Take Control of Your Finances (to Invest in Real Estate)

Most of us think we don’t have money to invest in real estate.  I challenge you on that notion and suggest here how you can exercise control of your personal finances so that you can get started or make your next investment. 

What happens after you take control of your finances?  Doors and possibilities open.  Your mind is stretched; it’s a whole new world in terms of what you can do and accomplish.  With control, things you didn’t think were achievable can suddenly become within reach.  And you can take advantage of opportunities now if you decide to act as opposed to just dismissing them because you previously didn’t know how to make it happen.  So why leave things to chance or just merely hope things will go your way or fall into your lap?  Actively understanding and taking control of your finances gives you great power and can lead to increased security.  Once you fully understand how much your assets are worth, where your money is, how your money is flowing, how much is coming in and how much is going out in any period and to whom, you are then equipped to make the changes needed that put you in the driver seat of your financial future.  At first it may not be easy, and it may take considerable time and effort to cut back and save depending on your circumstances or if you are starting out.  There are risks, but once you get a handle on your overall financial picture, the benefits are surely worth it.

So what does taking control entail?  It means looking at every piece of your financial situation in order to give yourself a complete picture of where you currently stand, including your net worth above any liabilities.  Start with your monthly and quarterly expenses and be realistic. Compile a budget and/or spreadsheet with the regular payments – obviously not the fun part. 

Next though, seriously consider your assets.  If you own your home, how much is it worth and how much untapped equity do you have in your home?  Do you have stocks in a brokerage account, a 401K, an IRA or pension, cash in bank accounts, precious metals, cash value from life insurance, rental properties, or other things of value?  Tally up the value of all your assets. 

Once you have your financial picture, you can then evaluate your options.  If you don’t have enough cash to invest, can you take a loan against your assets or collateralize them in some way?  Maybe you have enough equity in your home that a low-cost home equity line of credit or home equity loan is worth looking into in order to put that otherwise dead equity to work.  As needed, a cash-out refinance, while maybe more costly than a home equity line or loan, might also be enticing, and this may be the option to pursue on any rental properties you may have.  Or a standard refinance at today’s low rates could quite possibly increase your monthly cash flow.  

Or perhaps you can borrow against your current 401K plan, usually up to 50% or up to $50,000, which is often subject to up to a maximum 5-year payback period.  Another place where you can borrow from yourself is from whole or universal life insurance policies.  The money from your cash value is quickly accessible after signing a simple form. Tapping some of these assets could be what allows you to get started in buying your first investment property, or in participating in the next syndication or other real estate investment. 

Other options include self-directing your IRA, which is usually done with a 401K from a prior employer.  As opposed to rolling the old company’s 401K assets over into the new employer’s plan, you can roll it into a self-directed IRA where you can invest in assets like real estate instead of mutual funds. 

At your current employer, you might also consider allocating funds into company stock and/or a Roth 401K account if one or both are offered as opposed to putting them into the standard 401K account.  Be aware though that you will pay taxes now on that additional income, but you can likely tap into it (subject to any plan restrictions that may apply) much sooner than age 59½. 

Another less desirable option is to take money out of your existing 401K. Unfortunately, this will probably result in you paying taxes and early withdrawal penalties..  Lastly, you might be able to borrow funds from friends or family and set up repayment  terms that can be to the benefit of both parties.  

In sum, taking control of your finances requires that you evaluate your assets and liabilities, and that you determine the funds available to you (and the terms, conditions and potential tax implications for obtaining such funds).  The result is a set of options as to how you can more pointedly impact your financial future in a manner that works for you.  That way you can start investing now as opposed to waiting 10, 20 or 30 years.  As the saying goes, “Don’t wait to buy real estate; buy real estate and wait.”

There are risks and responsibilities in taking control of your financial situation.  You are accountable to yourself and your family to make informed decisions, but when done right, the rewards are worthy of the pursuit. 

Gregory M. Baxter is actively engaged in being a passive real estate investor while maintaining his professional W-2 job.  He has been a landlord since 2009 after renting out his first apartment, and has invested in over 10 multifamily syndications since 2012.  Greg can be reached at gbaxmail@gmail.com. 

Nothing on this website should be considered financial advice. Investing involves risks which you assume. It is your duty to do your own due diligence. Read all documents and agreements before signing or investing in anything. It is your duty to consult with your own legal, financial and tax advisors regarding any investment.

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