Jackie is a 42-year-old paralegal with two rental properties. She wants to buy three more. She asks for Paula’s thoughts about today’s economy. Should she buy under these economic conditions?
Jen’s husband will retire with a pension that pays twice their living expenses. Does she still need her own retirement account?
Rachael just bought a duplex, which she wants to househack. But she’s having second thoughts. Did she bite off more than she can chew?
“Minouche” is a return caller with new information: she believes that borrowing from Dad is her only path to home ownership. Does this change Paula and Joe’s advice to her? (And is it even true?) And Molly, a concerned mom, shares some thoughts about this situation.
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
P.S. Got a question? Leave it here.
Here are the details:
Jackie asks (at 2:00 minutes): I’m looking to pursue my own business in real estate investing and leave my full-time job. I want to acquire five cash-flowing properties in the next five to seven years.
Should I quit my job, roll my large 401k into an IRA, and dive fully into my business before acquiring the next property?
Or should I ramp up my search and try to make something work within our budget before making that decision?
I’m 42 years old and in a long-term relationship. I’ve been a paralegal for 16 years and working part-time as an agent for three years.
Our combined W2 income is $160,000, sometimes more.
I converted my first home into a rental. It has a small mortgage and cash flows $250 a month. My partner’s rental cash flows $600 a month.
We househack our primary home. The one-year-old mortgage is $3,300 a month and the rent pays for one-third of it.
We have sizable employer 401ks along with smaller Roth IRAs and brokerage accounts.
In addition to living expenses, we pay $2,000 a month for daycare.
We’re currently looking for properties three through five. At a minimum, I’d like to purchase a triplex or fourplex before I leave my full-time employer.
However, without touching the emergency fund for our rentals, we have limited funds for the next purchase. Home pricing keeps ramping up, and our budget of $400,000 is now able to buy us less in less desirable neighborhoods.
Paula: what are your thoughts on acquiring more investment properties in our current economy? And Joe: what are your thoughts about my business venture and future financial planning goals?
Jen asks (at 28:37 minutes): My husband is a teacher and has a full State Teachers Retirement System (STRS) pension plan. He’ll retire with at least a $150,000 annual income, and we live comfortably on $80,000.
We currently have $2,000 a month of cash flow after savings and expenses and we aren’t sure where to put it. We’re maxing out our HSA every year, so we’re pretty covered as far as health expenses.
Some options I’m considering:
- Build up my Roth IRA. I have $20,000 in a Traditional IRA that we plan to convert to a Roth. When my husband retires, he can opt to take a lesser percentage of his income to allow me an income if something happens to him. So I’m not sure if I need my own retirement savings.
- Pay off our house. We have $250,000 left on our mortgage, so we could use the extra cash to pay down the principal.
- Contribute more to our 529s. We have three kids so we could put more towards their college savings. But we don’t know if they’re going to go to college or not.
Any advice for us?
Rachael asks (at 47:06 minutes): I’m a single mother with two children, a full-time job, and a side business. I have $50,000 in personal savings.
I recently bought my first home, a duplex. I planned to live in one unit for a couple of years, then buy another house and rent out both units.
But it’s shaping up to be a lot more work than I imagined.
It’s an older home. I knew going in that I’d have to spend some money on repairs, especially to update the bathroom in my unit.
However, I’m discovering that the property needs more than I expected, including two new furnaces. The plumbing is out of date and I’d have to redo the entire kitchen just to put a dishwasher in.
I’m wondering if I should pivot. I could pull out the equity in the home to remodel the kitchen and bathroom. Then sell for a decent profit.
I could keep it for the long term and use the income to fix things up over time while I live in one unit. The expected rent would yield a positive cash flow of $1,100 per month.
Or are there other options I haven’t even considered?
Molly (at 1:00:00 minutes): Not a question but a comment for “Minouche” from Episode 442
Hi Paula. My name is Molly and I’m listening to your podcast from May 24th with Minouche. Her dad is offering to buy her a house.
I can’t agree with you more and with Joe less. This sounds like a very controlling person. My daughter has gone through something similar with her dad, where basically if he’s buying something, he thinks he’s the boss of it.
Whether it was a gift or alone, it does not matter with certain types of people. And even though she may be getting a better financial deal with her dad having the mortgage, you hit the nail on the head.
She is setting herself up for a lot of power struggles and potential financial abuse.
Sometimes you have to bite the bullet and wait things out so that you can do the best for yourself and maintain some level of autonomy and independence. Just do the ramen noodle thing for a while so you can have what you want later on.
“Minouche” asks (at 01:02:57 minutes): Follow up call from Episode 442
I appreciate your feedback on my situation with accepting a loan from my dad.
It sounds like your advice is to buy a home I can afford on my own. That way, if I take a loan from Dad, I can refinance the mortgage with a bank if needed.
The issue is that what’s affordable to me doesn’t exist in Jacksonville. I can’t find anything for $190,000 that’s not an old condo with deferred maintenance and a $500-a-month HOA.
Borrowing from my dad isn’t just the shorter, quicker path to home ownership. It’s the only path.
I think I agree that I shouldn’t lock myself into a $350,000 home I can’t afford, even if it’s at a lower interest rate.
But I’m reluctant to continue renting when I know rent is increasing 17 and 7 percent year over year. I’m already paying 20 percent of my income toward rent with a roommate.
Does your advice change knowing that this is the only way I’ll be able to buy a home?
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