Great advice that might have temporarily killed my plans

[Ramonater Ramo]

Great advice that might have temporarily killed my plans

Hello Everyone,

So yesterday I got some really great, honest and brutal advice about real estate investment that might force me to put my plans on hold for a while. I will try to be as brief as possible.

Net Yearly income = $108K

Month rent = $2,700 ($32,400) and my rent goes up no less than $80/year

Debt = $0 (thank you, Dave Ramsey) – Finally got out of debt in March

2 leased cars = $237 + $450 = $687/month

Saving per month = Minimum $3,000/month

Living and all other monthly expenses (food, gym, kids (3), car insurance, utilities, etc.) = $2,200/month (working on bringing that down)

Cash on hand for Down Payment as of this post = $30K

I currently live in Irvine, CA and for those who don’t know, it’s an EXTREMELY EXPENSIVE place to live. My plan is to eventually buy a 3 bedroom house in Mission Viejo, CA unfortunately, in today’s a market that will cost no less than $600K if you’re lucky enough to even find it. For the last 3.5 months I have been looking at investing in GA due to the HUGE difference in the price of property. And 2 out of my 3 brothers live there so I know I have someone trustworthy watching and managing whatever we (they are both also willing to invest with me if needed) end up buying together.

Yesterday, I spoke to an owner of a bunch of real estate that’s looking to sell some of his properties, he’s been doing real estate for over 22 years. He’s my dad’s close friend and getting up there in age (he’s almost 70) and the advice he gave, seemed very realistic and “fatherly” when it comes to real estate. The reason I started off by posting my personal finances was because those were the first questions he asked me. Based off my financials and as soon as he found out I do not yet own my home he basically said “Hold up, stop and let’s talk and think about this”. After he explained to me how tough and expensive the market is right now, I then told him about my vision/plan which is, to hopefully be able to generate 10%-12% return on my cash/year. So basically I’d like to net at least $3K/year on my first property. He then said “So you’re going to basically tie up $30K for $3k/year heck, even $4K/year while still paying at least $2,700/month in rent?. Why not work hard on saving up 20% ($120k-ish) for a down payment, buy home, pay it off ASAP, and then start investing?”

So I have $30K now, I need at least another $90K. At $3K/month (minimum) it will take me 30 months (2.5 years) to save up for a down payment. And assuming (of course things could change) the house is $600K, after down the payment I will have $480K left to pay. Now that I am not spending $2,700 in rent anymore and still saving the $3K/month, now I can pay at least $5K/month towards my home which will help me pay off the house within 8-8.5 years. I know I am not calculating the interest on the loan, so ill add a whole year worth of payments ($60K, is that reasonable?) just to be safe so, my home will be paid for in about 9.5 years. Total timeline about 12 years, which will put me at 45 years old.

Of course, over that time between my tax returns which I will put 100% towards saving for my down payment and (hopefully) increase in pay and promotions that time timeline could decrease but, for now my math is based off my current situation.

Based off all this info, what do you guys think? Is he right? Should I hold off for now? Or is there something else we are not seeing?

At the end of the day I am still determined to find a way to make money through real estate but, if my current vision/plan is wrong I am willing to change/adapt/readjust to make it work.

Thank you in advance to all your replies and advice.