We just doubled our debt load

[debtheaven]

We close on our new rental on Wednesday.

The bank withdrew the down payment from our account today, and unblocked the loan (not sure unblocked is the correct term, if it isn't please correct me) to transfer all the funds to the RE lawyer for Wednesday's closing.

I'm happy and sad and scared, all at the same time. It's a 15Y loan, so DH and I will be 70 and 66 when it is paid off. (Hoping Phil will chime in with something reassuring here!)

I know it's a Good Thing but it hurts to take out a 41K loan when I've been a diligent WIRR for the last four years.

We owe only 350e in consumer debt (for our boiler/furnace), which will be paid off in July. We owe plenty more, but after July, it will only be "business" (rental) debt.

We are not high earners (DH is a former artist who reincarnated himself as a graphic designer, I am a former print journalist who reincarnated herself as an ESL teacher.) But I have a "knack" for RE and this is basically the only way we have found to increase our net worth.

So here we go.

[debtheaven]

I have to admit, part of my wanted to just take the money and run LOL. We have nicknamed this rental "our last stretch" LOL.

At this point (seven years later) I HATE dealing with all the rental carp, but it is the only way we have found to "get ahead" on our salaries.

[ruger2506]

Good luck. I took the plunge into the rental world just in the last few weeks as well. A solid game plan and some working capitol are a good start.

Of course I didn't double my debt load. I bought the rental for an unbelievable price. It's the only way I would get into rentals.

[debtheaven]

Thanks Ruger! I appreciate it!

I even gave you some advice LOL! RE has worked out very well for us so far, I hope it does for you too. But I still find it difficult for me to be borrowing more than we already owe, I know it's silly but I feel like I'm going backwards.

ETA: We are in a VERY HCOLA. I agree, you got an amazing price.

[ruger2506]

Yeah, I recognize the name. I found this site helpful on that post. We are currently cleaning a repairing everything the local scum destroyed or stole (today was re-plumbing day).

It absolutely blows my mind what people are willing to do with their "homes". I now believe that some humans are dumber than even rats. The reason I know this is because even rats know not to poop where they live. Obviously the pieces of garbage that my SIL had in this house weren't that smart.

Oh well, it's cleaned up and on it's way back to working/livable order.

[ruger2506]

May 14, 2011 20:59:39 GMT -5 @debtheaven said:

Thanks Ruger! I appreciate it!

I even gave you some advice LOL! RE has worked out very well for us so far, I hope it does for you too. But I still find it difficult for me to be borrowing more than we already owe, I know it's silly but I feel like I'm going backwards.

ETA: We are in a VERY HCOLA. I agree, you got an amazing price.

I know the feeling. However as long as you can get someone else to pay your bills for you and get you build up equity, then it's all good.

Don't feel to bad. My new boat will be arriving in a week. Even though I'm financially smart, I still love toys and living life to the fullest. Those are expensive toys and it hurt to cut that check. I'm still second guessing it even though I know how much I'll use it.

[debtheaven]

That's great that you could clean it up that quickly! We had a DISASTER with one of our renters. I'm in France and the laws are definitely pro tenant here. We finally got the tenant out, she had LITERALLY smashed the apt to bits. She had become a prostitute and a drug addict and my guess is that they were looking for a stash.

It cost us 34K euros to redo the apt. Insurance (we were well covered, two policies) paid 20K but we had to take out another loan for 14K, down to 9.5 now.

That's why I don't know if we're smart or crazy LOL. I'm hoping smart since the apt has doubled in value since we bought it six years ago.

In any case, enjoy your new boat!

[ruger2506]

Thanks. Now that the clean up is done, the real work starts. Fixing broken sinks, broken windows, banister, etc. We did get all the garbage out so we can at least work.

[debtheaven]

I would have saved 2K if I had taken the garbage out myself. I was much too overwhelmed. The place was just unbelievable, and totally overwhelming. Food on the stove, garbages all full, used feminine hygiene products laying around on COUNTERS. Two months later. The stench was unbelievable, and it made it very difficult to spend time there.

You live and learn, if it ever happened again I'd buy some carpy disposable clothes, latex gloves, and get on with it.

The bailiff told us we were lucky, the last place he saw that looked almost as bad as ours (his words), they had left their two small kids too. The parents fought all day about who was going to pick them up. Finally, the dad did.

Unbelievable. We have often had rodents as pets and like you say, no rodent would ever live like some humans do.

But having been there and done that, one of my goals as a landlord is to try to minimize the likelihood of my ever having to deal with anything like that again! Hence selling one place, and buying another slightly smaller place with that 41K loan in a much better neighborhood.

ETA: I freely acknowledge that I was a "wuss" then. Not any more though LOL.

