I had thought of calling the bank that currently owns it, as they may be the most interested in getting the property sold. I’m glad you shared that - I’ll call them today. Do you recommend just calling their commercial loan department, or should I go through the attorney’s office to get the name of someone deep in the department? It’s a small bank from the central part of the state, not a nationwide bank.
We have an agent, and she’s great. She has given me several bank names, and we’re working through them as we go.
Let’s take this outside the discussion of a specific property, because we’re getting sidetracked, IMO.
That’s kinda where I’m looking for thoughts. We have plenty of extra money every month, which goes to debt. At the same time, we have no real savings beyond a $1000 emergency fund and the money for Christmas. Which gets us no closer to our goal.
Here’s my thing - let’s say we go back to structured payments on the 3 debts, and pay just above the minimum on the credit card. Then we bank the rest.
We know we can pay the bills at this point. We’re using the bank’s money to purchase (for example) the car (nothing fancy, I promise). We are paying a 3.5% interest rate for the ability to free up our extra money to be used to purchase income generating assets.
If the sky falls, we still have the money in the bank, and if not, we are free to build equity and assets.
So, let’s say that we pay off everything and build up tons of savings, just in case. Then, my husband breaks his back, and we’re screwed. But aha! we have savings! That gets spent out over the next 3-5 years covering everything, while my husband gets better and gets back to work. Then, I lose my job, I’m too old to hire, the savings is gone, I’m doing odd jobs, and life is lousy.
Now, on the other hand, if we leverage our debt, and spent our savings on income-producing property, bought a small business or a franchise, became day traders, whatever. Then the same bad news hits, and we have no real savings and a debt load. Here’s the thing - we still have that income-producing property to pay the bills, and we have had that property for years, producing income, building equity and contributing to our balance sheet.
If you have debt, you do not have “plenty of extra money.” You actually have negative money. If you had plenty of extra money, you wouldn’t have gone into debt, or you would be out of debt now. That hasn’t happened, so you are actually taking your small amount of discretionary income and having to choose between paying off debt and putting it into savings. Especially if you’re talking about only being able to make minimum payments in order to shunt some money into savings.
You need to do some number crunching with all of your debt to ascertain exactly what interest rates you are paying and what sort of total amount you’ll be paying if you use various paydown schemes. As far as I’ve ever been able to determine, it does not and cannot make financial sense to privilege savings over debt paydown unless you’re in a magical scenario in which your savings is earning more than the debt is costing. And that’s not going to be remotely true right now.
Roof repairs as a debt make me raise my eyebrows a bit since most repairs are expected expenses that you could have planned for. It sounds like you were both employed but didn’t have any savings at all, even to cover “expected emergencies” like roof repair, then you quit your job, accrued more debt, still don’t have any savings, and now want to put a lot more debt into a business venture where you’ve been “surprised” a few times at how things are going.
This sounds, and is, harsh, but you should try to demonstrate to yourselves that you can be smart with your money before you go making any large-scale investments. Invest smart. Don’t go into debt foolishly. Research. Get out of debt as quickly as possible under most circumstances. Live below your means.
So, your debt is preventing you from saving money, yet you aren’t sure if you should get rid of it? It sounds like you’re just trying to out-earn your bad habits, which rarely ends well.
The other thing you should think about is selling your car, replacing it with a less expensive one, and applying the monthly savings toward your debt payments.
Small bank is even better. One foreclosure on their books means more to them than just another foreclosure to BoA or someone. If it’s not too terribly far to drive, I’d personally go to the bank myself and try to talk to someone in person. If it’s too far to drive, I guess I’d try the attorney first, just to see if they know someone who can help, but a small bank is probably going to have a smallish department, anyway, so either option would work.
If you’re serious about this, have you looked into selling your existing house and living in the apartment complex while things get off the ground? Or are you underwater/break-even on the house?
Your “emergency fund” is way too small, and voluntarily paying just above the minimum on a credit card is insane. What are the interest rates on your $35k of debt? I would max out paying down anything over 7 or 8% until its gone, then save up your emergency fund until you have several months worth of living expenses in the bank.
What worries me about your OP is that there are parts that sound like you’re thinking of your future like a quarterback trying to close a four point gap in the closing minutes of a game: might as well throw a Hail Mary because we’re not going to win rushing for six yards. Which is not a good way to think about your future. Sure, if things work out it’s awesome, but things often don’t go as expected and living the rest of your life poor and bankrupt is a lot worse than “just” middle class.
I applaud your willingness to work hard and think outside the box to improve your situation, but I think you need to significantly improve the foundation under your feet before you try to extend yourselves further.
It’s based on the snowball debt theory, which we’ve been doing for a while. Minimum savings, throw everything at debt. Which really works - unless you need a new roof.
BTW - the car note is at 3.5% for a 2007 Hyundai Accent. Not much room to trade down there, and the $3000 we put down (on a $10K car) put us down to the $1000 mark, with Christmas already paid for.
Sure, when you’re paying off higher interest debt it makes sense not to build up too big a savings account, IMO, since you can always use credit cards or whatnot for an emergency (and then pay them off asap). But when you’re snowballing debt and have very little savings, you also don’t want to take on any more debt than you absolutely have to.
That’s not bad at all, I’d make the minimum payments on that one in favor of savings. What about your other debts?
