Author Topic: Pay off CC or buy first fourplex  (Read 13319 times)

Justaerin

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Pay off CC or buy first fourplex
« on: July 06, 2015, 01:07:58 PM »
I'll preface this by saying that I feel foolish even having to ask this question - mostly because I'm in such a situation in the first place.  I am quite embarrassed by the debt but am very motivated to escape and move forward toward FIRE. I'm glad to write this out because it shows what an idiot I've been, and that is a striking and motivating incentive.

I currently have just over $16k in 0% CC debts.  I was at $0 before a cross-country move for a new job that is a much better opportunity - much better cash flow each month despite an increase in living expenses.  Most debt is from the move. I am paying the minimums on these.

I have a personal loan that is $5500 @ 13.5%.

I also have a $37k @ 2.85% vehicle loan.  I am aggressively trying to sell it for just what I need to pay off the loan.  It's been up for sale on a consignment lot for 4 weeks.  A dealer has offerend me $34,500 to buy it straight up.  I am considering this offer as it would free up $550/mo despite leaving me with a $2500 debt. I own a 96 4-runner that I use for transport.

I pay $1200 in rent and utilities.

No cell phone, internet, or cable bill (I work for an ISP) though I do pay for netflix (because, despite free cable, I do not own a TV).

Average net pay (over the last 10 pay periods) is $2875 every two weeks.  Base net pay is $2015  every two weeks.  That is with 10% taken out for a currently unmatched 401k.  In January I will start getting a 100% match at 10%.  From this net pay I am able to put into savings anywhere from $700-$2500 per month (varies due to overtime).

I have $23,000 in 401k accounts, and $4500 cash savings.

That's the thousand-mile view.  Let me know if anything else is needed or relevant.  I didn't intend this to be a case study, but if it would be better-formed that way then I will.

The question is this - should I aggressively pay off every cent of debt or aggressively save the 6 month reserves I need to buy a fourplex?  In this area, just under the 1% rule is common.  I will be using a VA loan, so down payment is not an issue.  With a VA loan I can buy at max a fourplex (as far as units go) and at a ceiling of $625,000. I must occupy one of the units.

The reasoning: Though I will be paying myself rent, I will see a monthly cashflow of about what my current rent is (on, say, a $550,000 property with all units occupied). I am also taking into account all the associated risks of vacancies and taxes and whatnot, though still learning more every day. But once the vehicle loan is gone and if I can buy a 4plex... that's about $1750 MORE per month I'll be able to save, on top of my already $700-$2500. In my head, owning a 4plex will allow me to have a total monthly cash savings of $2450-4250 to put toward another 4plex. I have a VERY trusted real estate agent who is a close friend and deals primarily with VA loans and investment real estate, as well as a trusted lender who is a close friend of some close friends.  Both are very excited about helping, both are also RE investors themselves and do incredibly well.

I have obviously made some mistakes to get me here, the vehicle loan being the primary.  The other debts are mostly due to trying to "buy" myself into a better financial situation (how dumb is that, now that I write it?). The CC debt to move myself here was something I saw as an investment to get myself to a better financial situation.  As much as it sucks to have the CC debt, I make enough now to pay it off within a year easily, so that decision is arguably wise.

I don't want to make stupid mistakes because I'm so anxious to move toward FIRE.  MMM's "Your debt is an emergency" article says that other than your primary residence or a profitable investment, every cent should be paid toward debt.  I see a 4plex, multiple 4plexes, as profitable investments.

I'd hate to work toward paying off debts and not have the cash reserves to buy a great property when it comes up.  I've missed two such properties, so that increases anxiety and motivation.  Having any debt though is hugely anxiety building.  My drive to be debt free is huge, my drive to move faster toward FIRE is huge; I want to do them both in the best way possible and want to start right. 

What say?  CC debt first, then build reserves for a great property (far longer time)?  Or save reserves for a property that could help me wipe those CC debts out within a few months?  Should I stop contributing 10% until my company matches?  Sell the vehicle at a $2500 loss just to be free of the payment?

Too many variables here for me, and too much emotional investment into the situation.  I need some cold advice and some motivating inspiration please. I should be able to do a lot with my current savings rate, I just don't know what exactly!

affordablehousing

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Re: Pay off CC or buy first fourplex
« Reply #1 on: July 06, 2015, 01:18:17 PM »
I would pay the personal loan off first. And $37,000 for a car?!?! That should buy you ten used cars. The decision to buy a multi-family property shouldn't just be whether it pencils rent-wise to make you some money every month, but whether you want to be a landlord. It is work. It's a heck of a lot easier to just buy dividend stocks or index funds.  If you have $4500 in savings, why are you paying 13.5% interest on $5500? I don't get it. It might make sense to earn some money and pay down your debts before getting a VA loan to leverage yourself to the chin.

MDM

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Re: Pay off CC or buy first fourplex
« Reply #2 on: July 06, 2015, 01:20:03 PM »
What say? CC debt first, then build reserves for a great property (far longer time)?  Or save reserves for a property that could help me wipe those CC debts out within a few months?  Should I stop contributing 10% until my company matches?  Sell the vehicle at a $2500 loss just to be free of the payment?

