What to do with all this money

Question

Upon selling a rental property that was my school of hard knocks, I find myself with enough money to pay off some but not all of my horrendous debt. I have very little income though, not enough to live off of.  I know I am in a critical moment where I can invest what I have now, but have no confidence.  So here I sit on a small pile trying to figure out how not to lose it and how to make it grow to at least pay off all of the debt. I like rehabs, but have no confidence in my local area, in fact my whole state is over-inflated, I see zero opportunity locally but also am intimidated by travel. I also dont know how to trust any person or entity to invest with. Any advice?

Steve Vaughan · Answer

In general, debt reduction isn't as bad for us as many tend to think here on BP.

Instead of buying more tenants and toilets I took some cash and reduced monthly payments by about $3300 last year.  Completely tax free 'income' and works well with my nap schedule. My next round will reduce my monthly outflows another $5400. Again, tax free. Stress-free.

It doesn't  all have to go against debt or all be invested. A portion could satisfy the high rate or high payment one to relieve some of your stress. Hang in there. You're in the right place!

Karen O. · Answer

You've listed many roadblocks.

If I were you, I'd:

#1 use a portion to fund my emergency fund (if I didn't have one);

#2 payoff as much of my high interest, non income producing debt as I could since the cost of that debt wrecks havoc on current income. The reduction in monthly debt payments will help the income dollars stretch further;

#3 take my time, but invest whatever is left in something I understand that doesn't keep me awake at night.

Aaron H. · Answer

You'll get opinions all over the spectrum on exactly where the balance is between paying down debt and using cash to invest, but in my experience, when someone uses words like "horrendous" and "crushing" to describe their debt, the one and only priority should be paying it off as fast as possible.

I think it's a mistake to overly focus on increasing income. Using your available cash to reduce your expenses (debt payments) affects your bottom line the same amount.

Sell your current rental - use the proceeds to pay off as much debt as possible. Slash your personal expenses as far as possible. If you still can't live off of your remaining income, then accept that your primary residence is your biggest liability and sell that too. Declare bankruptcy if you have to. People can and do come back from it. But the bottom line is that if your income doesn't cover your expenses, buying additional property (and taking on additional debt to do so) is just digging the hole deeper.

After that, work on increasing your income. If you have rehab experience and can work at least part time, you can make better than minimum wage. There's a lot you can do with, say, wholesaling that could generate some additional income with no money down. Or, partner up with a local flipper - you don't have to be the one bringing money to the table in order to use your experience and interest to generate income.

Brenda Whittaker · Answer

Hi everyone, update 6 months now into the future from the original post.  Here's what I did so far.  I paid off my Home Depot and Amex and Chevron credit cards to 0, though Amex creeps up all the time, however I never let it get above $500.  Then I paid an attorney to negotiate a settlement on the judgement, and although both me and the attorney think we didnt do as well as we should have, I did manage to reduce the judgement by $10,000.  I paid off the remaining amount of $7500 and had to work hard to get the offender (junk debt buyer that sued me for that judgement) to release me and the lien on my home.   Then I paid off the entire second mortgage on my primary home.  With all those debts gone, I went to work refinancing the 1st mortgage, but could only get a 4.85% 30 year, not that great but much better than the 7% 40 year I was paying.  My new payment is $615, my only debt now.  It was $685 before, plus the second mortgage was $720 and rising with rising interest rates, plus all the credit card payments so I cut my expenses more than in half. I still managed to save out a few thousand for investing and emergencies like the giant pine tree I have to remove for $2000 because it's cracking my foundation - but at least I can pay for the work.  Now Im sitting on a few investment dollars and 3 very small incomes, enough to survive but not thrive.  Yet.  Still trying to get the energy up to do another fixer, the goal now is to pay off that first mortgage asap.  It was at $90,000, which is half of the value of my home.  I already made some extra principle payments, and it's down to $88,000 after just 3 months.  I think Im out of the woods, but not going anywhere yet.  Just a few fixers should knock that out, but Im having trouble getting off the bench.

Brent Coombs · Answer

@Brenda Whittaker, I recommend you follow your thought: "I can refinance the 7% with HARP to 3% if I pay off the judgement.  Then I would have a first at 3%, a second at 4.5% and could pay down the second a bit". [In my opinion, you've left yourself no excuse to not do that!]

That'll put you in a better position than 80% of posters here on BP looking for advice on how to get started on flipping/investing. (I recommend Buy-n-hold rather than flipping). All the best...

Account Closed · Answer

If you are holding $100,000 or more - that's great - too many investors today are happy to wait for the slow pay-day until property increases in value - not me - when I invest (control properties) - I want immediate cash on cash return of my money - like in 7 weeks.

Some ideas: What I do here in Maryland, now for over 40 years, is spend my cash on radio advertisements - the message is simple - Wanted real estate, houses, commercial, lots, land or non-conforming properties. I find some great deals doing this, my commercials are branded and work well for me in finding deals - but the important thing is I DON'T WANT to own these property leads - I want to assignment them for a cash profit within 7-8 weeks -- oh, I am also an auctioneer and this is how I find the cash buyers - I put the property up for auction.

Some of my nationwide partners work with me on an ad/control/assign program - they pay for the ads, leads come to me, I qualify them and my associates look at the deals, submit a contract to control the property and we take it to auction and make cash profits.

I'd say forget about paying off debt now with your little pile of money - but grow it in a system that works with an honest investor who has a reputation of making money in this business.

Spend wisely ---- Charlie

Brenda Whittaker · Answer

@Sam Dragoslavic I would love to invest in the Dallas area.  I dont know anything about tear down and total new building but I do love single family renovations.

Sam Shueh · Answer

Put in the bank pay off some debts. If you do not have 6 months of reserve do not fall into the trap of many investors.

Brenda Whittaker · Answer

Thanks everyone!  To the question can i work, yes, but only part time and only minimal wage jobs, and they take your disability if you do so Id be almost in the same income position. I tried on line marketing, failed terribly, didnt make a penny, hated every moment of it.  Hate being on computers.  I have done 10 rehabs in the last 20 years, not professionally enough though, careless with the math. Rentals have provided income all these years but my mortgage is from borrowing against my home to build a machine shop, which is no longer alive.  I didnt just spend foolishly, but it was a failed business attempt. Been carrying this terrible 7% for 20 years now, paying off almost no principle.  I cannot sell my beloved home, its all I want in the world. I have been here 26 years, planted all the trees, raised my kids here, its too emotional.  All I want more than anything else in the whole world is to have my home back mortgage free as it was before I tried to go into the machine shop business.  No to bankruptcy, my net worth is too high for that and I know theres a better way. I can refinance the 7% with HARP to 3% if I pay off the judgement.  Then I would have a first at 3%, a second at 4.5% and could pay down the second a bit.  What I really want to do is flip enough homes in the next 2 years to pay it all off completely. Problem is I cant afford to lose any of it.

What to do with all this money

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