Is Your Personal Finances Holding You Back?

While being a member of BiggerPockets I can't help but wonder how many people are held back from investing because of their personal financial situation. Whether that be bad credit, student loans, car loans, credit card debt and the list can go on.  My biggest experience with people close to me is that bad credit or to much consumer debt is holding them back.  I'd like to let you know that a few years ago I went bankrupt and have bounced back stronger than ever.  Personal finance strength is really the key to being successful when you first start out.  I have met so many people that want to invest but their $450 a month car payment makes it impossible to save. Or there are those that have thousands in credit card debt and can't seem to make any headway. Everyday they read on BP or other sites about investing and they want to jump in so bad but deep down they're to scared to commit because they're already living paycheck to paycheck.  Well it's time to cut up those credit cards (or put them in a safe) and sell the car already! 

Have you ever went to apply for a loan and the loan officer starts questioning all your finances?  You start seeing where all your money is going and things start looking grim. Especially when they come back to tell you, "I'm sorry your debt to income ratios are to high."  You start back pedaling and sit the side line for years because that one person told you it wasn't possible.  Until you realize that the $25,000 car you're driving at $450 a month payment is holding you back, you will stay sitting on the side lines. If you have bad credit, you can still invest.  I'm proof that 3 short years later from going bankrupt I am on my way to my goal of financial freedom by investing in real estate. If you have to much consumer debt, you can still invest but first though you need to take a step back. If you have what is considered typical debt in today's world (car payments, credit card debt) this is killing your chances of investing. Investing in real estate can be your ticket out of debt.  But investing with to much consumer debt could be your ticket to where I was 3 years ago. Real estate investing is my road to financial freedom and it can be yours too. But if you try to start out investing with a whole bunch of other debt hanging over your head, you are one mess up away from disaster.

My first goal after going bankrupt was to build my personal credit up as strong as possible.  I knew that in order to succeed I had to show the banks I am responsible with managing debt and my personal financials.  What I did was get a credit card again around 6 months after being discharged. Sure that's how I ended up where I was before, but anyone that walks the path I did and actually, truthfully learns from it will tell you, you're thinking is changed forever. I started out with a $500 credit card limit. 1.5 years later between my wife and I we have over $80,000 in credit cards and credit lines. How much do we owe?  Less than 9% utilization and that's due to rehabbing a property.  I've taken my credit scores from the 580's to 680-700 range in about 1.5-2 years. Some credit lines/cards are in our personal name, some our business. Anyone with business credit when starting out will tell you that it's all based upon your personal credit at first.  If you have late payments, collections, you catch my drift, a bank is not going to trust you with their money. I keep my wife and I's credit file clean in order to keep growing our rental portfolio.  Make sure every month you make payments on time, get those collections removed from your credit. I'll post another blog on how to get collections removed from your credit report. Removing collections can spike your scores up by more than 50 points.  Some people get shocked when they hear how much credit cards/lines we have but they don't understand the concept behind it. Just because I have the ability to charge all kinds of stuff, it's the discipline that we have that keeps us straight and narrow. 

 My wife has always been financially smart and following in her foot steps, 1.5-2 years later I was standing in the "average" credit ratings.  Still though, every time we tried to finance a rental, they'd look at my wife's high credit scores, income etc. then they'd look at my income, then they'd see I have a derogatory mark... BOOM. Denied.  I kept working on our personal financials.  Paying every bill on time, paying things early.  I'd keep at it with adding a credit card or two when I felt the time was right and charging a little bit each month on them.  Making sure to pay it in full every month.  This started building trust again.  I'd increase our credit limits every chance I had, kept my wife's credit free from any blemishes and kept pushing on till I found myself in pretty good standings financially.  Once I had a good solid footing on my personal financial side, I saw my investing start to take off even with the bankruptcy on my record.  Finally hard work was starting to pay off.  When I went in to meet my commercial loan officer for the first time, he was shocked.  I had a bankruptcy that's consider "fresh" yet I had $34,000 in credit lines in my name with no balances.  From the discharge till today, I have no collections, no late payments and a considerable amount of credit lines. This showed the bank, I was on top of my personal financials. This is when things starting falling in place.

I know some of you are reading and saying I have a perfect credit history, but they keep saying my debt to income ratio is to high. Well I have news for you that you might not want to hear but it's a real wake up call once you see things in a different light.  How much are your car payments costing you each month? Do you have a $300-$400 car payment?  Well that's a $45,000-$55,000 rental investment. So each month you're driving that shiny depreciating daily car, you could be collecting rents instead and making the same payment.  Don't have a car payment but you have $10,000 in credit card debt and $50,000 in student loan debt?  Clean up that credit card debt as fast as possible. Every 90 days ask for credit line increases that way it lowers your credit utilization.  If you have over 30% credit card utilization, you're hurting your credit scores by as much as 25 points.  Lets say you have $5,000 credit card debt and have $7500 in credit lines, that's 67% utilization. That KILLS your credit scores and banks see this as high risk. What if you had the same $5000 in credit card debt but had $50,000 in credit lines? You now only have a 10% utilization.  Once you either flip a house or two or buy-hold rental, start knocking out student loan debts. Bankers everyday are looking at student loan debt effects and seeing that student loan payments really can hinder someone financially. 

When someone gets serious about starting to invest in order to obtain financial freedom, I know personally, I'd let nothing hold me back.  This year alone I have increased my rental portfolio by $310,000 and I've increased my wife and I's net worth by just over $100,000.  The years not over either.  As long as I keep my personal financials in check, our business can keep growing. My goal is to have grown by $500,000 this year.  Sure I may be moving faster than your goals, and I'm moving slow compared to others. The main thing here is that personal financials and the strength of it is key when starting out.  When banks see that I have over $80,000 in credit lines/cards available and I am using it responsible that gives them trust I manage my personal finances well.  Some will argue that banks will get scared if you have that much and I am sure at some point I'll hit that wall. However, if I money quick to cover something, I have more than plenty to cover whatever mess may pop up. 

Thank you for reading my post. This is my first one, so please be gentle!  I will continue to post more about how to increase credit scores, get debt collections removed, and how other things play a role in your start to investing.  My personal advice is if you have car payments that are making you pinch pennies each month and holding you back from investing. It's time to take a hard look at what really matters and possibly get rid of that car. Doesn't mean you can't have a car payment later but I'd rather make the same $300-$400 and net another $300-$400 off the rental income.  Comments welcome!