See above.  Others may differ.

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #3 on: July 06, 2015, 01:20:55 PM »
I'll preface this by saying that I feel foolish even having to ask this question - mostly because I'm in such a situation in the first place.  I am quite embarrassed by the debt but am very motivated to escape and move forward toward FIRE. [snip]

The other debts are mostly due to trying to "buy" myself into a better financial situation (how dumb is that, now that I write it?).

From where I sit (also in debt-payoff mode) if you let your debt ride and prioritize buying real estate, then you're repeating this pattern with different details.  I would not want $625k in NEW debt riding on my shoulders along with the debt you have now. 

One word comes to mind:  OVERLEVERAGED.   

Pay off your current debts.  Then saved a 6-month cushion.  Then buy RE.

johnny847

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Re: Pay off CC or buy first fourplex
« Reply #4 on: July 06, 2015, 01:21:58 PM »
To be honest I don't see how this is even a question.

Pay off your debts, especially before you take on even more debt.

oldladystache

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Re: Pay off CC or buy first fourplex
« Reply #5 on: July 06, 2015, 01:29:16 PM »
Nooooooooooooooooooooooo!

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #6 on: July 06, 2015, 01:40:02 PM »
Thanks all.  Pretty sure I knew the answer before I asked it.  I have a few different circles of very well-off friends and had a few different pieces of advice.

One recommendation to sell the vehicle at a loss as opposed to letting it sit on the consignment lot for a few months - any others?  For the $2500 loss to make sense, I'd have to let it sit for about 4 months (give or take half a month for the lost opportunity on using that extra cash to pay off CC debt).

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #7 on: July 06, 2015, 01:57:39 PM »
When I found MMM (April, 2013), I also had a very expensive, stupid car (a 2008 BMW 128i convertible).  I started trying to sell it in May and HOLY COW was it hard to sell.  I finally took it to CarLotz (consignment) in July and it sold before the month was out.  I allowed them to price it below market because I knew that I had to sell it in July or August because after Labor Day, it would never sell in my climate.

I had to cough up $1500 to CarLotz because, like you, I was underwater.  It was worth it. 

That said, let's approach this rationally rather than emotionally:

You owe $37k and have priced it at that, but what's the market value?  Is your price under that?

The dealer has offered you $34,500 so you'd lose $2500 if you took that price.

The payment is $550. 

.......

Assuming the market value is $37k and assuming your July payment isn't due until the 15th.... What if you re-priced it below market right now at $36k so you could sell it this week -- before you had to make the July payment?   You could even price it at $35,500 and do better than the offer from the dealer, couldn't you?

Basically, run the numbers and find the sweet spot of below-market price to move it quickly but maximum amount possible to reduce your loss. 

MissStache

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Re: Pay off CC or buy first fourplex
« Reply #8 on: July 06, 2015, 02:15:21 PM »
Dude.  Sell the car and eat the $2500.  Pay off the rest of your debt with your savings.  Then build up a big emergency reserve. THEN you can start thinking about saving for real estate.  Don't get into more debt- that is not the answer to your problems.  And trust me, as a very recent property owner, you better have some serious cash reserves to deal with all of the unexpected problems that come up when you own property.  That shit is expensive.

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #9 on: July 06, 2015, 02:21:59 PM »
Hey TrulyStashin,

Thanks for the input!  I've considered this scenario as well.  I currently owe $36,867.38.  Price on the lot is actually at $37,900 to account for the consignment lot's $900ish fee.  I was going to call them today and have them drop the price, since I know there has been some interest.  You're probably right that I should price it to sell between what I owe and what the dealer has offered me... I do very much want it gone, but I have spent so much money to try implementing my money saving that I make really dumb mistakes like this...

Market value is about $37,350 per NADA clean trade in.  That happy medium is difficult to sort out, I want to move it quickly but I don't want to get too anxious and waste more money selling it sooner for cheaper, you know?

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #10 on: July 06, 2015, 02:25:28 PM »
Thanks MissStache,

I am beginning to agree, I just needed the wisdom of a community focused on the values I hold.  The freedom seems to be worth the loss, even if a bit of patience would give me an extra $1500 or whatever.

MDM and AffordableHousing, also great advice and much appreciated.

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #11 on: July 06, 2015, 03:03:38 PM »
Price it at $36,800 but let them negotiate down to $36,500 if necessary.  You eat the $900 fee but get enough to pay it off (or close enough).

To shoppers, that looks like a bargain so it will hopefully move before you have to make the July payment. 

Trust me, you will feel like a million bucks when it's gone! 

