Question: I am 28 years old. I have a solid full time job (earn $48k per year). I am planning on starting grad school part time this fall. Work doesn’t reimburse. I also have an offer on a duplex (I have enough cash for 20% down) that has been accepted. I qualify for the 8k tax credit and I think it is an overall good deal, even though there is some deferred maintenance. It will cash flow $3k per year once I move out and rent both sides. While I’m living on one side during school, the carrying cost (excluding repairs and maint.) will be $100 more than the rent I can get from the other side. I am concerned I might be taking on too much with work, school, and buying this house. The alternative I am considering is to rent and put the cash I have for down payment into other investments, mostly stocks. I think I can get a decent return in the stock market over the next 4-5 years, but I hate to pass up the deal on this house. Is stretching myself thin worth it from an investment stand point? Brian, Indianapolis, IN
Answer: I applaud your entrepreneurial initiative and hustle. I think it’s great. Owning a rental property can be a good business, depending on the purchase price, the quality of tenants, the rent you can charge, and the cost of upkeep. Getting a graduate degree should certainly pay dividends over a lifetime. But I think you’ve already answered your own question: You’re taking on too much with work, going to school and being a landlord. Whew! It’s a recipe for exhaustion at the very least. (Believe me, I empathize with your ambitions since I have a habit of taking on too much, too.)
Yes, I know that there are millionaires who have penned odes to comparable risks they took when young and how it paid off over time. Yet many more entrepreneurs have stumbled badly by taking on too much at once, not devising a focused strategic plan, and running themselves ragged. I’m concerned that you would get stretched financially with the duplex, not do as good a job as you’d like at work, and shortchange your graduate education.
I would make a list and go through the trade-offs. Decide where to focus your efforts. Should you concentrate on work and graduate school at this stage of your life? If that’s the case, you can always invest in a duplex later on. Or are there investment reasons for seizing the duplex initiative now? In that case, perhaps the graduate degree should go on the backburner for a year or two.
By the way, at 28 years old and an appetite for risk there is nothing wrong and much right with investing in the stock market.