[Gardening Grandma]

DH
You have the experience, so you are going in with your eyes wide open.....

The best of luck and may your renter be the best!
gg

[debtheaven]

Thanks tbird and GG!

GG, it's already rented (it's cheaper to buy a place with a sitting tenant). The tenant is very clean and neat, and he works at a "Home Depot" type place so he's handy too. We will just take over his three-year lease (standard here).

tbird, DH and I sadly lost all four parents within less than two years, about 12 years ago. They left us modest inheritances. (They lived through WWII and were extremely frugal.)

We kept our inheritances separate and sat on them for a few years. Then about eight years ago used most of that money to start buying rentals. (We kept some for college, in retrospect, not enough).

Obviously we would much have preferred to have our parents but we weren't given that option. We wanted to "honor" them and use their money "wisely".

[debtheaven]

Tbird, since you are thinking of investing in rentals, here is the whole story.

We bought Rental 1 for 65K cash in 2003 because we wanted more income. When we went to sign for Rental 1, they wanted to show us Rental 2. I said no way, it's too expensive. DH fell in love with it. So we put 30% down on Rental 2, and took out a 12Y loan for the rest. We closed in 2004. (Rental 2 is the one that was trashed in 2009, incurring the 14K "reno" loan.)

We used the rent from Rental 1 to "live it up", eat out a lot, etc. We did that for about six months, then realized we were foolishly wasting money.

So we bought Rental 3 in early 2005, Rental 4 in late 2005, and Rental 5 in mid 2006, within less than 18 months ... and quickly realized we were overextended. So we "flipped" Rental 4, and used the proceeds to update most of our own house (for the first time in 25 years. We redid everything but the kitchen and double-glazing downstairs. NO regrets, we live here, and we love our home.)

We let things sit for four years. Then this year we sold Rental 1 in February because it was about to become a major money pit. Skimmed a bit off the top to pay off our car, nearly pay off our boiler, shore up our accounts and pay for a vacation rental for this summer.

We close on Rental 6 on Wednesday (although we will still own four rentals, not six, since we have sold two). We were supposed to close in March, but things got delayed. Because of the delay (due to the seller promising to reno the building but not having yet done so) we negotiated a 3K reduction. We are putting 60% down, borrowing 40%, and we have the 3K in the bank for our share of the inevitable building reno. (The seller originally owned the whole building.)

Our goal is to eventually be CFP on all our rentals ... we are getting there. However, Rentals 3 and 5 are not traditional rentals, they are private reverse mortgages (very common here, banks only started doing reverse mortgages here about four years ago). So we don't GET rent on those two places, we PAY rent (600/mo for both). That's why we're not CFP.

The 14K reno loan for the "trashed" rental slowed us down too, because the apt was in great shape when we bought it, and we never anticipated having to pay for a reno, let alone before paying off the original mortgage.

It's definitely a "forced savings" plan LOL.

Rental 2 (both the original mortgage and the reno loan) will be paid off in five years, just as DS3 finishes HS. For three years the rent will go towards his college (college is three years here). Then once DS3 is done with college, hopefully I will retire. I'll be 59.

[Deleted]

Congratulations!

[debtheaven]

Thanks Anne! Part of me still wishes we had just "taken the money and run" LOL.

[Deleted]

We are now 45 days out from more than doubling our debt load as we buy a new primary residence and rent out the old place. Going to be cash flow negative for a long time - 7-8 years I estimate, but in 14 years we'll have a paid off property worth 400k+ that still is only 17 years old. I look at it more as a retirement account instead of a monthly income source.

[debtheaven]

Good luck mmc!

I look at it more as a retirement account instead of a monthly income source.

Same here, more or less. I look at it as tuition for our youngest in five years, and then retirement.

[Malarky]

I'm in awe/jealous of those of you going the rental route. I'm on my own here and would never be able to get DH on board. I consider myself lucky that he lets me have net pay to do with as I please. Thanks to the boards, it pleases me to have no debt except mortgage and a modest amount of investments.

Someday the income properties will be mine.

Debtheaven, for finding a way to get ahead in difficult circumstances.

[Deleted]

May 16, 2011 18:02:28 GMT -5 Malarky said:

I'm in awe/jealous of those of you going the rental route. I'm on my own here and would never be able to get DH on board. I consider myself lucky that he lets me have net pay to do with as I please. Thanks to the boards, it pleases me to have no debt except mortgage and a modest amount of investments.
.

We were actually planning to sell, but our CPA said "Let me get this straight, you have a 3.5% 15 year fixed on what will be the rental property? Keeper"

[debtheaven]

Malarky, thanks so much for the hug! Back at ya.