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Income and expenses-I want feedback on making things 'safe'

February 2nd, 2014 at 10:03 am

Guys,.

First off THANKS for the advice.. thoughts.. sometimes hard to hear . special thanks to 'Another Reader' for great points

Ok.. for those who have not been following me. I have a 5 year plan... started approx 6 months ago.. goals for that plan are to the left. As part of the plan I bought 6 homes and 2 3 units on aggressive payoff terms (5 years-6 homes, 7 years-(2) 3 units). I can not now change these payoff terms and they were based on the fact that I would have no big expenses (house)on the first 3 years. I DID NOT expect to be able to settle on my house or buy a house for at least 2 years. I just closed on my house (bought out the mortgage at a discount.. all good but leaves me VERY cash poor and in a risky position). Doing a short settlement w the bank for the house (I live in) was at 12% and I can not refinance out to normal rates for between 12-18 months. I used up all my liquid savings for the points (6) and fees for this loan and tax escrow. I Retained my emergency funds (rental and personal). House I live in is in very good shape. 3 units in very good shape. '6 homes' are in 'ok;' shape and more volatile right now until we 'smooth them out'. All are run by a manager. I have full taxes escrowed for this year for MY house ($10k) and escrow for the 6 homes/3 units in the payments.

Other background. I founded a not for profit years ago that I get paid approx $1500 a month for (I was going to turn that over to another NFP this year but with the house payment. thinking maybe I should wait a year). I also have a 2 flat (in foreclsoure being sold in next 3-4 months).

ok. Income and expenses attached

Note: salary is NET (including 10% 401k)
Huffman is the 2 flat (dropping in 3-4 months)
Utility reimbursement will drop w Huffman
Not for profit I can control when I drop that
I DID drop the Genesis car payment for a year

Please let me know your thoughts

I want to SAVE (if poss) build cash reserves and build portfolio so I have more cash (not almost all real estate). I also need to be SAFE because if I miss a payment the entire house of cards may fall down.

Dropping Huffman subtracts 2093 from my income
Dropping the NFP subtracts $1558 (1000 less income, pick up $558 costs)
Dropping both subtracts $3651 from my income and I AM NEGATIVE (I can decrease 401k and can take side consulting jobs. have not pursued that at all but have 2 people wanting help now.. $250 for both..estimate can make at least $500 a month w that.. cash )

Full salary/no 401k is $6776

Contract (for work) up 6/2104 but looks good (tho not guaranteed for renewal). Estimate 3 months to find a job if I lose this one. I will know on renewal in Aprl and can start to look then if necessary. This is right in the middle of a big Migration.. so possibly unlikely they will want to give me bad news then.

Networth is correct ('left' next to reserves meant what was left to meet the max reserve I need)

Attached net worth, income/expenses, paycheck distribution. yoou will see costs for paycheck 1 exceed my paycheck so I must save part of paycheck 2 to meet paycheck 1's costs



9 Responses to “Income and expenses-I want feedback on making things 'safe'”

  1. Another Reader Says:

    Since you have a debt emergency, ALL extraneous expenditures should be eliminated immediately. Looking at your budget, I see a couple of things that should be addressed immediately.

    Your Comcast bill is outrageous. Cut the cable now and negotiate on the price for your internet. Do they supply a land line? If you can get away without one, cut that as well. Otherwise, opt for the minimum plan that will work. I have poor cell reception where I live, so I must have a land line. I'm paying Comcast less than $75 for a mid-high internet speed and one land line with unlimited calling in the US.

    The cell phone bill is next. Switch to a second tier re-seller. Ting and Republic come to mind. With one line, even with some data, you should be under $50 a month. When the non-profit goes, that's less for you to absorb.

    Clothes/haircut/entertainment? You probably have enough clothes and you can't afford entertainment today. You need to maintain your professional appearance, so I would get a haircut as needed. Not sure if Dunkin Donuts is food or entertainment, but cut that as well. You can eat out and get coffees when the emergency is over.

