Questions Regarding my Real Estate Strategy

San Antonio, Texas

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Questions Regarding my Real Estate Strategy

New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes

Dear Community,

I hope this message finds you well. I'm currently faced with a financial dilemma and would greatly appreciate your insights and advice.

Background: I am 23 years old and earn a monthly salary of $3992.00. While I am committed to aggressively paying down my debt, particularly my mortgage, to achieve financial freedom in 12 years, I find myself losing money every month due to my repayment strategy.

Financial Breakdown:

Monthly Income: $3992.00
Mortgage Payment: $1608.86
Additional Mortgage Principal Payment: $1000.00
Furniture Payment: $500.00
Water Softener System Payment: $370.00
Investment Contributions:
- Coinbase: $500.00
- Schwab: $500.00
- TD Ameritrade: $812.50

Current Mortgage Status:

Remaining Balance: $249,000.00
Interest Rate: 4.875%

Dilemma: While I aim to invest in various accounts and accelerate my debt repayment, I am burning through my cash at a faster rate than anticipated. I am banking on a promotion in the fall, but without it, I fear I may run out of funds.

Question: Given my situation, what strategies would you recommend? How would you manage finances and investments if you were in my shoes?

Thank you all in advance for your invaluable advice and insights.

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Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

2y

@Michael Moreno

1. Do not pay down your mortgage - save that money and invest it. You can find investments greater than 7% (needed because taxes to offset your 4.875 mortgage rate)

So paying down your mortgage traps that equity whereas investing it and making it liquid gives you more flexibility

That I the first thing I would do.

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@Michael Moreno
1. Do not pay down your mortgage - save that money and invest it. You can find investments greater than 7% (needed because taxes to offset your 4.875 mortgage rate)
So paying down your mortgage traps that equity whereas investing it and making it liquid gives you more flexibility
That I the first thing I would do.
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6 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Chris Seveney:

@Michael Moreno
1. Do not pay down your mortgage - save that money and invest it. You can find investments greater than 7% (needed because taxes to offset your 4.875 mortgage rate)
So paying down your mortgage traps that equity whereas investing it and making it liquid gives you more flexibility
That I the first thing I would do.

Okay, so cut back on my $1k prepayment. That also does make sense since my equity won't be doing anything in my house. I appreciate the advice.
0 Reply
David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
2y
@Michael Moreno Stop the additional payments since you can't afford it. Your financial freedom plan might need some tweaking if it relies on such a repayment scheme. Also, there is much that can happen in the next 12 years. You have a good rate rate, so don't be in such a hurry to pay it off and de-leverage.
Save up your funds and continue to invest. Putting your funds into an illiquid asset that won't be providing additional returns/gains isn't investing.
I suggest using your plan as a general direction. Hopefully, you will learn more about investing and develop additional / alterative plans. You might even find that at some point you should actual sell that property and/or adjust your portfolio for your retirement.
Hope that helps. Happy to chat. Good luck.
1 Reply
Randy Rodenhouse
Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes
2y
@Michael Moreno. I definitely would not pay down my mortgage since you’re just trapping equity in your house and you may not be able to refinance it back out. Especially if you can make more than the mortgage rate of 4.8%.
0 Reply
Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
Quote from @Michael Moreno:

Quote from @Chris Seveney:

@Michael Moreno
1. Do not pay down your mortgage - save that money and invest it. You can find investments greater than 7% (needed because taxes to offset your 4.875 mortgage rate)
So paying down your mortgage traps that equity whereas investing it and making it liquid gives you more flexibility
That I the first thing I would do.

Okay, so cut back on my $1k prepayment. That also does make sense since my equity won't be doing anything in my house. I appreciate the advice.

