On the fence regarding a REI ..

[Josh Jensen]

I'm data driven, and would like to make the decision to purchase another property based on numbers (verses a 'gut feeling'). While I know it's a great time to purchase an investment property, I'm unsure if I'm in financial position to do it right now. Stats below: 

* I purchased my first home (my family lives in it currently) 2 months ago. We made a move from CA to UT recently. 

* My wife is out of work due to COVID. We have 3 small children under 8 years old. 

* We have less than $500 liquid assets. 80k in student loans, and 1k in CC debt

* I can possibly have 2 other investors purchase the property with me, but I"m concerned about the possible future legal complications that could entail. 

Should I move forward with the dream to purchase another property to (hopefully) secure our financial future? 

[Jonathan Greene]

I can't find one thing in your post that would indicate, in any way, that it is a good time to buy something else and with what? What are you adding to the pot with two investors if you have $500 liquid and a lot of debt and a family of three to take care of. This is the problem with the guru mentality and scaling and trying to build an REI business advice. Buying another property right now would not secure your financial future in any way, in a three-way partnership, with no money to put in. It would only put your entire family in jeopardy.

[Erik W.]

I don't know everything about your or your situation, but from the details you have shared and my gut there's nothing that tells me you're ready, yet my friend.  CAN some people buy property with mountains of debt and little to no liquid reserves and not go bankrupt?  Sure....it is theoretically possible.  But not likely.

If I were in your shoes, I'd spend the next 12-24 months aggressively paying down debt and piling up cash once you're done with that.  I'd like to see 3 months of expenses in liquid reserves before buying a rental property.  The market is a bit touchy now, and I think in a year or two we'll have a better feel for how this is all going to shake out.  Don't worry...there will still be plenty of property to buy then.

Congrats on getting started on your education!  Keep reading, keep learning.

[Evan Polaski]

@Josh Jensen, echoing the choir now.  $500 in liquid cash, hopefully this means you have already taken into account some savings, is not enough.  If you were single, no kids, I would still say not enough, but the gamble might be a little easier to swing.  Or, if you wife had a very stable high earning job, and you wouldn't really be putting anyone's livelihood at risk, same thing.  But when one small mistake could take down the whole ship, especially with other's relying on you, I would not recommend.

[Michael P.]

Most likely HELL NO. But how much do you have in non-liquid assets?

[Josh Jensen]

@Michael P.: 20k in a Roth, 20k in a 401k. 

[Michael P.]

Originally posted by @Josh Jensen:

@Michael P.: 20k in a Roth, 20k in a 401k. 

 Pay off debt first and save six month emergency fund

[Steven Pesavento]

When I first read this I thought you said $500k liquid cash... which I would give a very different answer. You can do this business with no or low money, but you've gotta trade that in for time & partner with experience. 

It's something that's possible, but you've gotta understand your situation. I wouldn't recommend buying anything if you don't have the capital to securely pay for it if something shouldn't go as planned... so your focus now needs to be: 

Make more money. 

You can do that with real estate by flipping, wholesaling, brokering or something similar. Or you can do that in your full time job. But either way you look at it you need to create more income before you buy. 

[Drew Holland]

@Josh Jensen  Not sure where the entrepreneurial spirit is in here...  We're supposed to be mavericks and risk takers; deal makers and not dream takers. haha  I say go for it if you find a good deal and you'll make it work.  

As a suggestion put your retirement into a SDIRA (self directed IRA) either through your own business or in your wife's name. I can point you to some experts in this field (PM me). From the SDIRA you can trade the market (can do this is most IRAs anyway), more importantly you can use it for REI. One caveat is that it needs to be seasoned 5 years to use. I'd look at doing this anyway if your intention is to continue in REI.

Another option is take an early distribution; you won't get hit with the penalty because of the CARES act and use those funds as your emergency and then invest the rest in active REI so you can grow it. your 40k will grow much faster in active REI than passive stocks, which are about to get hit again (not a popular belief, maybe).

Push off your student loan debt as far as possible or structure your payments so they don't effect your cashflow.  Should be able to do this with lender too because you've been affected by COVID.   

Create a strict framework for your deal and only buy if it fits that framework.  Be disciplined and patient.  Meanwhile build up some sort of RE business, or RE license and continue to be a student.  Between Utah and the family you can also build in economies of scale and save money buying in bulk.  You'll be good, and I see more options than obstacles here.    

I also have 3 children (another on the way) and have been rocked by the pandemic economically.  I keep something in my mind from childhood - "When the going gets tough, the tough get going".  Maybe you can use that in your life as well.  Go for it and if I can do it, you can too.  

Also I'd like to protest Microsoft's ruling on making double spaces after a period in MS Word an error.  Weak sauce.  

[Account Closed]

Originally posted by @Drew Holland:

@Josh Jensen  Not sure where the entrepreneurial spirit is in here...  We're supposed to be mavericks and risk takers; deal makers and not dream takers. haha  I say go for it if you find a good deal and you'll make it work.  