Gin1984

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Re: Pay off CC or buy first fourplex
« Reply #12 on: July 06, 2015, 03:06:41 PM »
So I am going to go against the grain.  Sell the car and take the four months to make up for the loss, yes but really you need an EF and that EF can be part of the six months you need.  However, you also need to cut your debt along the way.  So, first four months, pay off the car (and sell).  Now you have opened up $550.  Now you have a minimum of $1250/month free to either pay debt or save.  However, you need $34500 for the six month reserve and $21,500 for the debt (outside the car).  You have $4500 in savings. Which means it would at max take you almost four years to both kill the debt and have EF.  That is too long in my mind.
So, what I would do, after the car is sold and the debt paid (four months), is start saving for the EF while looking for the four-plex.  This can take a while, I know finding the right duplex took us about six months, it may take you longer .  Use that time to save.  In six months you would have $12000 which is not enough but with OT you might do ok.  Also find things to cut for the time you are looking.
That said, while this going on find another zero percent offer and roll that personal loan into it.  That rate is insane.

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #13 on: July 06, 2015, 03:08:09 PM »
Dude.  Sell the car and eat the $2500. 

This approach is tempting, but remember that our goal is to learn to make financial decisions based on rational analysis rather than emotion.  This approach is emotionally pleasing but irrational. 

Analysis is your friend.  ;)

partgypsy

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Re: Pay off CC or buy first fourplex
« Reply #14 on: July 06, 2015, 03:08:28 PM »
Hey TrulyStashin,

Thanks for the input!  I've considered this scenario as well.  I currently owe $36,867.38.  Price on the lot is actually at $37,900 to account for the consignment lot's $900ish fee.  I was going to call them today and have them drop the price, since I know there has been some interest.  You're probably right that I should price it to sell between what I owe and what the dealer has offered me... I do very much want it gone, but I have spent so much money to try implementing my money saving that I make really dumb mistakes like this...

Market value is about $37,350 per NADA clean trade in.  That happy medium is difficult to sort out, I want to move it quickly but I don't want to get too anxious and waste more money selling it sooner for cheaper, you know?

I would try to sell it for 36900 which would reduce your losses. And if no offers in a week or two, take the dealer's offer.

 
« Last Edit: July 06, 2015, 03:11:25 PM by partgypsy »

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #15 on: July 06, 2015, 03:13:36 PM »
Hey TrulyStashin,

Thanks for the input!  I've considered this scenario as well.  I currently owe $36,867.38.  Price on the lot is actually at $37,900 to account for the consignment lot's $900ish fee.  I was going to call them today and have them drop the price, since I know there has been some interest.  You're probably right that I should price it to sell between what I owe and what the dealer has offered me... I do very much want it gone, but I have spent so much money to try implementing my money saving that I make really dumb mistakes like this...

Market value is about $37,350 per NADA clean trade in.  That happy medium is difficult to sort out, I want to move it quickly but I don't want to get too anxious and waste more money selling it sooner for cheaper, you know?

Try $36300. And if it doesn't sell in a week or two, take the dealer's offer.

OP, have you made the July payment yet?  If not, when is it due?


I'd agree with this price IF the July payment is due this week (instead of the 15th) -- you need to move the car tomorrow or Weds for it to credit in time. 

But, if you have more time or have already made the July payment then pricing it at $36,800 is a better strategy.  If it doesn't move at $36,800, THEN you can drop it to $36,300 to dump it before you make the payment.

Modified to add:  The dealer's offer does not become your best option until you get to the point where (the price at the consign shop) - (monthly payment due + the consignment fee) < $34,500.  Until then, leave it at the consignment shop.
« Last Edit: July 06, 2015, 03:19:03 PM by TrulyStashin »

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #16 on: July 06, 2015, 05:24:16 PM »
I haven't made the July payment yet.  It is due on the 20th.

Just talked to the consignment lot, they offered me $34,000.  I will try to get a new number from the dealer here and see if it is at $34,500, but I'll have to use $34,000 for my calculations at this point.

I had them drop the price to $36,995 (their fee is actually $995).

They said if I sold it to them for $34,000, I'd have to bring in the balance of what I owe to the lien holder in cash.  Or I can just use cash to pay it down at the bank prior to selling it to them.  I do currently have the cash to pay that down and get off the hook, but as TrulyStashin said, consignment price of $36,995 - ($550 payment [and insurance] + $995 fee) = $35,450.  So at that price it'd only make sense to take their offer if it didn't sell in another 3 months of payments at $550.  Assuming their price doesn't change, and who knows on that.  Right now this vehicle is incredibly common in my area and every lot has a ton of them.

I would really love to be free of it, and I would like to take that additional $550 and use it to help me slay that debt and just move the fcuk forward with my life. Being smart and patient is hard - especially when I am not either.

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #17 on: July 06, 2015, 05:45:28 PM »
I haven't made the July payment yet.  It is due on the 20th.

Just talked to the consignment lot, they offered me $34,000.  I will try to get a new number from the dealer here and see if it is at $34,500, but I'll have to use $34,000 for my calculations at this point.

I had them drop the price to $36,995 (their fee is actually $995).

