Author Topic: First Time Home Investment Plan  (Read 848 times)

mmarko12345

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First Time Home Investment Plan
« on: April 11, 2018, 07:54:16 AM »
Hi all,

I feel like this is just a math problem, but someone here may just have an easy answer.

My friend/co-investor and I have just purchased out first multi unit investment property.

I used my FHA on this one and we put down 3.5% and I am living in the middle unit.  We hope to buy another one in the next year, using my co-investors FHA loan.

Our goal on these properties isn't to get rich at first, but to just break even or make minimal cash flow.

Now we find ourselves in a philosophical dilemma of choosing where to throw our money over the next couple decades.

We already each do Roth IRA (max out yearly) and both have workplace retirement accounts, though may not maximize their potential.  We both also have student loan with between 5.5-6.5 percent interest rates.  We also both have over 10k in Vanguard so have very low fees on VTSAX returning probably a greater than 5% rate over the long haul.  Our first mortgage is about 4.5%.

I think our options are rushing off payments on mortgage, right now we pay $162 a month on the first time buyers insurance until we get to 20% equity.
Another option is to only pay minimum on the house, and maximize personal cash flow and save for the next downpayment on house number two.
Other options may be use cash to wipe out student loans while paying minimum on first house.

I have about 30k in loans, and my co-investor has around 40k.

Other information -
I have minimal debts other than student loans, make 66k a year, no car payment, and will now have virtually free rent.
Co-investor makes 100k a year, has small car lease, but still has to pay rent living elsewhere of between 6-800 a month.

After reading many of these posts in the past, and going purely off math, it seems like student loans should go first.

However I am not an expert yet on mortgages and leveraging them, should we make getting as much equity in our properties the focus?

Thanks,

waltworks

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Re: First Time Home Investment Plan
« Reply #1 on: April 11, 2018, 07:52:15 PM »
Our goal on these properties isn't to get rich at first, but to just break even or make minimal cash flow.

If this is your goal, you are screwed. Why on earth did you buy the property?

-W

mmarko12345

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Re: First Time Home Investment Plan
« Reply #2 on: April 12, 2018, 11:18:44 AM »
Unsure if you are serious or just poking fun at my phrasing.

I am just trying to convey we aren't in a rush for profit, just want to make smart choices long term.

Another Reader

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Re: First Time Home Investment Plan
« Reply #3 on: April 12, 2018, 11:41:18 AM »
Unsure if you are serious or just poking fun at my phrasing.

I am just trying to convey we aren't in a rush for profit, just want to make smart choices long term.

If you don't buy smart going in, your "profits" will never match the risk you are taking.  Do you have any idea of what your expected return on this investment will be?  Have you constructed an operating statement to estimate your net income (if any)?  How are you dividing up the income and expenses if you are living in one of the units?  How is this your partner's investment if your name is on the loan?

We need a lot more information to tell you what we would do in your shoes.

MaikoTsumi

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Re: First Time Home Investment Plan
« Reply #4 on: April 12, 2018, 12:11:37 PM »
Despite what others said, and just on the limited info you gave, if you are house hacking a multifamily and breaking even, it's not necessarily an investment per se, but it's a valid toe in the water.  You have other's paying your mortgage.  In many states, your also getting lower taxes.  You'll have some extra expenses that a SFR won't have, but that's part of ownership.  If you're in your 20's, it will even out over time. 
The only questionable thing is why are you "co-investing" to what amounts to your living quarters? You don't seem to have significant money either separate or pooled to make that a benefit.

waltworks

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Re: First Time Home Investment Plan
« Reply #5 on: April 12, 2018, 12:46:12 PM »
If you post some numbers (there's a sticky at the top of the forum), we might be able to help more. You might have an amazing property that you did all your homework on before buying and have another in your sights. Or you might be in the  "rent exceeds mortgage!" school of "investing" where you're probably doing something dumb (quick question: do you know, without google, what the 50% rule is?) No way to tell without more info, though.

My point was that "breaking even" is not a good way to invest for the long term. You make your profits when you buy the property (and to a limited extent every time you select tenants) so the numbers matter a lot.

Another Reader makes a good point - neither of you have any meaningful assets (it sounds like you both have negative net worth at this point), so why are you partners? Are you romantically involved and hence partners by default? Otherwise, you are only adding complexity and stress to your life by having an investing partner here.

At 5.5-6.5 percent, I'd probably pay down off the student loans before doing anything else - especially before hyper-leveraging yourselves again putting down 3.5% on a property. Only exception would be if it is a total slam dunk rental that cash flows (net of all your expected expenses - use the 50% rule) from day one.

-W

mmarko12345

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Re: First Time Home Investment Plan
« Reply #6 on: April 13, 2018, 10:01:25 AM »
Hi friends,

A few things.

1. I didn't list assets, I have a +net worth of around 10k (not a ton I know.) My partner has a break even net worth, with quite a bit of cash on hand. We are not in debt, I mentioned loans for advice on whether to wipe those out over considering paying down mortgage or saving for another property.

2. I currently pay $1.1k a month in rent and will be occupying the home, so will be living rent free. So that is an instant large swing, going towards my long term net, vs currently losing 1.1k towards paying someone else's mortgage.

3. I did account for the 50% rule when saying break even, I didn't mean only mortgage (which will be 1.1k) but I included insurances and fees.  All utilities are paid by tenants. There is also rental income from a separate garage I didn't include, so we will likely have net cash flow most months.

While I am no expert, hence why I am coming here for advice from Mustachians, just eliminating my 1.1k rent, and moving that to zero, while having others pay my mortgage seems to make this a smart investment.

Thoughts?

Another Reader

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Re: First Time Home Investment Plan
« Reply #7 on: April 13, 2018, 10:34:38 AM »
Those of us that have done this for a couple of decades will reserve judgement until we see all the numbers.  However, you are on the right track.  The experience with this property will educate you and that education will improve your returns on future properties.