Stumped, conflicted, & confused. Please Advise!

[Ryan Holyn]

Pursing a first-time home purchase and FI (financial independence) seems not possible from my position. Do you agree? What am I not considering? Should I change my risk-tolerance in order to pursue both goals? Any guidance or suggestions would be greatly appreciated, thanks! See contextual details here below. It's first year ever pursing and learning about FI and real-estate investing thanks to BiggerPockets, Afford Anything, ChooseFI, Tony Robbins, & Tom Wheelwright. How can I better position myself for wealth creation and/or FI with the cards that are available? How to optimize?

About me: Late 20s, single, Chicago-suburbs born & raised, avid-traveler and outdoor recreation lover, not good at following a budget (need help)

Employment: W2 corporate job $100K (pre-tax) 50 hrs/wk

Goals: Close first real estate deal before end of the year because I have heard there is 100% bonus depreciation rule from 2017 tax act that ends in 2022. This property would serve as my first ever home purchase and hopefully also my first ever big ticket investment item to build wealth. 

Finances: I just started maxing out HSA ($3K) & pre-tax 401k ($20K - towards a target date fund) & Roth IRA ($6K - towards VTSAX) to the annual IRS limits, paying off Federal Student Loans ($345/mo., 4%, $20K+ balance) and Private Student Loans ($365/mo., 5%, $14K+ balance), contributing $50/mo. to a very small emergency fund ($2K balance, 1%) in a HYSA, also contributing $50/mo. to I-savings bonds from Treasury Direct ($1K balance, 9.6%), have a small amount of shares in brokerage account ($1.5K - towards risky tech stocks), no other assets or real estate, no crypto, no pets, no subscriptions, no utilities, no car, no rent/mortgage (live free w/fam), no phone/internet/tv bills.

Budgeting: I definitely need to improve on these skills, but typically spend $600/mo. on all food & beverage and $500/mo. on lifestyle (travel, fun, other)

I'm open to house-hacking but I can't afford anything in my area, nor the areas I was considering Western Michigan, Wisconsin, Illinois, Indiana. I recognize that real-estate investing requires sufficient cash reverses to buffer any disasters but I don't have much reserves and think it would take too long to save up based on current way of operating/living/spending. Based on my learnings from personal finance podcasts, I'd like to keep my future housing expenses (mortgage, taxes, insurance, HOA, Utilities, etc.) to 30% of After-tax income as a way to hedge/buffer against future disasters since I don't have much cash reserves. From my rough calculations I estimate that this would equate to roughly $1K-1.5K which means I probably can only purchase a property around $150K or less. It would be impossible to find a multi-family property for this amount in a safe, good area.

So the question is.... am I pursuing real-estate investing / first home purchase too early? Should I first be focusing on FI goals? Do i change my calculations?

I feel stumped, conflicted, & confused. It seems impossible to pursue all these goals at the same time and I'm not sure where to prioritize. BUT i'm eager to get started in the right direction especially after listening to so many episodes of BP & other channels. Please Advise!

[Scott Trench]

Great question, and I love the way you are thinking about things here. You are asking all the right questions. 

Please allow me to attempt to reframe your premise: 

Currently, you make $100K, max out your HSA, max out your 401(k), and max out a Roth. ($29K between pre and post tax advantaged accounts per year). 

You are in your 20s, single, and willing to hustle to achieve FI. 

You also have $34K in student loans at 4-5% interest on which you pay $8,520 per year (including principal in and interest), a little bit of cash, and invest the tiny bit you have after that into after-tax brokerage accounts. 

You are almost saving 50% of your PRETAX income and investing down the stack of tax advantaged accounts. 

Dude, zoom out, congratulate yourself, and take a breath. That is fantastic. You are doing so many things right. 

Now, let's address your problem: 

You want FI, and you want a house, and you want to max out all these retirement accounts. And, the realities of life in the US today mean that at your income level, you can't have all three. You have to prioritize. 

When faced with this situation personally (I was 23 and making $48,000 per year - equivalent to $60,000 per year today), I chose to forgo the tax advantaged accounts in favor of a house-hack. I'd make that same choice again today. 

The reality is that, unless you become a hermit, you cannot max your HSA, max your 401(k), max your Roth, pay your student loan debt, and still be able to accumulate meaningful cash with which to responsibly buy investment property or a primary residence. 

You have to prioritize. And that's hard, and involves real tradeoffs. You can lose one way or the other. 

But, based on what you've said here, I think the odds for you tilt in favor of real estate and house-hacking, over the tax advantaged accounts. You don't seem like the type of person who needs the forced savings and inability to touch the retirement account/HSA funds in order to accumulate wealth. You seem like the type who will treat a savings account for that first house-hack as just as sacred/untouchable, and then actually use those funds to buy property, rather take a vacation to Ibiza. 

A house-hack and strong cash position may offer life flexibility and optionality in the next few years that you can parlay into advantages that are much more meaningful to your long-term wealth than the slow compounding of tax advantaged accounts. And, forgoing the tax advantaged accounts is temporary - once a reserve is accumulated and a property or two is in hand, you can resume maxing them out. 

As @Ty Ash mentions, I do have a book called Set for Life on this topic, which I just revised. Because I think it would be bad manners to tell you to "buy my book" in response to your question, I'll offer it for free, in any format you like, if you DM me and think it could be useful. 

I hope this helps and good luck!