No problem - glad the people of BP could provide some assistance. I have to ask, is the water softener a payment plan for the system for the home? What is the interest rate on that and the furniture payment. If those are higher than 5% then I would consider using the $1000 to get those paid down and get one of them paid off and work toward the next as they usually have a min. payment.
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2 Reply
Jonathan Bock
Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
2y
@Michael Moreno
According to your fact set you are running a deficit right now burning cash/depleting your reserves even before making the additional principal payment.
You have to make your own decisions but paying down a mortgage while borrowing to buy furniture is usually not optimal.
Impressive that you are working hard and planning keep at it you have the biggest asset right now with time on your side.
2 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @David M.:

@Michael Moreno Stop the additional payments since you can't afford it. Your financial freedom plan might need some tweaking if it relies on such a repayment scheme. Also, there is much that can happen in the next 12 years. You have a good rate rate, so don't be in such a hurry to pay it off and de-leverage.
Save up your funds and continue to invest. Putting your funds into an illiquid asset that won't be providing additional returns/gains isn't investing.
I suggest using your plan as a general direction. Hopefully, you will learn more about investing and develop additional / alterative plans. You might even find that at some point you should actual sell that property and/or adjust your portfolio for your retirement.
Hope that helps. Happy to chat. Good luck.

Okay, I will stop the additional payments. I was expecting a lot of these responses in terms of me de-leveraging and my equity being trapped where as I could go out and invest my money and achieve a higher return on something else. Thank you for the advice David.
0 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Account Closed:

Hey there! It sounds like you're really hustling to get ahead financially, but I get how frustrating it can be when things aren't going as planned. Since you're already on track to pay down your mortgage aggressively and investing, have you considered reevaluating your budget to see if there are any areas where you can cut back temporarily?
Maybe find some small ways to save each month until your promotion kicks in. Also, have you explored refinancing your mortgage to potentially lower your monthly payments? Hang in there, and hopefully, things will start looking up soon!

Hi Allen. Yes, I am really hustling to get ahead financially. I am looking to take the advice of many experienced real estate investors in here and cut back on my additional mortgage prepayment. I figured if I could get a higher return in the stock market or crypto market, which I have done, then I should stop trapping my equity in the house. I can't refinance my mortgage since I don't think that would be ideal since I just closed on the home September 2023. I don't have much equity in it yet.
0 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Randy Rodenhouse:

@Michael Moreno. I definitely would not pay down my mortgage since you’re just trapping equity in your house and you may not be able to refinance it back out. Especially if you can make more than the mortgage rate of 4.8%.

Thank you Randy. I'll for sure take this advice. I should know better if I am a finance major haha. I am up 10%, 12%, and 55% on my investment accounts which is way higher than 4.875%. I just thought of adding to the principal would be even better so that I can make money in the markets as well as pay down my mortgage faster.
0 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Chris Seveney:

Quote from @Michael Moreno:

Quote from @Chris Seveney:

@Michael Moreno
1. Do not pay down your mortgage - save that money and invest it. You can find investments greater than 7% (needed because taxes to offset your 4.875 mortgage rate)
So paying down your mortgage traps that equity whereas investing it and making it liquid gives you more flexibility
That I the first thing I would do.

Okay, so cut back on my $1k prepayment. That also does make sense since my equity won't be doing anything in my house. I appreciate the advice.

No problem - glad the people of BP could provide some assistance. I have to ask, is the water softener a payment plan for the system for the home? What is the interest rate on that and the furniture payment. If those are higher than 5% then I would consider using the $1000 to get those paid down and get one of them paid off and work toward the next as they usually have a min. payment.

I made sure that the water softener and furniture was 0% interest. The water softener payment plan is 0% for 1 year. That promotion ends this October. The furniture payment plan is 0% for 2 years. That promotion ends October 2025.
0 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Jonathan Bock:

@Michael Moreno
According to your fact set you are running a deficit right now burning cash/depleting your reserves even before making the additional principal payment.
You have to make your own decisions but paying down a mortgage while borrowing to buy furniture is usually not optimal.
Impressive that you are working hard and planning keep at it you have the biggest asset right now with time on your side.