    I'm still of the opinion you should sell the Genesis. This one is going to come back to bite you somewhere around the time you need to refinance the house. You don't want a $500 a month payment reducing the loan amount for which you will qualify when you need to refinance. Pay a little extra for gas and cut down your driving to compensate.

    In your shoes, I would stop the Roth now. There is no tax benefit today, and it's more money you can use to reduce your debt and increase your safety cushion. Yes, it's a missed opportunity, but that has to be balanced against the risks you are facing. If all goes well, you may be able to squeeze in a 2014 contribution before next April 15th.

    The 401k may have to go as well for now. I would run the calculations to see what the difference in net pay is at various contribution levels. I don't recall if there is an employer match, but if you can afford to contribute to get the match, you will get free money for doing so. However, if cutting the 401k means a significant increase in net pay, it might be worth sacrificing all of the 401k contributions for now. Remember, if you can clear the debt on the two bulk purchases, you have income coming in that will continue after you retire.

    If you can generate side income with small jobs that do not violate the terms of your employer contract, take them. Every dollar you can take home is more insurance against the debt risk.

    If you are not tracking all your spending, you might want to sign up for Mint.com. Knowing exactly what you are spending and where can help you make well reasoned choices about what you want to sacrifice to meet your goals.

    Anyway, this is where I would start if I were in your situation. Without knowing more about the real estate debt structure, I can't make any suggestions on how to attack the loans.

  2. TashaC. Says:

    I don't really have much because your finances are complicated and I don't think I can contribute as there are so many details. I am glad you realize you have so much at stake and how extended you are. Very important when you are dealing with so much time sensitive and high dollar items. A few thoughts:
    Don't you have a car you can sell?
    and (you wont like this one)- can you put your primary house that you JUST BOUGHT on the market? It has at least $100k equity after realtor fees/closing costs- and then you can buy a different house using regular financing with a good amount of cash cushion. - thoughts on that?
    And congrats on closing the house. I think almost none of us on this website had seen or heard of a short refinance and we were all interested in how it worked out. Scrambling to raise almost $300k in 30 days- wow. Didnt think it could be done. So -well done there.

  3. Rachael777 Says:

    Quick thanks to Tasha and AnotherReader

    I will think on this. call Comcast today and review my last 3 months of costs to see where $ is actually going. (and then start tracking as of this month) to get super clear. I will also talk to my property manager and finalize that maintenance plan (this week) and get his (and her.. I have someone else running the 3 units) thoughts on lease renewals etc.. and get whatever information I can get so I can plan.. Also will call that mortgage guy tomorrow (the 1 year escape plan guy) and let him know I did get the house and make sure I understand his requirements in 1 year.. propsective rate (w assumptions) and get super clear on that 2 flat and the impacts of short sale vs just sold at auction on getting a new loan. Will also check on car.. sales price etc..

    thanks. information gathering mode

    I do not think I will consider selling the house (that I just bought).. unless I got into serious trouble...(so very last resort)..one of the main reasons in getting the house was the ability to 'settle' and 'relax'.I can already feel the stress dissolving (even w the unplanned cost)..I went through a rough 3-4 years there and feels nice to (WOW!) settle and relax and 'move in' to the house again and feel normal w no foreclosures hanging over me. Also I can not buy ANY house w regular financing right now and if I get a different house I will have to wait for the year past foreclosure FHA rule to buy (Huffman won't be gone fro 3-4 months) so will have to rent.. the 1 year guy can only help me if I already own the house (and can realize the equity in his equations.. if I am buying he can only value the house at purchse price. . thsi was why he could not help me at first)

    I know this sounds 'tough' and is a little scary but I feel I can get through it.. shore up my emergency funds 'real quick' get through June (contract end date), Sept (get one of the 6 homes free and clear date) and then January 2015 ish to refinance.. but it will still be tighter than planned (not impossible) just not saivng thousands a month unless I increase my income.. (which I think I can somewhat)

    Onward and feeling SO MUCH BETTER THIS AM!! Smile

  4. Rachael777 Says:

    ANOTHER READER I just realized I have no specific goal here. although saving and cutting costs is good (very good). what do you think is a good amount to have on hand (liquid cash) for the next year and the next 4 years after that to feel safe. I want to have a goal

    in other words..if I had x amount of liquid cash. you and others would not be bringing up this concern about safety

    of i I rectified this or that situation. there would be no concerns about 'surviving this year (s)'

    once 6 homes paid off I should be able to net $3500 a month (5/2018)..

