All Forum Posts by: Jonathan Lyford

I have my emergency fund/downpayment for next property sitting in an s&P 500 account. I don't let it go below 3 months work of expense; that three months of expenses would cover all of my personal living expenses and cover the mortgage on rental - everything. Once I get enough in there to buy another property, I will buy another, but I wont let it go below three months. In my opinion, you are asking for a disaster if you literally don't have any money. Also, since it is invested, it is making me something while I'm looking for the next place to buy.

3 Votes

Welcome! I just got Brandon Turner's books on real estate investing for Christmas and would recommend them. There are written in a very easy to understand, conversational style that is a good place to start. Rich Dad Poor Dad is great too; doesn't really go over so much the nuts and bolts of real estate, but more of a philosophical look at investing and is very motivating.

0 Votes

"My biggest fear is having low return and not being able to make the payments on all the mortgages especially my primary residence!" You kind of answered your own question :) If you are worried about that, than overleveraging yourself could result in you losing your primary residence if you can't cover all the payments. I would pay off the HELOC, so that my house isn't up as collateral if things go wrong. Grow a little but more slowly, but also be able to sleep at night. Also, hang on to a chunk of money as cash reserves so you're covered if things don't go right. just my two cents.

1 Vote

I don't know of a real secret.... Cut your expenses; sell your car, get rid of other debt/expenses. Work extra hours at your job. I would also look into house hacking. You could get an FHA loan for not much money down and get started that way. I think FHA loans are like 3-5% down. Sacrifice to save up that first down payment. Hopefully it would get easier after that. Good luck

0 Votes

Originally posted by @Joe Melody:

Has anybody ever tried to invest in real estate without any debt? I would like to take the Dave Ramsey approach to real estate investing, which is to pay off my primary residence, and then save cash for an investment property, acquiring more properties each time I save enough cash. I have a career that pays well that I enjoy, and I’d like to use the time before paying off my current mortgage to read as much as possible about real estate investing. Just wondering if anybody else has tried this much slower approach to gaining financial freedom. If not, I guess I will be the test dummy to see if it’s possible!

Welcome to BP! I am a Dave Ramsey guy too. My wife and I followed his program, and it has been amazing for us finically and also for our marriage. When we got to baby step 6, it didn't make much sense to me to pay off my mortgage early at 3.8% when I could invest at a higher rate. Over time, I moved a little bit away from Dave Ramsey and warmed up to using a little bit of debt to get started in real estate. I came in to this believing debt was horrible, so it has been a definite adjustment. You can do whatever you want to do. and yes, you can invest completely debt free, it just takes way longer, so in some ways you are losing money by allowing that time to go by. The more I looked at the numbers, I came to believe it was sacrificing net worth by waiting to be totally debt free. Debt does increase risk, but so does having a lower net worth than you could otherwise. Might I suggest a middle ground? Why not pay off your mortgage and buy a rental property with a big down payment, very short note (10 years maybe), and pay it off early?

0 Votes

That's awesome! congrats on being in a great position so young. Look into house hacking. That is a great way to get started. Essentially, you buy a place with 3-4 units, live in one, and rent out the other units. If that goes well, rinse and repeat.

0 Votes

Originally posted by @Maria G.:

Thank you, Jonathan and Aaron. I see neither of you mention the lease start, so that wouldn't play a role for you?

As for the credit, they are all pretty similar. All of them are working for high-tech companies and the main reason to apply for my property is to send their kids to a good school district.

My first priority would be getting the best tenant in there, regardless of the delay in starting the lease. I'd rather eat a little cost up front than be stuck with a bad tenant. Since it seems like they are all well qualified, the earlier start date might be that tie breaker. If you are worried about turnover, you could also see if they would sign a lease longer than a year. There are pros and cons to a longer lease, but if that was important to you that could also serve as the tie breaker between these three good applicants. Good luck!

1 Vote

They all sound pretty interchangeable to me. I would look at other financials, like their household income and savings, to be the tie breaker.

1 Vote

Originally posted by @Corey Hawkinson:

@Jonathan Lyford With more information the BP community could walk you through option 3. Let’s use my personal situation as an example. I had $130k in my 401k. My plan allows me to take a loan of up to 50% of the value or $50k, whichever is lower. Obviously in my case the $50k was lower. I just took a loan against this 401k as part of a 4-unit purchase. There are no penalties for this loan as long as I make all the payments, though there are risks. The main risk is that if I were to be laid off the whole loan balance would become due. So it can really backfire as I would be out of a job and owe $50k. I also do not receive the stock gains for that portion that has the loan. I made the decision to take this loan as the property I found should provide a better return, but I wanted to let you know of some of the risks.

If the 401k is not at a current job, you could look into a solo 401k. I have never done this and have never seriously looked into this so I don’t want to comment any further. However, you could search for many solo 401k discussions on Bigger Pockets.

Thanks for your input! I have about 90k in my 401k currently. My thought was a 401k loan for the down payment and then paying that back. I agree with your thinking that the return from a rental property would probably be better than from my actually 401k. my job is fairly stable, so I don't think I will get laid off, but I guess you never know for sure. In that event, I do have about 30k as an emergency fund, so I could probably pay it back, although then wouldn't have money left over to pay my bills. We are a 2 income family, and live well below our means, so could probably make it buy. I am interested in this concept, but also would be a little nervous that I would be stretching myself too thin. Maybe I could do sort of hybrid between both ideas; save up half the down payment through good old fashioned saving, and then do the second half with a 401k loan. I was looking at like 150k properties, so maybe 19K loan and 19K saved up? that might seem a little less risky. thanks for the information. so much to learn!

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Hi, I'm pretty new at this real estate stuff, so please take my answer with a grain of salt, but this is how I did it. I used the four square calculator on bigger pockets. That usually only calculates cash on cash return, but I added in other things as sources of income, even though they weren't technically monthly income. I added in appreciation and mortgage paydown. That gave me a pretty good sense of what the overall picture was, not just the cash flow. For example, my current rental has a slightly negative cash flow after all expenses are accounted for. However, because of where I'm at in the amortization schedule of the loan, I am paying off about 900$ per month in principle. Also, in the years that I lived in it(recently just turned it into a rental), it appreciated about 6,000 a year, and would probably accelerate from there, since the area is improving. So, I looked at the 500/month in appreciation and 900/month in principal paydown, and not just at the fact that it had a monthly negative cash flow. Factoring everything in, the picture us a lot different than just the monthly income. Hope that helps!

0 Votes

All Forum Posts by: Jonathan Lyford

Jonathan Lyford has started 5 posts and replied 55 times.

Post: Save for a emergency fund or invest?

Post: Good reading material to start with..withOUT getting overwhelmed

Post: I'm a Newbie Trying to Figure out The Next Step!

Post: Getting over the initial money hump

Post: Investing with cash only

Post: I have 100k saved up and I'm debt free

Post: What applicant would you choose?

Post: What applicant would you choose?

Post: Accessing money for next deal

Post: Cash Flow VS Net Worth - The Logistics