Hi Jonathan, thanks for the advice. I think I am going to stop making the additional mortgage prepayment everything month so that I don't choke myself financially. I will also say that the furniture and water softener are 0% interest for a certain time. I also have been aggressively investing since I am a firm believer in long-term investing. I am up 10%, 12%, and 55% on all my investment accounts, so at least that has paid off. I added the $1k mortgage prepayment since I thought that would even help more by paying down my house while I also make money in the markets.
1 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
Like everyone said, stop pre-paying. I'm a huge fan of no debt, but you're not at that point yet. You're at the point of needing to grow a bit more. Let time and leverage dictate that for the houses return, you are getting deeper on that asset when no one knows how it's going to pan out.
With that said, what is your savings like and what is your consumer debt situation like? I know you have those monthly payments on the water softener and furniture, but how much total debt is that and how much longer do you have to pay?
And yes, I understand the math at 0% it makes no sense to prepay but this is a behavioral thing not a math thing always. I'd get rid of the consumer debt, then focus on increasing your allocation to equities and starting some fixed income. You'd have an extra $870 + $1000(from the mortgage paydown) that can be $1,000 in fixed income and a total of $2,500 in equities. Doing this for a period of (extended) time is really going to get you going far.
That is assuming you have ample funds saved up(6-8 months of income in a HYSA and 2-4 months in market-esque account).
1 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
I have $15k in my high yield savings account. The only other debt I have is credit card debt on my JPM credit card but that is offset by my job since they pay for everything when I travel, eat, and drive. I am practically never at the house so my utilities are very low.

Also, in my Schwab and TD Ameritrade account, I am investing in equities. In my TD Ameritrade account, I am investing in the SPY and my Schwab I am investing in the Mag 7. In my Coinbase account, I only invest in Bitcoin and Ethereum which has been working out extremely well. I'd like fixed-income, but I really like the volatility of higher risk assets.
0 Reply
Salvador Ontiveros
Member since 2023 · 4 posts · 0 votes
2y
I think paying down the mortgage should be demoted from your priorities, at least in the traditional sense.
look into what you can do with that money as well as OPM to multiply those funds. Then in the future when you have 10s of thousands from it, that would be a more appropriate time to drop a couple thousand on the mortgage if you want.
0 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Salvador Ontiveros:

I think paying down the mortgage should be demoted from your priorities, at least in the traditional sense.
look into what you can do with that money as well as OPM to multiply those funds. Then in the future when you have 10s of thousands from it, that would be a more appropriate time to drop a couple thousand on the mortgage if you want.

Yeah paying down the mortgage seems too much now that I am thinking about it.
What is OPM?
0 Reply
Salvador Ontiveros
Member since 2023 · 4 posts · 0 votes
2y
Quote from @Michael Moreno:

Quote from @Salvador Ontiveros:

I think paying down the mortgage should be demoted from your priorities, at least in the traditional sense.
look into what you can do with that money as well as OPM to multiply those funds. Then in the future when you have 10s of thousands from it, that would be a more appropriate time to drop a couple thousand on the mortgage if you want.

Yeah paying down the mortgage seems too much now that I am thinking about it.
What is OPM?

Other people's money. I'm in quite a different situation than you, I'm a general contractor so most of my extra funds go right back into the business. So for my next couple flips I'll be utilizing hard money, and securing those hard money loans using the equity in other people's houses by having them set up a HELOC then drawing up a contract stating that I'll have access to the funds for a certain time frame. I'll be offering a high interest rate for just the funds being available to me, even though I'll never need to draw a penny of it. It's a win for everyone involved.
0 Reply
Chris Welch
Rental Property Investor · Ocala, FL · Member since 2011 · 49 posts · 19 votes
2y
@Michael Moreno
Agree with rest.....halt extra mortgage pymt save that to invest in real estate...
Keep doing the other non real estate investing bc we all need to be balanced etc ....
Lastly we don't know your situation but what about taking on a roommate or room rental to help with the original mortgage? Or possibly butly something smaller to live in now keep existing as a higher end rental........I pushing the creative side to help cut that mtg payment.....
We have house hacked in past and was very useful at the time.......
1 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Salvador Ontiveros:

Quote from @Michael Moreno:

Quote from @Salvador Ontiveros:

I think paying down the mortgage should be demoted from your priorities, at least in the traditional sense.
look into what you can do with that money as well as OPM to multiply those funds. Then in the future when you have 10s of thousands from it, that would be a more appropriate time to drop a couple thousand on the mortgage if you want.

Yeah paying down the mortgage seems too much now that I am thinking about it.
What is OPM?

