With the state of the world changing so rapidly, Lesley is struggling to accept that “this time isn’t different.” Does the past still reliably inform the present in the face of major decisions today?
An anonymous caller and her husband want to achieve financial independence through real estate within 10 years. Is it better to pay off existing mortgages or prioritize buying more rentals?
Melanie feels duped by the FICO credit scoring system. She’s doing all the right things, but her credit score is still moving in the wrong direction. What’s going on here?
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Lesley asks (at 01:55 minutes): How do you reconcile the idea that “this time it’s different” is usually a dangerous mindset with the fact that, in some ways, it is different this time?
I’m thinking specifically about long-term forces like climate change and unprecedented levels of economic inequality. I’m a nerd, and I’m just genuinely curious to hear your perspective.
Melanie asks (at 21:44 minutes): Why did my credit score drop even though everything improved?
My credit score took a serious hit when I had to take out a couple of loans for a car and some unexpected home repairs. Recently, my credit score was moving up and reached 778. Then I get an alert that it decreased this week by 21 points.
The alert said my available credit went up, my total balance went down, my credit usage dropped, and the age of my oldest accounts increased. Aren’t those all good things for building credit? So why the drop? Are credit scores just a racket?
Anonymous asks (at 45:54 minutes): My husband and I are working toward financial independence (FI) through real estate. Should we prioritize purchasing another property or paying off one of our existing rental properties? Which path will get us to FI quicker?
We’re both 34, child-free, and earn $200,000 per year combined. We work full-time and want to make work optional in the next 10 years. We’re debt-free except for a $12,000 car loan at 8.29 percent interest. The payments are $250 a month with four years to go.
We have $85,000 in cash savings and contribute an additional $4,000 monthly. We also have $20,000 in a taxable brokerage account. We already have two rental properties, and we estimate that adding three more will get us to FI.
Here’s a breakdown of our current rentals:
- Property 1 was purchased in 2018. It rents for $1,600/month and has a $90,000 mortgage at a 4.875 percent interest rate. We could pay this off in the next month or two using our savings, which would significantly boost cash flow. But most of the monthly payment now goes toward principal, and the interest rate is relatively low.
- Property 2 was purchased in 2022. It rents for $1,500/month, but after a large increase in property taxes and insurance, we’re paying $140/month out of pocket. The remaining mortgage is $131,000 at a 7.125 percent interest rate. If we continue saving $4,000/month, we could wipe out this loan in a year.
Alternatively, we could keep both mortgages in place and use our savings toward a down payment on a third property, helping us reach our five-property goal faster.
Given all of that, what would you recommend? Should we pay off one of the mortgages to boost cash flow and then redirect that income toward our next down payment? Should we keep acquiring properties and worry about paying them off later? Should we knock out the car loan because of its high interest rate? And how might our taxable brokerage account factor into this?
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