    I work in IT project management and am do ok and am fairly well thought of and again think I can find a new job (commparable pay) in 3 months if I lost this contract

    This is going toi be super helpful if you and others can give thoughts. I wwant to put together an immediate action plan.

    THANKS

  5. Another Reader Says:

    I'm older than you are and I'm therefore probably more risk averse than you. Having to recover a second time from investment mistakes in not something I would want to face. I have also been involved in real estate and in real estate investing a lot longer than you, and I have a different perception of investment risk based on my observations and experience over the years.

    In my view, for you, at this point in time, cash is king. Cash will maximize your flexibility and give you some cushion in the event you need to change your plan to avoid another "crash and burn" scenario.

    Without seeing the entire picture, including all your income and expenses, plus the contracts for deed, it's difficult to say what I would want to have in reserves in your shoes. At a minimum, given your debt load, I would want 6 months in net job income, or about $40,000, in easily accessible reserves. I would also be thinking about the cost of refinancing in 12 to 18 months and the cost to prepare the house for a quick sale if things do not go well. This is an "either or" proposition, so it can be the same money (one house fund).

    In my view, you continue to make a very common mistake in real estate investing. You focus on the potential future income without considering the cost and risk of getting there. Your investments are not self-sustaining and require you to have job income to support them.

    Contracts for deed are very unforgiving, because you do not have title and it's easy for the seller to get the properties back. I would therefore continue to be concerned about the risk until the portfolio was at least cash flow neutral under some very conservative assumptions. "Enough" would be the money needed to get these investments to that point.

  6. Rachael777 Says:

    Got it.. I will target $50k for a cash reserve fund in easily accessible reserves to start acquiring Immediately (this is approx 8 months of costs including the below mentiojned average loss on 6 homes/3 units)...and see if I can create $50k more somewhere or some other way.. on perhaps a negative note.. there will be no time (until fully paid off) that the homes will cash flow.. as they are on a 5 year term.. all of them...so I am funding this negative now (see budget line items) though through good management and cutting costs I can (and have) reduced the negative each month. Average negative across all is $1500 a month but I do not have a lot of time to 'build a true average' across the 3 units and not much time in the 6 homes

    Agree w risks and the strong tone here.. the financial advisor (church friend. no fee. but older and perhaps wiser) mentioned that same thing. no time to recover again.

    Although not 'my money' I do have $26k in escrows I am just holding but is targetted for taxes etc.

    If you think it might help I could post the spreadsheets across the 6 homes/3units showing income/expenses

    It has been made very clear by your and others that I am in a risky situation and have no time to recover again. so VERY FOCUSED on getting this remedied as soon as possible.

    I WILL receive a deed to one of the homes in August that I can turn around and sell (but the payments are fixed for the 5 year term as the loan is across all 6)


  7. Rachael777 Says:

    I could in theory sell one of the homes and create this fund when I get that first deed.

  8. Another Reader Says:

    Random strangers on the internet are not sitting at your kitchen table with all the statements, bills, and account information spread out in front of them. People here can make observations about what they see and say what they would do in general, but we will never have enough information to give you specific advice. You and you alone will have to decide what works best for you.

    You clearly have the ability to understand complex ideas - you are a project administrator and that takes sophistication. In your shoes, I would spend some more time learning more about leverage, investment risk and the more sophisticated aspects of real estate investing. If you do not already read the Bigger Pockets blog, it's a good place to get exposed to a lot of different investing styles and philosophies. If you check out the forums on the Mr. Money Mustache blog, there is a real estate and land lording thread that has a couple of good reading lists pinned to the top page. Even if you have read up on investing before, brushing up on some of the concepts after your recent experiences may help you in the future.

  9. creditcardfree Says:

    Another Reader has great points in the first comment on this post! I agree with all of that advice. Sell the car to get more cash in your pocket now. Smile

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