As the world changes rapidly, Lesley finds it difficult to reconcile the notion that "this time it isn’t different." Can past experiences still reliably guide present-day decisions amid significant challenges?
An anonymous caller and her husband aim to achieve financial independence through real estate within the next decade. Should they focus on paying off their current mortgages or on acquiring more rental properties?
Melanie feels misled by the FICO credit scoring system. Despite following best practices, her credit score continues to decline. What could be the reason for this?
In today’s episode, former financial planner Joe Saul-Sehy and I address these three inquiries.
Enjoy!
P.S. If you have a question, feel free to leave it here.
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Lesley asks (at 01:55 minutes): How do you balance the understanding that “this time it’s different” is often a risky way of thinking with the reality that there are aspects that are indeed different now? I'm particularly considering long-term issues like climate change and unprecedented economic inequality. I’m quite curious and would love to hear your thoughts.
Melanie asks (at 21:44 minutes): Why has my credit score decreased when my situation has improved?
My credit score took a significant drop after I had to take out loans for a car and some unexpected home repairs. I recently saw my score rise to 778, but then I received an alert indicating it fell by 21 points this week.
The alert noted that my available credit increased, my total balance decreased, my credit usage dropped, and the age of my oldest accounts went up. Aren’t these all positive factors for credit building? So why the decline? Are credit scores just a scam?
Anonymous asks (at 45:54 minutes): My husband and I are striving for financial independence (FI) through real estate. Should we concentrate on acquiring another property or paying off one of our existing rental properties? Which approach will expedite our journey to FI?
We are both 34 years old, without children, and have a combined annual income of $200,000. We are employed full-time and wish to make work optional within the next 10 years. We are debt-free, except for a $12,000 car loan at an interest rate of 8.29 percent, with monthly payments of $250 remaining for four years.
We have $85,000 in cash savings and contribute an extra $4,000 each month. Additionally, we possess $20,000 in a taxable brokerage account. We currently own two rental properties and believe that acquiring three more will help us achieve FI.
Here’s a summary of our current rentals:
Property 1 was acquired in 2018. It rents for $1,600 per month and has a $90,000 mortgage with a 4.875 percent interest rate. We could pay this off within the next month or two using our savings, which would significantly enhance our cash flow. However, a significant portion of the current monthly payment goes toward principal, and the interest rate is fairly low.
Property 2 was purchased in 2022. It rents for $1,500 per month, but due to a sharp rise in property taxes and insurance, we are currently paying $140 per month out of pocket. The outstanding mortgage is $131,000 at a 7.125 percent interest rate. If we maintain our saving of $4,000 per month, we could eliminate this loan in a year.
Alternatively, we could keep both mortgages and allocate our savings into a down payment for a third property, allowing us to achieve our five-property target more quickly.
Given all of this, what do you suggest? Should we pay off one mortgage to increase cash flow and then use that income for our next down payment? Should we continue acquiring properties and deal with mortgage payments later? Should we focus on paying off the car loan due to its high interest rate? And how should our taxable brokerage account be factored into the equation?
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As the world evolves at a rapid pace, Lesley finds it hard to believe that “this time isn’t different.” Does history continue to provide reliable guidance for contemporary major decisions?