They said if I sold it to them for $34,000, I'd have to bring in the balance of what I owe to the lien holder in cash.  Or I can just use cash to pay it down at the bank prior to selling it to them.  I do currently have the cash to pay that down and get off the hook, but as TrulyStashin said, consignment price of $36,995 - ($550 payment [and insurance] + $995 fee) = $35,450.  So at that price it'd only make sense to take their offer if it didn't sell in another 3 months of payments at $550.  Assuming their price doesn't change, and who knows on that.  Right now this vehicle is incredibly common in my area and every lot has a ton of them.

I would really love to be free of it, and I would like to take that additional $550 and use it to help me slay that debt and just move the fcuk forward with my life. Being smart and patient is hard - especially when I am not either.

Then what a wonderful opportunity this is for you to improve!  ;)  Plus, the longer you're in pain the more you'll remember how badly this sucks which will help you fight off future temptation.

I like your analysis.  For now, hang in there and drop it in increments until it sells.

kpd905

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Re: Pay off CC or buy first fourplex
« Reply #18 on: July 06, 2015, 06:35:50 PM »
If you have credit card debt you should make that your priority before any type of investment opportunity except for a 401k match.

MoonShadow

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Re: Pay off CC or buy first fourplex
« Reply #19 on: July 06, 2015, 07:38:50 PM »
You are not ready for investment property with that kind of debt. There are many surprise expenses with rental property, and you are not in a position do deal with surprises.  Pay the debt first.

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #20 on: July 06, 2015, 07:55:23 PM »
I thought the debt being at 0% would open some doors for me.  In reality, it's a mental health and discipline repair that I need to focus on, and giving myself a good foundation will get me to FIRE a lot faster than stressing myself out being leveraged to the hilt.  I think.  Right guys?

MoonShadow

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Re: Pay off CC or buy first fourplex
« Reply #21 on: July 06, 2015, 08:59:21 PM »
I thought the debt being at 0% would open some doors for me.  In reality, it's a mental health and discipline repair that I need to focus on, and giving myself a good foundation will get me to FIRE a lot faster than stressing myself out being leveraged to the hilt.  I think.  Right guys?

Yes. Develop the mental discipline by paying off your debts, even the 0% debts, and shortly afterwards you should have the down payment necessary to invest in rental property, if that is what you still want to do.  If you can't fix yourself first, you will just end up in debt again the next time you fall off the 'mustachian' wagon.  And if you are anything like me, and everyone I know, you will fall of the wagon many times before you are ready to drive the horses.

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #22 on: July 07, 2015, 07:20:14 AM »
I thought the debt being at 0% would open some doors for me.  In reality, it's a mental health and discipline repair that I need to focus on, and giving myself a good foundation will get me to FIRE a lot faster than stressing myself out being leveraged to the hilt.  I think.  Right guys?

Yes. Develop the mental discipline by paying off your debts, even the 0% debts, and shortly afterwards you should have the down payment necessary to invest in rental property, if that is what you still want to do.  If you can't fix yourself first, you will just end up in debt again the next time you fall off the 'mustachian' wagon.  And if you are anything like me, and everyone I know, you will fall of the wagon many times before you are ready to drive the horses.

This is so very true.  Debt is a Siren and when you're in deep and have a long time before it's paid off it is extremely hard to chug along, discipline intact.   Mastering that is what opens doors.   Your future self will be grateful.

snogirl

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Re: Pay off CC or buy first fourplex
« Reply #23 on: July 07, 2015, 07:48:39 AM »
I thought the debt being at 0% would open some doors for me.  In reality, it's a mental health and discipline repair that I need to focus on, and giving myself a good foundation will get me to FIRE a lot faster than stressing myself out being leveraged to the hilt.  I think.  Right guys?

Yes Financial Mental Health & discipline is the bedrock.
I realized debt is a very slippery slope.  After years of great employment/salary/fancy pants cars & toys.
The tipping point was purchasing a fixer upper duplex that sucked me dry (had flipped a few houses in the past).
My income had changed (due to military retirement) and I wasn't prepared. Soooo I put the plug in the jug so to speak.
1.) Adopted Purchasing pause
2.) Count every cent I spend in notebook
3.) Sold all extra crap I didn't need or use
3.) All extra money from 1,2,3 to debt
4.) Build EF

Following this it took a year to pay off $30k in CC debt.  Your income is higher so yours may go faster.
After doing this, my priorities totally shifted. 
I no longer want to be a landlord or maintain the lifestyle I thought I wanted.
With my military retirement and making changes I rather live quite simply & inexpensively.
Once you take a pause and cultivate your strategy, it will become more clearer for you.
Good luck.
ps.  I do not know what to do about your 37k vehicle but that 4 Runner is bad-@$$ & will run forever.
Keep us posted :)



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Re: Pay off CC or buy first fourplex
« Reply #24 on: July 07, 2015, 11:31:44 AM »
you may have a hard time unloading the car privately with an existing lien.  Make sure you have things lined up with mechanics of paying off the lien while transferring title.  Unfortunately, this eliminates several potential buyers.

What did you buy with your CC?  Anything that you can sell?

