My Debt Free Year In Review

Let me start by saying that losing $165,000 in debt FEELS REAL GOOD..like REALLY REALLY GOOD. This may be one of the top reasons that I keep shouting about the debt free community and trying to recruit all of you to join me. Believe me when I say that a debt free head just hits the pillow different at night.

So I’ve now had a whole year to reflect on my decision to get out of debt and wanted to share three things from my reflection with you. So keep reading to learn why I got out of debt, how I got out of debt and how I have and will continue to keep the debt off.

THE WHY-YOLO..so that was my mentality back in my late teens and twenties, but I interpreted it wrong. I thought it meant that I should party it up, buy what I wanted when I wanted it, and just be making minimum payments for a lifetime..the American Dream. Pay for everything on credit and work until my mid sixties and make jokes with everyone else along the way about how “I will never pay these student loans off” or “At this rate I will be working until I die”. Looking back, YOLO now means to me that you in fact only live once. So live the life you want and not the life society tells you to. Figure out your own path and your own way to to make a living.

THE HOW-I contribute 3 things to my how. One being a mindset shift. If you don’t first believe that you can be debt free and that you also deserve the freedom of a debt free life, then no budget or even a large sum of money will be able to help you. The second was zero budgeting during the payoff. This just means that I literally took every additional penny that I had and put it to work for me paying off the debt. I turned down a lot of stuff during this time, including eating out or going on a bunch of trips. I got dramatic with my expenses and cut them down to the bare minimum. (or so I thought) Then I woke up one day and realized that I was making excuses for some expenses that weren’t necessary, such as two newer cars that we didn’t need, and an SUV that sucked down the gas. I was also still budgeting for clothes, hair and makeup. When I cut down to the ACTUAL needs..I found out that none of that stuff was included. Actual needs are just that..basic food, shelter and transportation are it…period. So once I got rid of all the excess through a No Spend Year and getting rid of the cars, things really started to accelerate. The 3rd item that helped was the debt snowball method. Every single extra penny went towards the smallest debt, paid that off, then rolled that into the next smallest, and just kept going. When I got towards the end, I also dabbled with the debt avalanche for a student loan that had a high interest rate.

KEEP IT OFF-I have come across a lot of temptations now being debt free, including getting an itch for a new car occasionally or to upgrade in other ways. I think it’s human nature and it’s hard to deprogram from a lifetime of consumerism and instant gratification. It would be very easy to get led right back down that dirt road to debt. But I’m proud to say we haven’t. I ultimately switched from zero budgeting to value based budgeting. So now, if it’s something I value, such as my family, health, or education, then I will spend the money on it. When you know your values and align your spending with them, then you will notice that most of the items that require consumer debt don’t fit anywhere in the budget. The occasional big items, like upkeep for our family home, just require me to save up until we can pay cash for them, and we keep that emergency fund for the unexpected. The rest, like family and education usually are worth the most yet cost the least to add value in my life.

So as you can see..no get out of debt quick scheme or magical inheritance or lottery winner over here. Just some boring stuff that paid off in our current lives and will continue to do so over the long term as we head down a trail we are blazing on our own that builds wealth.

Review Of Our First BRRRR

We are now onto the Final R in the Buy, Rehab, Rent, Refinance, Repeat, so I wanted to share the final numbers and the many of newbie mistakes that were made on our first BRRRR. Let’s start with the final numbers.

Purchase Price: $37,500

Repairs/Holding/Closing Costs: $55,400

Total of our money left in the deal: $12,000

Appraisal: $100,000 (We are still in shock that it came in this low, as we were expecting more in the $110-$125k range)

Ideally, the whole point of the BRRRR method is to end up with instant equity and be able to pull out all or a portion of your money so you can use it for the next deal. Well, we are leaving ALL of our money in the deal and we ended up doing 85% LTV instead of 75%. Ouch..that really BRRRNs. (see what I did there) Am I saltier than the sea about how it turned out and the appraisal coming in super low? I sure am. BUT we also learned SO MUCH that we wouldn’t have if we didn’t go through this process. So, I wanted to share it all with you to ensure you don’t make the same rookie mistakes that we did on your first BRRRR.

1. We went through a wholesaler. Which means we paid for their services of finding and negotiating this off-market deal. We could have easily saved around $10,000 if we would have gone direct to the seller and took out the middle man during the acquisition process.

2. We subbed out all of the work. This means that we did not put in any sweat equity, except that one time I stood in the pedestal sink and painted the bathroom just out of stubbornness and not liking the color. Sweat equity is one of the ways we could have saved big on costs, but we would have had to spend our time, so there is always a trade-off either way. After reviewing all of the work that was done, we could have easily saved another $5,000-$10,000.

3. We used a hard money loan, and in exchange we paid a lot in holding costs. Next time we will explore other ways to fund the deal that don’t come with such high costs, such as a HELOC or private money. Holding costs were even moreout of control with COVID related delays, but we could have saved another $2,500 at minimum if we didn’t have such high holding costs.

4. I am just going to be honest here..we dropped the ball big time on the market analysis. I am not an expert, nor did I consult one and just went with what I was seeing online and didn’t research the appraisal process. If I had my real estate license and could have pulled comps, then I could have been more familiar with the area ahead of time. I would have been more conservative on the appraised value we expected to get back and that would have had an impact on all of the other numbers we ran. I also feel like there were a few things that we could have tweaked during the renovation to get a better appraised value. Overall, there was probably another $10,000 in equity we may have missed out on here.

What Went Right

Now that we have discussed the doom and gloom and all that money we left on the table, lets switch gears to what went right.

1. WE LEARNED. You can read all of the books, listen to all of the podcasts, and follow all of the most amazing Instagram accounts out there, but there is no substitute for hands on experience. We now know the entire process and have broken every aspect of it, so we now know how to fix it for next time.

2. WE EXPECTED TO LEARN. Since we knew it was our first BRRRR and major renovation, we were hoping for the best but also planned for the worst. We are OK leaving our money in the deal.

3. WE GREW OUR NETWORK. We had to find all of the necessary resources for each step of the BRRRR process. For this one deal, we worked with a wholesaler, hard money lender, general contractor, a few subcontractors, real estate attorney, loan officer, and property manager.

4. WE HAVE ANOTHER CASHFLOWING ASSET. After it’s all said and done, our monthly mortgage will be around $690. We are getting $1100 in rent each month. Since we replaced all cap ex items during the renovation, we shouldn’t have to worry about anything major needing replaced right away. After all expenses, we are bringing in $250 a month in cashflow on this one. I will take it!

Am I ready for our next BRRRR? I’m honestly not sure if we will continue with this strategy or switch it up, but I am ready for our next house. We have some ground to make up for since 2020 has been a shit show of a year so far on many levels. But for our real estate business, we still have a goal to double our doors from 3 to 6 this year, so we will definitely have to get creative to accomplish this. Let me know if you have any ideas to share with me to help us double our doors!