All Forum Posts by: Charles Henning

Thanks for the comments all, I appreciate them, both positive and negative ;)

A few things:

1)  Disability - This is only applicable in that I can't 'work', and that I have to consider how I 'earn' money.  Anything I have coming in must be considered 'unearned' or 'passive' income.

2)  Age - My age is primarily a factor inasmuch as the time it will take to achieve my goals.  I am not looking to get rich quick or anything, and my goals are quite modest.  I am mainly curious about the practicality of putting in the next 12-13 years to achieve some measure of reliable income.

3)  Madness - I am honestly not sure why you think investing in real estate for me is madness.  I am sure that a fair bit of skepticism is warranted, but 'utterly catastrophic' seems a bit hyperbolic.  

You indicated that my financial situation was 'precarious'.  I disagree.  I accept that it isn't optimal, but then again, if it were, I wouldn't have even considered investing in the first place.  That is, after all, why I am where I am currently.

Either way, let me describe my financial situation and my plans and see if you still think I am mad.

I currently receive $1650 a month in disability.  My wife and I live frugally but comfortably on that amount.  My house is paid for, my other house has a mortgage but that is also paid by my mother.  If she were to die, I would sell that house immediately.  I have 2 cars that are paid for, and no debt at all, except for the house I rent to my mom.

My assets include $58k equity for the house my mom rents, $70k for the house I live in. $58.5k in my 401k (Because I am disabled and no longer working, I am not able to deposit any money in this 401k. I can either let it sit and pay fees or convert it to an IRA or cash it out (again , no penalty because I am disabled). My wife has 10k in her 401k. I also have a Credit Card with a $10k limit with an interest rate of 6.25% There is no balance on this card. I also have 15k in savings, but this is our emergency buffer and I won't be investing that.

Potential assets include 2 worker's comp settlements that we estimate should total $40k-$45k.  Additionally, when my wife is approved for SSDI, she will receive around $1200 a month in disability.

In terms of disability income, I will ensure that whatever I do will NOT affect this income.  This income will not be put 'at risk'.  By this I mean that any debts, loans, mortgages, repairs, etc., will not have to be paid for out of our disability income.  I will ensure that I have a cash reserve that will cover any reasonable expenses.  

For example, if I cash out 45k from my 401k, I would reserve 5k to cover expenses that are not covered by rental income.  If I get a mortgage and for some reasons the house was vacant for some months, this would be paid for by the cash reserve.  

As long as I plan effectively so that our current income is not at risk, my only risk would be what I choose to invest from our assets.  If my investments failed so spectacularly that I lost all everything I invested, our lives would remain unchanged, except that we no longer have a 401k asset.  Frankly, this asset is small enough that the benefit of not putting it at risk is fairly small.  60k isn't going to make much of a difference in the grand scheme of things.  It mainly means we may not take as many vacations.

This leaves me wondering...

What exactly is it about my situation that you deem it so perilous for me to invest?

I think we will be able to start with 3 homes at about $40k each all in (purchase plus rehab).  We would own them free and clear to start and let the PMC get them rented.  This would involve cashing out my 401k (no early withdrawal penalty because I am disabled), cash from worker's comp settlements (insurance company has already accepted responsibility for 2 claims and a third is contested so I am not counting that one), and taking out a Home Equity Line of Credit against the home I am living in.  

After that, I am not sure how to maneuver.  I could see taking out loans against those 3 to buy more.  Not sure how that would work exactly.  Would I be able to bundle them and take out a single loan against all three or have 3 separate loans, or would I only be able to get a loan on one house?

I am assuming that if I waiting for about 12 months after getting them rented, I would be able to show the bank that income, since my disability would definitely not be enough to qualify.  Besides, I want to do this in such a way that my disability income is not "at risk".  

What I mean by this, is that I don't want to have to use any part of my disability income to service loans or pay for anything related to these investments.  My wife and I would simply live off my disability, which is what we do now by being extremely frugal.

Alternatively, if I am not able, for whatever reason, to get additional loans to invest more, I would plan on re-investing all profits and income earned from the first 3. Most likely by quickly paying down the HELOC until I have enough to pick up another home. That would sure slow down progress, but I figure that after 2-3 years I should have enough income history to justify an additional loan.

I clearly have a lot to learn :)

Charles

My concern with refinancing early is that I currently have a fixed income that wouldn't support the loan.  Also it is SSDI which isn't subject to garnishment should I default, which makes lenders even more skittish.  I have good credit, and the only debt I have is my home in Idaho.  Everything else I have is free and clear, including vehicles and the home I live in currently.

I am assuming that it would be easier to finance homes if I could show rental history for 12 months, including showing cash reserves available for repairs, vacancies, etc.

I would strongly consider selling/renting my existing home after having the first couple of properties working for me.  A lot would depend on how much rent my house could generate vs. how much I could sell it for.  I have some work to do to determine  the market in the town in which I live, although I do not have plans to invest in this town because there isn't really anything keeping this tiny little town afloat.  

My wife and I would consider moving into a low cost home to free up this more expensive home for rent or sale.  If I did decide to rent it, I would consider financing it to fund additional properties.  It would largely depend on which generates more income.

Charles

I am 51 years old and disabled. My primary (and currently only) source of income is SSDI (Social Security Disability Insurance). My wife is currently unemployed, and has also applied for disability and her case is pending. she also has a couple of Worker's Compensation cases pending.

I have a limited amount (not quite 60k) in my 401k, but because I am disabled, I am able to withdraw the full amount of my 401k without any penalty, I only have to pay the upfront taxes (20% Federal, 5% State).  Other assets include a home I own in Idaho (my mom rents this) that is worth $144k and I owe $91k on it.  My mom is 75 and pays me $850 a month (very low I know) which is enough to pay the mortgage and a little bit extra (about $80).  I also own a home in Oklahoma, where I live, which we rehabbed for ourselves.  We put about $50k into the house, and it should be worth about $70k.  

Because I am disabled, I cannot do any of the work myself, so would be hiring a property management company (PMC), contractors (I know a good one that works cheap), and my role would only be buying properties and arranging rehabs and assigning them over to the PMC.  As long as I don't do any of the value-add work, any income generated should be passive and would not affect my disability payments.

My wife and I expect to receive about $30-45k in settlements for her worker compensation cases.  

My plan would be to not put at risk any funds paid to us for disability.  This is how my wife and I would live, strictly off of that fixed income.   I would like to use my 401k and workers compensation awards as my initial investment, and start generating passive income which would be reinvested back into the business to acquire additional homes.  My target is to look for distressed homes for about 25k or less that can be rehabbed such that I have about 40k-45k total invested.  

I would buy the homes with cash, rehab them and hire a PMC to deal with the rest of it.  After about 12 months of income, mortgage the home to fund additional properties, again paid with cash and rehabbed.

My overall goal would be to have around 3k-5k a month in passive income for when I hit 65 (about 12 years).  

Am I too old to start this process?  Is my plan reasonable?  Are there better strategies I might use?

Charles