I have upwards of $40K in 0% CC debt, but I did it to build a house (just started) instead of using a bridge/construction/mortgage loan and will be able to easily pay it off by conclusion of introductory rates.  USAA let me use $25500 with no transaction fees.  Citi double pay (2% cash back) and 15 months 0% offsets the 2% my building supplier charges me to pay with a CC, Chase deposited $15,000K in my checking for a one time 2% fee

Some on here are making this sound more dire than it is.  Frankly, someone with a $400K mortgage and $~1200 interest payment is probably worse off.      Yes, you have some undesirable debt, but roll it all to 0% or comparable offers and stay disciplined about paying it off before rates expire and stay away from the four plex.

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #25 on: July 07, 2015, 11:47:34 AM »
you may have a hard time unloading the car privately with an existing lien.  Make sure you have things lined up with mechanics of paying off the lien while transferring title.  Unfortunately, this eliminates several potential buyers.


I was in OP's situation in 2013 -- underwater on a BMW -- and had no trouble selling it even with the existing lien. 

The consignment dealer I used sold the car and handled the title transfer.  They received the buyer's money, took their cut, paid off my loan, and billed me for the balance due (about $1500.00; due immediately).  I was in bad financial shape at that time (had just begun righting my ship) and I actually had to take out a loan to pay the $1,500-ish I owed to the consignment dealer. 

I never met the buyer, never handled the sale transfer paperwork, and the buyer probably never knew there was a lien on the car. 

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #26 on: July 07, 2015, 12:18:46 PM »
Thank you everyone for the insight and motivation, it has been very helpful. As DoNorth said, I do not find my situation dire at all; I save more than enough to get myself out of this without much damage or even time - I just needed to find the best route out.  I believe I'm on that route because of everyone's guidance here.

Last night I was able to refinance my remaining debt to 0% for a 1% fee.  All of my CC debt is now at 0%.  I also spoke to an interested buyer in my Jeep last night, as well as a dealership who may offer me a pretty attractive purchase price (he stated probably around $35,000 based on the stats I gave him), so I'm going to get an official appraisal on that today and see what happens with the buyer tomorrow.

I didn't really buy any "things" with this debt (other than the Jeep, which is going ASAP); I bought myself a cross-country move and a 4-runner (`96, $3500) and a road trip that got more expensive than I anticipated, as well as a month with no income whatsoever. So a combination of stupidity and strategic maneuvering.

I'm working on calculating my minimum monthly payment for each card to ensure they're paid off during the promotional 0%.  Having refinanced my highest % debt, I now have the cash savings as a decent EF and can throw my savings each month toward paying everything off and building up reserves to buy a fourplex by next summer.

I think most of my anxiety actually comes from not being in a place of freedom from debt and and freedom to travel and see the world - not really the debt itself, but what the debt shackles me from.  I've had three friends, all about my age (mid 30s) recently die from falls during climbing or hiking.  All separately, in different areas of north america.  It really highlights how unimportant "things" are, and how important freedom to go experience the world is.  Three friends passing so young (one having just survived an intense battle with cancer) makes me feel guilty squandering my life slaving away wearing golden handcuffs, and I am intensely motivated to escape. I think that's why I was so focused on getting a fourplex - it seems like an amazing first step to having FI income.  Maybe I'm wrong.  I always intended to get a property management company and a few fourplexes and wash my hands of this whole "working" racket.  A few articles I've read have suggested that REITs might be a better return, so I need to do more research definitely.  All I know is that I can save a lot, and I want to be free ASAP.  I just want to do that in the wisest way possible and start living my life.

frugaliknowit

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Re: Pay off CC or buy first fourplex
« Reply #27 on: July 07, 2015, 02:38:49 PM »
1.  Why are you contributing unmatched 401K when you are buried in debt?

2.  The 4plex:  Fagetaboudit!  Clean up your mess and establish an appropriate cash reserve.  Also consider the costs of a VA loan versus conventional (I've read the fees and insurance are a rip...).  Are you sure you want to be a landlord?

Gin1984

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Re: Pay off CC or buy first fourplex
« Reply #28 on: July 07, 2015, 03:05:22 PM »
1.  Why are you contributing unmatched 401K when you are buried in debt?

2.  The 4plex:  Fagetaboudit!  Clean up your mess and establish an appropriate cash reserve.  Also consider the costs of a VA loan versus conventional (I've read the fees and insurance are a rip...).  Are you sure you want to be a landlord?
If your debt is low (say 0%) why would you not put money in your 401k?  And, many landlords use debt wisely.  I think people are being harsh here.  Yes, there were screw ups but seriously debt that is now at 0% is not a huge deal.

dess1313

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Re: Pay off CC or buy first fourplex
« Reply #29 on: July 07, 2015, 03:28:18 PM »
kill the car loan first.  sell it and finish up the loan in the next 4 or so months.  You'll also have no insurance to pay.  Now take that payment and put the remainder towards your personal loan and use some of your cash savings.  finish that.  the 13/5% is horrible.  Then take all the money you were using to pay the other debts to tackle the CC debts.  build at least a little bit of an emergency fund. 

