Am I selling myself short?

Question

I want to present my financial information and in the end get some advice. I don't want to make another mistake like I did on my first duplex.

I make about $66,000 gross a year. Including rental income from one side of my duplex. I stay in the other side. I have about $1650.00 in total debt a month. That leaves me with about 30% debt to income. With about $6000.00 cash in the bank.

I am only looking at properties that are in the below $60,000 range including repair cost. Should I go higher? Am I even able to. Should I focus on flips to build cash. What's the best financing avenue? Hard money? Should I just save my money for a down payment? What would your route be if you were in my situation? lol Sorry for all the questions Im starting to feel stagnant. The same way I was feeling before I made a mistake on my first duplex.

Charlie Fitzgerald · Answer

I always suggest that before you figure out the "how" and "when" and "what" you dig really deep and determine your "why".  Then you create your plan for achieving your why, given the parameters you have to work within.  Personally, I don't think you are ready to invest yet for all the reasons @Ned Carey outlined above.  You need to position yourself for success and get your current financial needs met before you take on more risk and expense.  Spend 12 months really getting laser focused on eliminating your debt, increasing your personal reserves, establishing a separate REI reserve fund, and then work on developing your fundamentals for your REI journey.

Ned Carey · Answer

What was the mistake on the first duplex? More importantly what was the lesson.

If you only have $6,000 in the bank, I would consider that pretty slim reserves. It is considered wise to have 3-6 months in reserve for anybody. If you have  rentals you should have some reserves for the properties in addition to that.

If you use that money as a down payment you have no reserves, a very risky position. If one little thing  goes wrong you have no money to address the problem.

One thing you didn't say is how quickly you saved up that $6,000.

How good are you at finding deals? A killer deal of a lifetime is perhaps worth taking a little more risk to get. There is no point in taking financial risk for an ordinary deal you can pick up any day.

Ned Carey · Answer

@@Leon Chappell   As long as you are profitable, and I mean bottom line net profitable, using a credit line for short term cash shortages is fine. But Borrowing ads risk. Cash in the bank reduces risk. How much risk do you want to take?

In addition to what @Charlie Fitzgerald said I think you are not ready because you don't yet know how to evaluate a deal and estimate expenses and cash flow. Take the time to learn the business so the next deal is not another mistake but a solid profitable deal.

You are relatively new here there is plenty to learn on this site.

Charlie Fitzgerald · Answer

The plans we don't want to follow are generally the ones we should!  I think you'll have a better experience investing in real estate if you do it this way.  Good luck.

David Dachtera · Answer

@Leon Chappell,

You need to learn how to connect with private lenders.

Yeah, REI takes money - it does NOT have to be yours!

Better if it doesn't really - higher ROI, bigger network = more $$$ = more deals = more profit.

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."- DJ Benedict

Leon Chappell · Answer

@Charlie Fitzgerald That does sound like some good advice. Something that I considered. I could pay off all of my debts besides my mortgage and student loans in 12 months. Im definitely going to consider it. I don't want to, but It's starting to feel like the most reasonable path.

Leon Chappell · Answer

Thanks @David Dachtera..... I don't know how to find a good private lender. Any suggestions on where I can find some willing to lend to someone like me in my situation.

Leon Chappell · Answer

@Ned Carey The Mistake I made on my first duplex was a rookie mistake. I paid $172,000 for a duplex that only rents for a total of $1500.00 a month. I was thinking its more than my mortgage on it so it a profit.

I saved up the $6000.00 in about 3 months. I was going to use my personal line of credit for any problem that came up with my current duplex. Is that a good idea? I noticed that you are from the Baltimore area. A area I was looking at strongly for rentals.

Am I selling myself short?

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