland, OR · Member since 2017 · 357 posts · 259 votes
    7y

    @Brent B. 's advice on debt and mathematically he's correct.  However, I used a hybrid of his strategy (aka debt avalanche) and Dave Ramsey's debt snowball to pay off my debt. I like the debt snowball because I needed to change my habits and needed the "quick wins." It just goes to show there's not one "right" way to do things. I just read a post about a couple who were investing in cash-flowing properties and still had student loan debt...

    1Reply
  • Martin Potter
    Specialist · Denver, CO · Member since 2017 · 46 posts · 19 votes
    7y

    Hey @Brent B.!

    I'd like to add some advice to what these previous two gentleman said. What I do myself and what I train the people I mentor to do in a situation like yours is a strategy called Velocity Banking. The idea is to shift the "bad debt" aka amortized debt you have into a different bank product that uses simple interest and is revolving. 

    This accomplishes 2 things. 

    1. It consolidates the debt you had so you only have to worry about making a single payment for pay down. 

    And 2. It allows for you to make larger payments as pay down without losing buying power which is huge! 

    I realize that without the proper knowledge base, this information can be pretty confusing. Having said that, by applying the strategy I just outlined to 47k in debt, you can effectively reduce ALL your debt down to zero without making any more money than you already are in a matter of months. Not years. Let me know if you want to know more and I hope that helps! 

    0Reply
  • Jason Powell
    Beaverton, OR · Member since 2014 · 118 posts · 119 votes
    7y

    @Brent B. This is a situation where I would throw math out the window and focus purely on behavior for now. If you're serious, you need to go on beans and rice for about 2 years, and then you'll be in a super solid position to invest, grow quickly, and never look back. Year one, you should be able to knock out about all the debt. Year two, you should be able to save enough for an emergency fund and FHA loan down payment for your OWN property. Partnership for you is a cop-out for wanting to invest while broke. You've got way too many awesome tools still at your disposal to do that.

    Change your behavior patterns BEFORE you sign up for a massive loan on a property in a period of time where asset prices are very high. Fear and greed are strong emotions. You're young. If you buy your first property at age 31, that ain't so bad. Don't build your house upon the sand my friend.

    4Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    7y

    You need to invest in yourself and work on better managing your money. 100k even in high cost of living area there's no reason not to have savings built up.

    Change your habits first..then work on the debt. If you can outperform the debt don't pay it off deploy the money.

    But ....change your habits first. Otherwise you're going to rack up debt, consolidate it with a new loan, then rack it right back up.

    1Reply
  • Account Closed
    Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes
    7y

    May I add to a few of the other comments.. Study Investing while you are getting the other things in order. Go to Re meetings, read books etc. Staying motivated is key. You are in a higher income bracket than most that start investing. While going to the RE meeting you will have to say no to a lot of over priced training offers. Stay the course.

    1Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    @Brent B.

    Would like to add that in an extreme situation, the best thing to do is hand the money management over to someone else. I am total crap with money. My wife is not. When I handled my money, I had no savings. Since my wife now handles our money, all bills are paid off immediately and we buy houses for cash.

    0Reply
  • Marie Fries
    Whitman, MA · Member since 2018 · 104 posts · 80 votes
    7y
    @Brent Breslin Please listen to Mindy Jensen Podcast show #5 guest speaker Sara. She paid down her $33k of student debt in 3 years without borrowing money. Her annual salary was 26k per year.
    2Reply
  • Brent B.
    OP
    New to Real Estate · Charlotte, NC · Member since 2018 · 19 posts · 5 votes
    7y

    Thanks for the advice y'all. Will focus on attacking this debt and changing habits around money.

    1Reply
  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    Hi Brent,

    I agree with everyone else about getting your finances in check first.   You make $100k. So we know its not an income problem.  Time to look at what you are willing to sacrifice.  Live in your own place? Time to get a roommate. Eat out a lot? Time to cook at home. Have extra time? Go get a 2nd job Uber driver.    Your situation is actually not that bad and you can easily fix it.  Time to go do it. 

    1Reply
  • Marie Fries
    Whitman, MA · Member since 2018 · 104 posts · 80 votes
    7y

    Correction: It was this show FEBRUARY 5, 2018

    BiggerPockets Money Podcast 06: Fearlessly Paying off Massive Student Debt on $30,000 per Year with Sarah Wilson

    https://www.biggerpockets.com/podcast_episodes?pag...

    It can be done! Good luck!

    2Reply
  • Robert VorhiesPro Member
    Rental Property Investor · San Tan Valley, AZ · Member since 2018 · 29 posts · 3 votes
    7y
    @Martin Potter Ok I bit what is Velocity Banking and where do I go to find out about it? Thank you
    0Reply
  • Martin Potter
    Specialist · Denver, CO · Member since 2017 · 46 posts · 19 votes
    7y

    @Robert Vorhies 

    Its a lengthy explanation. PM me and I can give you more information. 

    0Reply
  • Adam Mittermeier
    Specialist · Little Rock, AR · Member since 2018 · 148 posts · 71 votes
    7y

    Learn how to control your money first, then you can teach it to make money for you! 

    Im not a huge Dave Ramsey advocate but he does have some good principles for paying off debt. The snow ball effect is great, which I believe was mentioned in a post above. Pay the debt with the highest interest and work your way down. This will take some time, but it has to become a lifestyle change. 

    A successful business man/woman is one that knows how to control their money. Once you get this down, then knock it out of the park man!

    0Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    7y

    @Robert Vorhies , search Velocity Banking on BP to see different points of view. You have to really stay on top of things, or it's a complete waste of time. 

    I consider myself fairly well versed in most things financial, and have no idea how this can be helpful to almost anyone. You save money on interest, but if you pay off your properties/debts early, you will always save money on interest.

    The whole concept seems overly complicated to me - especially for people who are just starting to get a handle on their finances.

    [email protected]Podcast Guest on Show #261
    BiggerPockets
    1Reply
  • Brent B.
    OP
    New to Real Estate · Charlotte, NC · Member since 2018 · 19 posts · 5 votes
    7y

    Question - do you think it would be wise to invest in a house hack, however? I've gotten this debt down to $40k compared to the $47k it was at 3 months ago. I want to start building equity in a home as soon as possible. Also, the house hack could significantly lower my housing costs and help me pay this bad debt faster.

    0Reply
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