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I need your Help for an article going live on 4/4 – Get a PR4 Link to you blog

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12:03 pm
April 1, 2013


Dominique Brown

Washington, DC

Member

posts 510

I need your opinion on an article.. as usual the comments chosen will get a PR4 link back to their blog. All comments welcome.

Here is the scenario.. Mrs Brown and I were having our monthly which turned into weekly finance talk/update. I noticed that in April our newborn will be in daycare and realized that the bill of $1297 will push us over our predetermined ratios for "must have spending" of 50% of net income.

In short a must have is something you have to pay regardless of having a job or not. We were originally well under 50%, but kids are expensive.

Anyway.. we have several options.. one of them will free up 564 per month and that option is to simply pay off the cars. Now, we have the cash on hand, but the interest rate is 1% and the term is 4 years, the total cost is 29k.

Option 2.. finally start taking some money from various business/side hustles on a monthly basis to handle the car payment. Thus achieving the same result as option 1, but with tremendous upside.

The Monkey Wrench.

As many of you know I can procure real estate really cheap and bring in more than 564 per month with some risk of course (possible maintenance, vacancies etc etc).

So what would you do…

Use the money to pay off the cars and pass on the real estate deal or continue on with buying another property. Keep in mind there are risks to every scenario/action. One is a guaranteed 1% gain on money the other is cap rate of 15%+ minus the associate risk.

The article is going live on Thursday (4/4).

No debt will be involved in the purchase or the real estate (cash deal)

12:24 pm
April 1, 2013


Greg @ ThriftGenuity

Member

posts 61

Of course, it is all about your risk tolerance, and I am all about change and new challenges.  Therefore, I vote for the additional real estate.  I just can't imagine a scenario where you couldn't make more than 1% to offset the car loan.  Even a high yield savings account gets close to that.  In addition, it seems like real estate is starting to recover, so if you can grab another property before they start trending more updward, all the better.

1:06 pm
April 1, 2013


ayoungpro

Lehi, UT

Member

posts 184

I have pretty much the opposite opinion of Greg. I'm super risk averse, so I would rather pay off the car and be done with that headache. There will be more opportunities to increase income in the future, so reducing expenses always seems to make sense to me. 

3:00 pm
April 1, 2013


michael @ financial ramblings

Member

posts 196

For starters, I'm not sure that daycare fits your definition of "must have spending." You stated that this category is for expenses that "you have to pay regardless of having a job or not." Would you still have to pay daycare if you didn't have a job?

Setting that aside, I would lean toward paying off the debt. I fully understand the mathematical arguments in favor of carrying low rate debt. I say this mainly because I value simplicity.

You're a busy guy. By simplifying your situation, you're freeing up valuable mental space. And with all the things you have going on the side it won't take long to replenish your stash — minus the car loans.

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I've got money on my mind…

3:07 pm
April 1, 2013


ayoungpro

Lehi, UT

Member

posts 184

^^ Totally what I was thinking but articulated much better. :)

4:41 pm
April 1, 2013


krantcents

Member

posts 909

I love real estate because I used it to become financially independent, however nothing ever goes exactly like you want it o go.  You should have reserves for vacancies, maintenance and other unexpected expenses.  Is there any way to adjust your schedules or make other changes to lower the cost of day care?  If not, I would lean to additional income to offset the cost.  Good luck.

krantcents  – Making Sense of Money

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RSS feed: krantcents

7:27 pm
April 1, 2013


Pauline

Member

posts 274

I would go for the investment without thinking twice. I wrote a post about why I choose not to repay debt faster since interest are so low and you can leverage the money to build wealth instead. http://reachfinancialindepende…..-interest/
but I am in my 30s, no kids, healthy, and not too worried about the risk implied as I know I can bounce back.

                                                        Pauline @ Reach Financial Independence

Yakezie Member Site: 

Reach Financial Independence 

Email:  tdmpauline *at* gmail *dot* com

I am also on Twitter and Facebook

7:28 pm
April 1, 2013


Pauline

Member

posts 274

                                                        Pauline @ Reach Financial Independence

Yakezie Member Site: 

Reach Financial Independence 

Email:  tdmpauline *at* gmail *dot* com

I am also on Twitter and Facebook

9:00 pm
April 1, 2013


Dominique Brown

Washington, DC

Member

posts 510

Great points guys! Keep them coming.

9:02 pm
April 1, 2013


Dominique Brown

Washington, DC

Member

posts 510

krantcents said:

I love real estate because I used it to become financially independent, however nothing ever goes exactly like you want it o go.  You should have reserves for vacancies, maintenance and other unexpected expenses.  Is there any way to adjust your schedules or make other changes to lower the cost of day care?  If not, I would lean to additional income to offset the cost.  Good luck.

Great questions/comment Krant. We have 5+ years of emergency funds at current spending levels. if stuff hit the fan, we can adjust our lifestyle to no need an emergency fund at all. You've read my networth post.. you know who much money we waste :-). With that said… There is no lower cost of daycare in my area. To adjust our schedules will come at a reduction of income coming in.. thus making the situation worse.