If you go now for your 4plex, you're going to be over leveraged, and if any minor thing happens you'll be in over your head.  You're sounding stressed right now do you think adding a half a million dollar mortgage is going to make it any easier?  There's bound to be some closing costs and such you'd have to pay as well that i don't know if they are accounted for.  That will take a bite out of current cash flow too.

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #30 on: July 07, 2015, 03:52:33 PM »
1.  Why are you contributing unmatched 401K when you are buried in debt?

Like Gin1984 said, if I'm at 0% on all debts, which I now am (other than the Jeep which is going soon), it would seem foolish to not pull pre-tax funds for a 401k.  I'm coming out 33% ahead on that 10%, I believe.  Anyone feel free to correct me if I'm wrong.

kill the car loan first.  sell it and finish up the loan in the next 4 or so months.  You'll also have no insurance to pay.  Now take that payment and put the remainder towards your personal loan and use some of your cash savings.  finish that.  the 13/5% is horrible.  Then take all the money you were using to pay the other debts to tackle the CC debts.  build at least a little bit of an emergency fund. 

If you go now for your 4plex, you're going to be over leveraged, and if any minor thing happens you'll be in over your head.  You're sounding stressed right now do you think adding a half a million dollar mortgage is going to make it any easier?  There's bound to be some closing costs and such you'd have to pay as well that i don't know if they are accounted for.  That will take a bite out of current cash flow too.

The 13.5% debt is at 0% as of last night, and my EF is at about $4500 currently.  All debt is 0%, just got a great offer on the vehicle, should have a huge amount per month to throw at CC debt.  I have long since stopped spending on my CCs, I have carved out a strict amount of cash I live on.

Once the debt is 100% gone, then I must start implementing the next phase of my FIRE plan. The most efficient way of doing that with a spare several thousand dollars per month while I am renting - I don't know; but it seems like I could do a lot more with it than max my 401k and a roth.  I don't know if I'll want to be a landlord or not, or whether I want to own a 4plex and live in it, or hire a property management company - but I won't know any of that unless I try.  I still have mistakes to make and opportunities to seize.  I'll still be here for ideas and motivation and tips and all that, I'm sure.

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #31 on: July 07, 2015, 03:56:20 PM »
Once the vehicle is gone, based on my average savings per month, I should be free of all debt within about 7 months. That's assuming no bonuses or raises, both of which I get multiple times a year.

MoonShadow

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Re: Pay off CC or buy first fourplex
« Reply #32 on: July 07, 2015, 05:15:09 PM »
1.  Why are you contributing unmatched 401K when you are buried in debt?

Like Gin1984 said, if I'm at 0% on all debts, which I now am (other than the Jeep which is going soon), it would seem foolish to not pull pre-tax funds for a 401k.  I'm coming out 33% ahead on that 10%, I believe.  Anyone feel free to correct me if I'm wrong.

33%!?  Good lord! How much do you make? I earned over 100K last year and still fell into the 15% AGI tax bracket after deductions.  In my opinion, you would be better off putting those funds into an IRA or Roth IRA than a 401k that doesn't have a match.  The investment choices are almost always better, and you don't have to worry about your funds being "vested".

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #33 on: July 07, 2015, 10:51:13 PM »
33%!?  Good lord! How much do you make? I earned over 100K last year and still fell into the 15% AGI tax bracket after deductions.  In my opinion, you would be better off putting those funds into an IRA or Roth IRA than a 401k that doesn't have a match.  The investment choices are almost always better, and you don't have to worry about your funds being "vested".

I generally make between $80K and $110(ish)K.  My pay rate is $34/hr and my net pay rate is $25.19/hr now that I live in this new state.  So I take home 74% of my check.  Previously in other states I just knocked off 33% of my gross and was never too far off. Includes things like unemployment, SS, health insurance, all that stuff.  Maybe I'm miscalculating or misunderstanding, but I do know for certain that I'm at $34/hr gross, $25.19/hr net as of this new state. I should probably be somewhat ashamed that I don't have all the other numbers identified with 100% certainty.

MoonShadow

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Re: Pay off CC or buy first fourplex
« Reply #34 on: July 07, 2015, 10:56:15 PM »
33%!?  Good lord! How much do you make? I earned over 100K last year and still fell into the 15% AGI tax bracket after deductions.  In my opinion, you would be better off putting those funds into an IRA or Roth IRA than a 401k that doesn't have a match.  The investment choices are almost always better, and you don't have to worry about your funds being "vested".

I generally make between $80K and $110(ish)K.  My pay rate is $34/hr and my net pay rate is $25.19/hr now that I live in this new state.  So I take home 74% of my check.  Previously in other states I just knocked off 33% of my gross and was never too far off. Includes things like unemployment, SS, health insurance, all that stuff.  Maybe I'm miscalculating or misunderstanding, but I do know for certain that I'm at $34/hr gross, $25.19/hr net as of this new state. I should probably be somewhat ashamed that I don't have all the other numbers identified with 100% certainty.