Other people's money. I'm in quite a different situation than you, I'm a general contractor so most of my extra funds go right back into the business. So for my next couple flips I'll be utilizing hard money, and securing those hard money loans using the equity in other people's houses by having them set up a HELOC then drawing up a contract stating that I'll have access to the funds for a certain time frame. I'll be offering a high interest rate for just the funds being available to me, even though I'll never need to draw a penny of it. It's a win for everyone involved.

Oh okay. I don't know if I am at that level yet of using hard money lending. I am currently trying to house hack my two vacant rooms. But that seems really cool what you're doing.
0 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Chris Welch:

@Michael Moreno
Agree with rest.....halt extra mortgage pymt save that to invest in real estate...
Keep doing the other non real estate investing bc we all need to be balanced etc ....
Lastly we don't know your situation but what about taking on a roommate or room rental to help with the original mortgage? Or possibly butly something smaller to live in now keep existing as a higher end rental........I pushing the creative side to help cut that mtg payment.....
We have house hacked in past and was very useful at the time.......

So basically, I created an account on Avail which is a landlord software to begin setting up a lease and trying to list my rooms on the market. I still have to get photos but yes, that was my original idea with getting my first property: house hacking. After I get the photos, I really just need to consult with a lawyer or someone to give me advice on my lease. I am doing all of this by myself, so it's tough.
0 Reply
Jeff S.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@Michael Moreno I might go against the grain here but consider compromising paying your mortgage off in 15 years. You can always pull money out later but this is a safe place for equity. Having a paid off house at 39 is a sweet thing. You are young so be more aggressive with the rest of your funds maybe hit a big winner or two. Good luck.
0 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Jeff S.:

@Michael Moreno I might go against the grain here but consider compromising paying your mortgage off in 15 years. You can always pull money out later but this is a safe place for equity. Having a paid off house at 39 is a sweet thing. You are young so be more aggressive with the rest of your funds maybe hit a big winner or two. Good luck.

Okay, so you're the first of the crowd that says the opposite haha. I would want to do this, but unfortunately I do feel like everyone is right about me losing money every month and tying up my money in this house. If I took home more money, I'd definitely consider. I already made $4k worth of prepayments.
0 Reply
David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
2y
@Michael Moreno Its not really "losing" money. Its a matter of what is your strategy and goal.
If you really think that house free and clear will cash flow enough in 12 years (after all the income and expenditure risks) to make you financially free --- well that's your plan.
I think most of us are saying its just pretty gutsy at your age. Also, there is so much that can happen over the next 12 years.
1 Reply
Chris Welch
Rental Property Investor · Ocala, FL · Member since 2011 · 49 posts · 19 votes
2y
@Michael Moreno
Check out the biggwrpockets leases...save u some $$$$....
0 Reply
Erica Wright
Real Estate Broker · Charlotte, NC · Member since 2023 · 6 posts · 2 votes
2y
Hi Michael,
I always paid down debt and applied extra to my mortgage throughout my years only to learn that I should have kept my cash and invested.
Try snowballing your debt witht he highest interest rate paying it off and then adding that montly payment onto the next debt and so on. I agree with the others and would not focus on the mortgage at this time. You have a good rate and once the furniture/water softner is paid off you can apply extra towards the principal mortgage balance in the future.
0 Reply
Michael Moreno
OP
New to Real Estate · San Antonio, TX · Member since 2024 · 46 posts · 20 votes
2y
Quote from @Erica Wright:

Hi Michael,
I always paid down debt and applied extra to my mortgage throughout my years only to learn that I should have kept my cash and invested.
Try snowballing your debt witht he highest interest rate paying it off and then adding that montly payment onto the next debt and so on. I agree with the others and would not focus on the mortgage at this time. You have a good rate and once the furniture/water softner is paid off you can apply extra towards the principal mortgage balance in the future.

Thanks for this advice Erica! I don't have any debt besides my mortgage (4.875% for 30 years), and my water softener (0% for 1 year) and furniture (0% for 2 years). Seems like most folks favor the liquidity aspect of building cash or investing it in more liquid assets for now.
0 Reply

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