FOI (Fear Of Investment): How to Convince Wife Investing is Safe

[Philip Smith]

Short Introduction
I currently work full-time in a stable, but dead-end job.  I am a IT Technician for an automotive company.  Being a non-IT business, the pay is low, but I make due by fixing computers on the side and building websites and fixing websites for folks.  My wife and I have five children and we have no idea (grace?) how we make it each month.    

REI Experience == 0

I have been reading 3-5 books a month on real estate investment for the past few months and feel that I want to take the leap into REI. Particularly alluring is the prospect of multi-family property investment. Along the way, I've discovered a few snags in my plan (a loose plan currently, but it getting refined as I learn). I wish I could just blame my wife for the snags, but I too am inhibiting my progress. I have a small savings (~$5k) and over $100k equity in my home as a conservative estimate. I lived in my first home and netted ~$30k from its sale two years ago after enclosing the front porch to add to the living square footage and updating the place. Most of that $30k was used to update the AC, build a shed/workshop for my wife's carved wood item business that she recently started, dig a well for the sprinklers, remove a dead tree, and remodel the kitchen after a plumbing leak developed in the foundation of our home a few months after moving in.

Our Dilemma 
Now that our savings is basically depleted and any emergency we may have health-wise could wipe that out and accrue debt for us (I'm uninsured), it has motivated me to make a change.  I'll start with throwing my wife under the bus...  Our new house is in a great neighborhood and my wife does not want to sell the house to get the equity out of it.  She did compromise, however, by stating she may be down to live in an investment property for a time if we hold on to our house and move back in later.  That said, neither of us want a long-term renter in our house; we feel odd about someone calling it "home", but we don't mind the prospect of doing an Air-bnb or the like.  Another option is we stay in our home and just invest.  

Pain Points
The problem is acquiring the capital for the investment.  I literally just bought the Raising Private Capital book and will have it Wednesday, but my concern is risk.  I know you've all heard it before, but here are my major pain points:

- My wife is very hesitant about refinancing. She feels that the higher mortgage payment and taxes will hurt us because our budget is so darn tight currently. The investment would need to be larger (I feel) to provide enough income to hamper the pain of that cost hit. This same issue applies to a HELOC as well. I explained that if the market tanks, my employer may terminate me because IT is a necessary evil to them, but only when they need us.

-  Also, regarding the market tanking, how much fluctuation should one expect with rental income?  I think of asset value appreciation as a bonus and not a means to an end, but the rental income would be my bread and butter and I would be reliant on it as a source of income (much like the current job).

-  I do not have a mentor.  This is a biggy for me.  I have a hard time trusting people sometimes, but [admittedly] it has saved my butt more often than not.  I guess that's why I'm reaching out.  I want to hear what intelligent, trustworthy folk have to say.  I'm not looking for a hand out or a mentor, but any incite to finding one is sincerely appreciated.  **EDIT: just found out I can't ask for a mentor here, so I am rephrasing my last sentence to make sure I'm in compliance.**  

There are more pain points that I didn't list here, but I already feel as though I wrote a book (sorry!) and only have a few moments left of my lunch break, ha ha.  Thanks for reading this, if you made it this far.

[Jaysen Medhurst]

@Philip Smith, good on you for thinking about your financial health and not just putting your head in the sand like so many people do. I think you're asking about more than just REI here, but that's okay--it's all tied in together.

Step 1, start looking for a new job in an IT-centric company where you can make more money, get insurance, and have more job security. REI is great and can do great things, but they take time and you can't spend the next 5-10 years in survival mode.

Step 2, have some honest conversation with your wife about your finances--where they are and where you both want them to go. Have a plan. E.g. you want to make XX/month from REI, that means XX units, which you think you can buy in XX years. Make it concrete and reasonable.

Ask yourselves what you're willing to sacrifice to get there. It sounds like you've bought too much house. I think house-hacking a multi-family is a great way to get started in REI. You didn't provide numbers, but it's unlikely that keeping your current place as a rental will be a smart move. The numbers just don't work in most "nice" neighborhoods. A $400k house needs to rent for ~$3200/month to break even.

Regarding risk and the market tanking: there absolutely is risk in REI or any kind of investing. You have to go in with you're eyes open and as educated as you can be, but you will make mistakes and face challenges.

If there is another major financial crisis, we're all going to feel some pain. That's nothing you can control, so don't let it stop you from moving forward. The biggest risk is from buying a bad deal, not that rents are going to fall. If you buy right and have solid numbers, your rentals will perform.If you provide a good product (rental) at a reasonable price you will get renters. Rents only really go down for a few reasons: 1) Local economic distress when a major employer moves away and/or population is declining, 2) Market oversaturation, i.e. too many new rentals come on line all at once, 3) Idiosyncratic circumstances, which can't be predicted.

Hope this helps!