I see, you are taking a net total after all taxes and deductions, then.  Well, that can vary greatly between states, cities and employers' benefit plans.  So it would be best to just wait till you have a full paycheck to find out.

TrulyStashin

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Re: Pay off CC or buy first fourplex
« Reply #35 on: July 08, 2015, 08:38:20 AM »
You've got a great plan in place and a good mindset.  Now, just execute.  Good luck and keep posting so we can all celebrate in Q1 of 2016 when you're debt free!

~ TS

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #36 on: July 08, 2015, 12:08:34 PM »
You've got a great plan in place and a good mindset.  Now, just execute.  Good luck and keep posting so we can all celebrate in Q1 of 2016 when you're debt free!

~ TS

Hell yeah!  Thanks for the motivation and guidance.  /ConquerMode_ON

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #37 on: July 08, 2015, 06:47:48 PM »
Sold the Jeep!  Took a hit, but it was a good (and the only) offer after having it up for a couple months.  Better than the dealers by $1k.  Paid the remainder out of my EF.  $550 extra per month for debt repayment!

MDM

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Re: Pay off CC or buy first fourplex
« Reply #38 on: July 08, 2015, 07:45:40 PM »
Sold the Jeep!  Took a hit, but it was a good (and the only) offer after having it up for a couple months.  Better than the dealers by $1k.  Paid the remainder out of my EF.  $550 extra per month for debt repayment!
Well done!  Rock on!

Jeremy E.

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Re: Pay off CC or buy first fourplex
« Reply #39 on: July 08, 2015, 09:10:39 PM »
I would pay off the personal loan ASAP. Use Emergency fund to pay for the loss on your car and get out of that loan. Stop putting money in 401k until company match starts. Try paying off credit cards before interest is raised, if the interest rate doesn't go up for a really long time, and you have enough time to save up for a 4plex and pay off the cc loan before interest is raised, then go ahead and save up for 4plex before paying off cc debt(most people will disagree with this advice, but that's my recommendation). Consider replacing the 4runner with something like a Corolla or Fit. After debt is paid off, I recommend an emergency fund equal to 3 months of your monthly spending, until you get a 4plex, then you'll need to increase your emergency fund, I'm not sure how much to increase Efund at that time, do some research.
Good Luck!

The_path_less_taken

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Re: Pay off CC or buy first fourplex
« Reply #40 on: July 09, 2015, 06:44:05 AM »
Having had rental real estate,  I wouldn't buy any without a six month minimum EF. Things pop up. Tenants flake. Roofs need replacing and even a great home inspection by a reputable company can miss stuff.

I had a pro come evaluate the well on this property. He said it was great. It is, except for the silty mud that eats an expensive filter every six weeks...couple hundred bucks a year I hadn't planned on. I also distill my drinking water: so more electric use than a house that wouldn't require that.

As for the car....craigslist is free. Not sure what your deal is with the lot you have the car on, but I'd negotiate it to include the option of you selling it from your own contacts, if possible. Even if that's just your two days off work with it parked in a high traffic area with a sign on it...that kind of car should sell. Even quicker at a venue it would normally habituate: a golf course, a trendy restaurant, high end shopping district.

Gin1984

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Re: Pay off CC or buy first fourplex
« Reply #41 on: July 09, 2015, 08:23:58 AM »
Having had rental real estate,  I wouldn't buy any without a six month minimum EF. Things pop up. Tenants flake. Roofs need replacing and even a great home inspection by a reputable company can miss stuff.

I had a pro come evaluate the well on this property. He said it was great. It is, except for the silty mud that eats an expensive filter every six weeks...couple hundred bucks a year I hadn't planned on. I also distill my drinking water: so more electric use than a house that wouldn't require that.

As for the car....craigslist is free. Not sure what your deal is with the lot you have the car on, but I'd negotiate it to include the option of you selling it from your own contacts, if possible. Even if that's just your two days off work with it parked in a high traffic area with a sign on it...that kind of car should sell. Even quicker at a venue it would normally habituate: a golf course, a trendy restaurant, high end shopping district.
I bought a duplex with only three months EF.  We had a roommate move in a month after purchase (planned move in) and we used that money to repair the upstairs for tenants.  We got more back three months later because we had bought in 2009 as tax credit but we did fine.  We more than made back our downpayment but part of that was my "rent" covered all the costs of the duplex so we did not hurt when we did not have tenants, we just had no savings that month.

snogirl

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Re: Pay off CC or buy first fourplex
« Reply #42 on: July 09, 2015, 09:31:54 AM »
Sold the Jeep!  Took a hit, but it was a good (and the only) offer after having it up for a couple months.  Better than the dealers by $1k.  Paid the remainder out of my EF.  $550 extra per month for debt repayment!

Congratulations!!!
You are well on your way now with huge momentum!

