Author Topic: Path Forward... Advice needed!  (Read 734 times)

typicalmillenial

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Path Forward... Advice needed!
« on: January 30, 2019, 01:15:37 PM »
Hello everyone! While I have been a follower of MMM for a while now, this is my first post in the forums. I am looking for some advice moving forward. I know that their is not one answer to my situation,  but am very curious of the different perspectives offered in the community.

Age- 24
Employment- Second job, entered workforce in July of 2017
Savings- $35k (in an Ally savings account)
401k- 3k (I have not been maxing this out just yet. My focus has been on accumulating a lot of cash and then making a plan to move forward. Also, I recently got a new job and will be making different choices after speaking with our free advisers, but advice here is welcome also).
Before tax base- $67,000. Sales role and potential earnings of close to $100k in first year.

I understand that this is a very rough picture of finances, but it should be sufficient information for the question at hand.

My issue is concerning my investment strategy moving forward, and I have essentially narrowed it down to 3 options.

1) I have been learning about, and primarily saving towards, investing in residential real estate. I have an opportunity to put a decent sum of this $35k into a down payment (FHA loan) on a three family house. I am well aware of the analysis needed on these and all of the associated expenses. While living here, it would cut my housing expenses to about $300-$400/mo, and upon moving out would provide positive cashflow after accounting for a property manager. If done properly (i.e. the right tenants and the right property) this strategy could significantly boost my savings rate and snowball into more properties/other investments. If done poorly, my savings rate would be shot (evictions, etc).

2) Take my money and invest in low-cost index funds. Keep throwing money in here and diversifying as needed.

3) Do nothing except focus on making more money and keeping expenses low. I am a real believer in the possibilities of real estate, and maybe it would be better to accumulate more capital before beginning in REI to mitigate the risks associated. (this of course brings me back to choice #1 where I could save a significant amount of money more by dramatically cutting my living expenses!).

Anyway, I apologize for the long-winded post here, but any insight is greatly appreciated!!!

**Updates**
Property- 3 family building (each is 3BR and one bath)
Purchase price will be between $300,000 and $325,000. Market rent is $1300/unit.
The area cuts the commute to work in half. The new job is a "rotational program" and I am considered a protected employee for 2 yrs.
« Last Edit: January 30, 2019, 02:12:20 PM by typicalmillenial »

lhamo

  • Walrus Stache
  • *******
  • Posts: 9003
  • Location: Seattle
Re: Path Forward... Advice needed!
« Reply #1 on: January 30, 2019, 01:34:31 PM »
Aren't the terms for FHA loans very restrictive and virtually impossible to get out of?  If that is the case, then I would build more savings before buying a property -- with your income and the low expenses you allude to, it shouldn't be that hard to build up to a larger down payment for the next good property deal that comes along.

ysette9

  • Magnum Stache
  • ******
  • Posts: 3720
  • Location: Bay Area, CA
    • Insert Snappy Title Here (Journal)
Re: Path Forward... Advice needed!
« Reply #2 on: January 30, 2019, 01:36:52 PM »
From the little you have provided it would look like Option 1 is the best, but can you provide more details? How much is the property? How close is it to work? How stable is your job? How likely are you to have or learn the skills necessary to be a landlord?

typicalmillenial

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Path Forward... Advice needed!
« Reply #3 on: January 30, 2019, 02:21:48 PM »
Aren't the terms for FHA loans very restrictive and virtually impossible to get out of?  If that is the case, then I would build more savings before buying a property -- with your income and the low expenses you allude to, it shouldn't be that hard to build up to a larger down payment for the next good property deal that comes along.

It is my understanding that I could refinance out of this once the LTV reaches 78%. They are definitely more restrictive in terms of property conditions as well.

That said, there are various other loan products for first time buyers that require similarly low down payments, but will be viewed as conventional financing.

frugalfoothills

  • Stubble
  • **
  • Posts: 196
  • Age: 29
    • Bulls, Bears and Beers
Re: Path Forward... Advice needed!
« Reply #4 on: January 31, 2019, 11:16:53 AM »
Just chiming in to confirm that you can refi out of an FHA loan into a conventional loan once you hit the LTV threshold (I did it in 2018.)

BicycleB

  • Pencil Stache
  • ****
  • Posts: 529
  • Location: Live Music Capital of the World
  • Older than the internet, but not wiser... yet
Re: Path Forward... Advice needed!
« Reply #5 on: January 31, 2019, 07:09:38 PM »
Financially, I generalize that financial assets are as good as real estate, with the caveat that real estate results vary widely based on implementation and specific risks. In other words, real estate is a business not just an investment. Therefore don't bother investing in real estate unless you WANT to so much that you are going to develop above-average skill in it, and enjoy the process.

TL;DR - focus on work and stocks.

I will admit - half my stash is real estate equity. I live in a single family home and rent out rooms; rent is half my income and makes me modestly FI. House hacking can work.

I guess I just feel that posting a non-detailed post makes me worry. What I actually suggest is, post a more detailed case study in the real estate section and evaluate the investment itself. Then go forward if the investment itself is really strong.

Papa bear

  • Pencil Stache
  • ****
  • Posts: 822
  • Location: Ohio
Re: Path Forward... Advice needed!
« Reply #6 on: January 31, 2019, 10:10:40 PM »
Buy the house fha, fix it up while you’re there. Refi conventional loan while you still live there (primary residence has lower rates than investment property).

Put down as little as you can for the down payment. Use working capital to pay for improvements.

Start putting some money in tax deferred!  Do it all!

I did this back in 2010, when the gov was giving 8k tax credits for buying a house.  Bought a 2 unit, put down 7500, got 8 back from Uncle Sam, 1 side paid PITI, took on 2 roommates and got paid to live in a house I bought for free. Fixed it up, refi before moving out, got out of PMI and now I cash flow 2800/month on the place.  Talk about a house hack!


Sent from my iPhone using Tapatalk