10:08 am
April 2, 2013


jaicatalano

New York

Member

posts 846

I think the property is a great bet. I went from being underwater a year ago to 50k over principle. I am refinancing next month which will put me well into the green after 5 years. 

 

There is no value in the car. Every year the car looses value but your house will go up. (hopefully)

 

In 7 years I have had a vacancy for 3 or 4 months.

 

Get a property.  

3:49 pm
April 2, 2013


WellKeptWallet

Member

posts 207

I would pay off the cars with the cash that you have today. I prefer to not use debt at all as I am a big fan of bootstrapping and using the resources that you do have to buy things. I understand the mathematical side of things, however, I think it is more what do you need to do in order to achieve your financial goals. 

 

On another note, I have owned rental real estate and it can be a headache at times. Another question you should ask yourself is this: "Do you need one more thing on your plate?" Sometimes it is not worth the stress and aggravation involved for the return that you get on your money.

 

That is my 2 cents.

11:32 pm
April 2, 2013


PK @ DQYDJ

The Intersection of Politics, Economics and Personal Finance.

Moderator

posts 361

Question for you – is it in the area where your current property manager will be able to pick it up?

 

If yes, put me on team real estate.  I trust you can make it cash-flow, even if you buy in cash and refi in a month.  Question is, what leverage are you comfortable with, Net Worth/Debts?  2:1 means 50% loss wipes you out, 4:1 a 25%, etc.  That's for you to decide (for a benchmark – estimates are 28% of AAA CDOs went bust in the RE bubble pop… from estimates < .2%), and probably includes some math on your 'non necessary expenses'.  Even a negative net worth is fine if you're young and you'll swing back to positive without too much trouble.

Don't Quit Your Day Job…

http://dqydj.net or http://yourdayjob.net

Follow us at @dqydj_net on Twitter and connect with us on Facebook.

7:25 am
April 3, 2013


Brick By Brick Investing

Member

posts 87

Hey Dominique

After reading your profile I noticed you're in the Northern Virginia metropolitan area and daycare is absolutely ridiculous! We have two kids and they quoted us $700/week. I would go with the real estate deal seeing that you are much more seasoned than others with managing real estate and your risk tolerance.

However, I may have a better solution for you. Depending on you and your wife's situation would you be willing to entertain an Au Pair? If you're not familiar with them, BLUF they are foreign nannies who come live with you and care for your children. I know this seems a bit intrusive but they can be invaluable. I would give it some consideration as the costs for an au pair are MUCH cheaper than daycare in our area.

7:01 am
April 4, 2013


Dominique Brown

Washington, DC

Member

posts 510

Post edited 7:03 am – April 4, 2013 by Dominique Brown


Hey all the article is live. Thanks for you comments, questions and concerns. If you're linked in the article.. I tried to find your latest article for the backlink. If you want the backlink to go somewhere else on your blog, shoot me an email.

Here is the link to the article: Should I Pay Down Debt or Buy Another Rental Property?

7:04 am
April 4, 2013


Dominique Brown

Washington, DC

Member

posts 510

Brick By Brick Investing said:

Hey Dominique

After reading your profile I noticed you're in the Northern Virginia metropolitan area and daycare is absolutely ridiculous! We have two kids and they quoted us $700/week. I would go with the real estate deal seeing that you are much more seasoned than others with managing real estate and your risk tolerance.

However, I may have a better solution for you. Depending on you and your wife's situation would you be willing to entertain an Au Pair? If you're not familiar with them, BLUF they are foreign nannies who come live with you and care for your children. I know this seems a bit intrusive but they can be invaluable. I would give it some consideration as the costs for an au pair are MUCH cheaper than daycare in our area.

Our original plan was to go with a Nanny, but we canned that after not finding someone we liked. We didn't think of an Au Pair, fortunately, we were able to find an amazing center 2 minutes from my house that's working out great. NOVA definitely can get pricey with the daycare, especially if you live near the city.

12:50 pm
April 5, 2013


Brick By Brick Investing

Member

posts 87

Dominique Brown said:

Brick By Brick Investing said:

Hey Dominique

After reading your profile I noticed you're in the Northern Virginia metropolitan area and daycare is absolutely ridiculous! We have two kids and they quoted us $700/week. I would go with the real estate deal seeing that you are much more seasoned than others with managing real estate and your risk tolerance.

However, I may have a better solution for you. Depending on you and your wife's situation would you be willing to entertain an Au Pair? If you're not familiar with them, BLUF they are foreign nannies who come live with you and care for your children. I know this seems a bit intrusive but they can be invaluable. I would give it some consideration as the costs for an au pair are MUCH cheaper than daycare in our area.

Our original plan was to go with a Nanny, but we canned that after not finding someone we liked. We didn't think of an Au Pair, fortunately, we were able to find an amazing center 2 minutes from my house that's working out great. NOVA definitely can get pricey with the daycare, especially if you live near the city.

Glad to hear it!


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