I see your point, but incoming-generating real estate must be maintained - that’s a constant, ongoing cost. My landlord buddy I work for has ALL his buildings paid off, every single one (he’s been at it nearly 35 years). It STILL costs him X dollars a year to maintain each building - that’s taxes, upkeep, repairs, etc. Because he is capable of a performing major repairs he saves a lot of money, but still has a cost for each and every building every single year whether he has a tenant or not.
If you, Og forbid, break your back or become otherwise disabled you may no longer be capable of maintaining that income real estate. At which point you have to liquidate it, or watch it fall into ruin, or get hauled into court by irate tenants. If you are OK with (as a worst case scenario) liquidating such assets to pay for catastrophe OK, but don’t think that if you do wind up in such a situation the property will simply keep writing you a check every month. It doesn’t work that way. At best, you’d have to hire someone to take care of it, and that will cut into your profits.
And even if the property generates $1000 a month in an average month not all months will be average. There will, invariably, be some months that cost you money because of a major repair or evicting a deadbeat/destructive/delinquent/something else bad tenant.
It depends on the roof repair. If it’s to replace singles or some storm damage, yes, that will raise my eyebrows, too. However, if it’s a matter of replacing a roof (due to extensive damage, neglect by prior owner, a big tree falling on it, tornado, whatever is necessitating it) then it might makes sense to draw on the the property’s equity to finance such a major undertaking. It really depends on the extent of what was done.
My landlord buddy is a self-employed general contractor as well as landlord. His disability insurance enabled him to make his payments and keep his family fed after the business about his truck getting hit by a train…
(Long story - he got better, but was in very bad shape for several months).
And what’s wrong with middle class, anyway? You take vacations, you buy yourself nice things, you live comfortably, you put your kids through college so they can live comfortably - what more do you need?
I have to agree to all of this. I really am sorry, OP, but this is the vibe I’m getting from you, too. If you want to gamble with your money in the hopes of a big pay-off, maybe you could learn to do day-trading.
I meant no slight against being middle-class, it’s just not what we want for our life. And since we’re willing to work hard, educate ourselves about our options, and take some risk, that’s what we’re going for.
FWIW, I’ve been at rock-bottom, just earlier instead of later. I became a single mom at 19 with no job prospects, and that’s more than enough lesson for me on how to be cautious with decision making.
I can’t address the specifics of the OP’s position, but speaking in a more general sense: every person I’ve known who’s been a landlord has to really work hard at it, and they are mostly comfortable but certainly not getting rich at it.
Here’s where I’m confused. You have the opportunity of going back to your old job (at least temporarily) and working at it, while still developing your new business in the off hours. You say you’re willing to work hard, so the prospect of extra hours shouldn’t intimidate you. So wouldn’t that bring in at least close to the $950/mo. you’re expecting from the rental?
You say you love the work, but hate the job – but how much of the job will you enjoy when you’re the landlord, dealing with the unpleasant parts of that job?
You talk about using the bank’s money, but you’re already using $15K of the bank’s money for one venture. You aren’t making any money at it yet, but how are you doing against your business plan? Are you on track, or have you been “surprised” there, too?
That extra income that you and your husband sometimes generate. Have you been putting it away, using it to pay down your current debts, or just adding it to your regular income?
You’ve run the numbers every way, but have you run them with less than full occupancy? How does it shake out if you have to leave one unit vacant for repairs, or if the rental market tanks and you have to lower the rent to maintain full occupancy?
Please forgive me for message board psychology, but most people would be pretty excited about leaving a secure job and starting their own business, looking forward to building it up over the next few years, and ready to work day and night to make it a success. Instead, you seem to be looking for the next deal. It’s not financial advice, but I think you should find your passion and go for that.
It doesn’t intimidate me, and you forgot to add in my husband as a landlord. If I’m working my two jobs, he can work his two jobs - IT and the main property manager. The added bonus is the $85K in equity we’d be getting for free, and the future rent increases, tax depreciation, etc.
Do you mean as a landlord, or are you referring to my paralegal job? Either way, no one likes the crappy parts of their job - but every job has them, and the payoff on this one is far better than others.
I am right in line with my business plan projections, and actually a little ahead of them. I was able to pay all business material and ad expenses for the past two months with current income, which I didn’t expect. I have savings that covers the business loan, and my profit/loss statement and balance sheet shows that I am very healthy for only having been in business full time since June. So I suppose that can be considered a “surprise”
As stated above, we have been following a snowball plan, and have been adding it to debt payments.
The $950 dollar positive cash flow includes an overestimated vacancy allowance from the gross rent numbers. Having six units goes a long way toward taking the sting out of missing tenants. In addition, there is a full, unfinished, HVAC equipped basement to the property, with which we can add value by adding a laundry facility in the near future, and by immediately renting out space for motorcycles and small campers that the town requires to be stored inside. Any income from that is not calculated into the positive cash flow yet, since it is not a sure thing at this point.
It is very frustrating to me to hear these kinds of things, and I have to constantly remind myself that you guys have no idea who or how I am. If you knew me, the very thought of me looking for a deal and not realizing the value and payoff or extraordinary hard work would be crazy. I am not abandoning my business (as a matter of fact, I’m having my best month yet) nor am I going into this without foresight (the amount of paper I’ve produced, read or researched would take out a rainforest).
Try not to take it personally. As you realize, we only know you from what you’re posting.
But take a deep breath and try to read this thread dispassionately. You see a great opportunity, but the bankers you’ve talked to say you need to pay down your debts first. After reading what you’ve laid out, (that’s all we have to go by) more than a dozen different posters agree with the bankers.
