So Close To The Finish Line

Jeff wants to buy a rental since the market is on sale in California. The household income is $170,000 a year and no debt but a mortgage. Dave tells him to pull back the reins.

QUESTION: Jeff in Fresno wants to buy real estate since the market is on sale in California. He wants to buy a rental and get the positive cash flow. The household income is $170,000 a year and no debt except for a mortgage at $240,000. Dave tells him to pull back the reins.

ANSWER: You’re just killing it, so that makes it easy to get sloppy. You haven’t got any debt but your mortgage. You’ll be done with your mortgage pretty quickly if you just roll up your sleeves. There’s always a deal. I’ve bought deals when times are good and deals when times are bad. There are more deals right now, granted. I feel like I’m at K-Mart and the blue light is on. They’re everywhere. It’s really tempting.

The question you have to ask yourself is if your home was paid for, would you borrow money against it in order to buy rental real estate? I always said no. By saying that, it’s the same thing as asking, would I spend $100,000 or $200,000 on a rental instead of paying off my home? It’s the same thing as having borrowed on your home, because you didn’t pay it off.

I don’t know that you need a stern talking-to. I’m going to affirm your observation of the market. It is a great time to buy, but if I were in your shoes, I think you’re very close to the finish line, and I’d rather you just not stop now. Finish. Play through. You’re that close. How cool would it be to live in Fresno, California with a paid-for house? That’s expensive. I think you’ll end up with more wealth 10 years from now by first paying off your home and then paying cash for your rentals as you go along.