What would you do if you were me right now?

Question

My wife and I are looking to start our investing journey soon, but trying to decide what our particular starting strategy should be.

Currently, we live in a family owned house that we pay $1000 month with zero interest. We owe about $135k and house appraised for $190k. So in about 11 years the house will be payed off. (FYI we can’t rent out our current house until we either pay it off or get financing for it if we chose to.) Should we go ahead and finance the house now and get a heloc to have some capital to invest in properties, or take advantage of not having a mortgage with a lender and get a property? We only have a few thousand savings at moment (just got married). We make about $160k a year between us and credit situation is low 600’s at moment. Recovering from a layoff a couple years ago. Nothing bad on credit except medical bills. Only debt we have is student loans and one vehicle note. We plan to buy and hold single and multi family for cash flow.

What would you do? Thoughts, ideas, suggestions?

Thanks in advance!

Regards,

RJ

Joe P. · Answer

@George W. is correct -- your cash on hand isn't strong enough yet (in my opinion). Start to bring down your debt, increase your credit scores, and start saving for reserves (160k combined is excellent, in Slidell (wow, Live PD reference...) that should take you super far and paying 1k a month in mortgage/rent is good at your combined salaries.

HELOC is probably not an option at 190k appraisal -- most will let you HELOC about 80% of your appraisal minus your mortgage. Well 80% for you is 152,000 and your mortgage is 135,000 -- nowhere near enough to even bother especially with low cash reserves.

Also look at your overall RE goals and refine them..."We plan to buy and hold single and multi family for cash flow."  -- this is a vehicle, not a goal. It's open ended, has no finite date to achieve, and no number to hit.

Decide what you and the missus truly want out of RE -- e.g. my personal RE goal (has changed over the last few years) would be to pick up 1 door per year, either 200-300 CF off the purchase or a BRRRR with 100 CF, to give me around 1000-1500 per month in CF after 10 years. This is a defined, finite, measurable, attainable goal for me. The goal can change...but defining what I wanted has confirmed the vehicle, confirmed how I put my personal finances in order, and has driven my focus to the said goal. Once you know what you want to do, truly, the options narrow and the things you need to do to get there become far more clear.

George W. · Answer

My suggestion is to work on saving some more first. Have a good safety net, setup a good budget and follow it religiously. Work on improving your credit. Last thing you want to do is buy another place on heloc and then it goes vacant for a while or needs a major repair. I'm sure alot of people will say otherwise though.

Ronald Russell · Answer

@Jonathan Lyford thanks for your advice.

I think by the end of the year I should be able to have debt (medical bills), emergency fund and most of a down payment saved up. (Depending on % of down payment I have to come up with.)

I agree on not wanting to change my current situation with primary residence especially since I pay 0% interest. I was just hoping to be able to get some cash to invest with. Wanted to weigh all my options.

Thanks.

Ronald Russell · Answer

@Joe P. Thank you for your reply.

We have already implemented a budget and are working on our credit as well and planned on strengthening both our savings and credit before making any moves. Just didn’t realize I wouldn’t have as much available with a heloc if we were to finance our current home. I was hoping I would have access to the equity to be able to invest.

Also, we will be defining our goals and getting more specific with them including timelines to get to each.

What would you do if you were me right now?

Most Popular Reply