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #43 on: July 09, 2015, 04:34:45 PM »
So current state is:

  • Vehicle sold, ~$575/mo freed up
  • Stopped 401k contributions - These were previously 10%, but no match until a year of employment (100% at 10%) - but I'm not fully vested for 6 years so I'm not sure it's even a plan I want to use yet...
  • Refinanced all debt, personal loan included, to 0%
  • Repayment mode for all CCs to pay off prior to 0% rate expiring = ~$1,045mo - I see no reason to pay them off faster if I can bank the rest of my surplus per month
  • Current EF is ~$1700 - even with the above CC payments, I still have an AVERAGE of 2,293.05/mo to go into savings for EF and/or reserves for a fourplex IF I decide to go that way
  • After the CCs are paid off (1 year, 3 months according to Mint) I will have an average of 3,337.78/mo surplus for savings/EF/reserves/investing
  • No loans, only the above 0%CC debt - all will be paid off prior to their intro rates expiring

Need to decide WTF to do with all this surplus cash.  How to put it to its best use to get me to FIRE fastest?

  • Still considering the fourplex idea but only with a property management company. I don't want to be a landlord but I do want to invest in dividend/passive income producing assets
  • Is there a better option to generate the type of income I could expect from a fourplex?  REITs seem to be favorable after reading some of MMM's posts.  I pay $1200/mo for housing (decent one BR apartment) and utilities and that makes me supremely pissed off - I want that to be an investment instead of an expense
  • Just max out 401k and Roth?   Just Roth?  Just vanguard S&P-tracking index funds?

Now that things are just about entirely on autopilot (all that's left is to readjust some of my direct deposit disbursements) I need to set myself a proper goal to achieve freedom. 

My goals for FI are almost entirely travel and writing with some other fun adventures mixed in, along with visiting friends and family and meeting new people.  Probably a trip or two per year for martial arts training.  I'm approaching my mid thirties so it's setting in how futilely I've squandered my time and resources.

Now that I'm repairing my foundation I need to architect my future and define a/some goal/s that will help me achieve those greater life ambitions. Part of that is professional development that will further increase my earnings and savings rate while also cutting my hours. That professional development is about the only certain goal I know I must pursue.

Any suggestions on where to focus my energy now in order to achieve FI as quickly as possible, considering the above? 

MDM

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Re: Pay off CC or buy first fourplex
« Reply #44 on: July 09, 2015, 05:34:32 PM »
  • Stopped 401k contributions - These were previously 10%, but no match until a year of employment (100% at 10%) - but I'm not fully vested for 6 years so I'm not sure it's even a plan I want to use yet...
  • I still have an AVERAGE of 2,293.05/mo to go into savings for EF and/or reserves for a fourplex IF I decide to go that way
  • Just max out 401k and Roth ... [and] ... Vanguard ... index funds [if there is any left over]
Any suggestions on where to focus my energy now in order to achieve FI as quickly as possible, considering the above?

Given the first list, the edited entry in the second list seems appropriate.

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #45 on: July 09, 2015, 05:40:10 PM »
Given the first list, the edited entry in the second list seems appropriate.

Thanks, MDM.  I guess the idea of tying up so much of my money into difficult-to-access accounts concerns me, perhaps needlessly. I know that there are vehicles for moving money penalty-free from 401k accounts early if needs be  - are those methods just assumed when we discuss early-as-possible FI and 401k/Roth accounts?

MDM

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Re: Pay off CC or buy first fourplex
« Reply #46 on: July 09, 2015, 06:13:49 PM »
I guess the idea of tying up so much of my money into difficult-to-access accounts concerns me, perhaps needlessly. I know that there are vehicles for moving money penalty-free from 401k accounts early if needs be  - are those methods just assumed when we discuss early-as-possible FI and 401k/Roth accounts?
Yes.  That, plus the likelihood that you will have a good sized taxable portfolio anyway.  See http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/.

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #47 on: July 09, 2015, 06:16:16 PM »
Outstanding, thank you!

Jeremy E.

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Re: Pay off CC or buy first fourplex
« Reply #48 on: July 09, 2015, 06:26:52 PM »
Outstanding, thank you!
However you don't want to take money out of your 401k or IRA while your still working because of the tax burden(and because most 401k companies don't let you touch your 401k until you leave your current employer), so if you were doing something like saving up for a 4plex or a better car than a 4runner, a 401k or IRA is not an acceptable place to do this

Justaerin

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Re: Pay off CC or buy first fourplex
« Reply #49 on: July 09, 2015, 06:34:00 PM »
Outstanding, thank you!
However you don't want to take money out of your 401k or IRA while your still working because of the tax burden(and because most 401k companies don't let you touch your 401k until you leave your current employer), so if you were doing something like saving up for a 4plex or a better car than a 4runner, a 401k or IRA is not an acceptable place to do this

I was just reading up on that, actually.  Since the 401k to Roth conversion is taxed, I want to have a low tax burden that year - which means ER or at least no job.  So having a way to save wisely but keep the assets relatively liquid would also be needed.  More research for me...