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Updated almost 5 years ago on . Most recent reply

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Mike Lee
  • Investor
  • Tampa, FL
109
Votes |
123
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Should I be debt free before investing?

Mike Lee
  • Investor
  • Tampa, FL
Posted

Over the past few weeks a good friend of mine and I have discussed the potential of starting to invest in multifamily properties together. Both he and I have dabbled in rentals alone in the past, transitioning former primary residences into buy and hold rentals. At this point, we both have some non real estate debt that is lingering, and have differing views on whether or not we should eliminate that debt before going all-in with RE investing.

If I focused on paying off my non-RE debt, I would be done by the end of this year sometime (November/December 2020 likely). My friend would likely take an extra year (December 2021). Since I can see "the light at the end of the tunnel", 9 months of focus is feasible, however he rather get started investing now, with the notion that if we did 2 flips, he and I could make enough potentially to pay off said debt.


Thoughts/advice welcome.

Most Popular Reply

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Jim K.#3 Investor Mindset Contributor
  • Handyman
  • Pittsburgh, PA
13,750
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5,451
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Jim K.#3 Investor Mindset Contributor
  • Handyman
  • Pittsburgh, PA
Replied

@Mike Lee

You're going to get a mixed bag of responses. One thing almost everyone does agree on -- any high-interest debt you have, vampire credit card debt, payday loans, outsized car payments on fast-depreciating vehicles, gambling debts, personal loans, you should pay that off. Get out from under before you start investing. On the other hand, student loans, mortgage payments, stuff with an interest rate below 5%, again, almost everyone agrees that's debt you can work with in reasonable amounts.

There's also a broad base of consensus that you need to have a significant sum set aside as a reserve, in easily-tapped resources like cash, sitting equity in your primary residence, easily liquidated assets. How big? I think $25K is a good number for my business model as a handyman investor. Others would tell you something closer to $5K.

The thing I can't emphasize enough as a personal opinion is that you have to have a handle on your spending. You have to know exactly where your money is currently going. You have to take stock and get full control of your personal finances before you start working on putting together your first business plan and go on the hunt for what you want. This will save you a LOT of time I wish I had back.

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