As a suggestion put your retirement into a SDIRA (self directed IRA) either through your own business or in your wife's name. I can point you to some experts in this field (PM me). From the SDIRA you can trade the market (can do this is most IRAs anyway), more importantly you can use it for REI. One caveat is that it needs to be seasoned 5 years to use. I'd look at doing this anyway if your intention is to continue in REI.

Another option is take an early distribution; you won't get hit with the penalty because of the CARES act and use those funds as your emergency and then invest the rest in active REI so you can grow it. your 40k will grow much faster in active REI than passive stocks, which are about to get hit again (not a popular belief, maybe).

Push off your student loan debt as far as possible or structure your payments so they don't effect your cashflow.  Should be able to do this with lender too because you've been affected by COVID.   

Create a strict framework for your deal and only buy if it fits that framework.  Be disciplined and patient.  Meanwhile build up some sort of RE business, or RE license and continue to be a student.  Between Utah and the family you can also build in economies of scale and save money buying in bulk.  You'll be good, and I see more options than obstacles here.    

I also have 3 children (another on the way) and have been rocked by the pandemic economically.  I keep something in my mind from childhood - "When the going gets tough, the tough get going".  Maybe you can use that in your life as well.  Go for it and if I can do it, you can too.  

Also I'd like to protest Microsoft's ruling on making double spaces after a period in MS Word an error.  Weak sauce.  

 So agree about the 2 spaces after a period!  LOL.  Made me laugh.  This is what we had drilled into our heads in typing class.  But, I just figured time marches on.  Kind of like people beginning every sentence now with "So,....."  What's up with that?

[Account Closed]

Originally posted by @Josh Jensen:

I'm data driven, and would like to make the decision to purchase another property based on numbers (verses a 'gut feeling'). While I know it's a great time to purchase an investment property, I'm unsure if I'm in financial position to do it right now. Stats below: 

* I purchased my first home (my family lives in it currently) 2 months ago. We made a move from CA to UT recently. 

* My wife is out of work due to COVID. We have 3 small children under 8 years old. 

* We have less than $500 liquid assets. 80k in student loans, and 1k in CC debt

* I can possibly have 2 other investors purchase the property with me, but I"m concerned about the possible future legal complications that could entail. 

Should I move forward with the dream to purchase another property to (hopefully) secure our financial future? 

 I didn't see your debt as that bad, honestly.  Is the student debt all government loans or private loans?  If private loans, then yes, getting those paid off would probably be a good idea.  But, you were able to buy your current house two months ago with this debt load, so obviously the banks don't have a problem with it - or didn't two months ago anyway.

Also, $1,000 in CC debt isn't much at all.  As long as you don't use more than 10% of your available credit a few months before you need a good score, that much debt probably wouldn't be a big problem.  Of course, you'll have to double check with a lender, but that's my understanding.

I think, even if you had $500K in the bank, you should wait to buy anyway.  Prices aren't tanking yet, but I sincerely believe they will.  

What I'd do, is first see if you can get a deferment on the student loan payments based on your family income being affected.  This will allow you to save the amount of money you are paying on the student loans.

I would not borrow against your retirement. I'm now retired and so I am seeing the difference between people who left their retirement accounts alone and those who didn't. That's your security. I strongly urge you not to dip into it. Also, just for what it's worth, my mother recently died and she had a self-directed IRA and while it's stuck in probate hell and the courts are closed, it's probably lost about 1/2 it's value because it was invested in the stock market. And she had it in "conservative" mutual funds and stocks. You just never know when a crash will happen. Anyway, be smart and conservative with your retirement money, is my advice. Slow but sure wins that race.

In case you hadn't thought of it, you can also change your W2 deductions so less money is taken out of your paycheck.  You can always change it back.  People do this all the time to save for Christmas money, etc.  Be smart about it, because you'll have to pay the IRS eventually, but they will also let you make really fair repayment arrangements.

But, bottom line is, I'd talk to a non-guru lender about a plan for buying in roughly a year.  Prices should be much sweeter then and you may have more in savings and will look better to lenders because you will have been in your new home for a year.  This is my plan.  My mother's estate should be out of probate in a year, depending on how Covid-19 continues to affect court closures.  But, I anticipate that that will actually be a much better time to buy than right now anyway.

I'm using this time to research markets.  This is what I did with a couple of the properties I bought.  I didn't have the funds to buy right away, so while I was saving, I watched the market and sometimes a particular property.  When the time is right, you'll know a good deal right away, and know you're in a strong negotiating position, etc.

Best of everything to your family.  I don't think you're in a horrible position, but I do think waiting would end up being more profitable for you.

[Becca Summers]

I'm personally not a fan of investing with extra people when you're first starting out. I think you should save up and make your current home a rental at the year mark. I would spend this time getting to know your new area. Find out good rental areas, good rental rates and more. 

I love the data and numbers it really helps make a good choice.