Future Plans In Real Estate

takes someone to be re-employed after job displacement,” says Folmar. Butler should put the $2,000 contest winnings in the ING account to contribute to his emergency fund.

Pursue real estate. Folmar says choosing a duplex is a wise decision. If the current offer is accepted, or when another deal comes before him, Butler should consider creative financing such as an 80/20 loan, two mortgages that will allow him to finance the down payment (20%) and the purchase price (80%). This type of mortgage is ideal for people like Butler who have limited funds for a down payment. It also eliminates the extra burden of paying private mortgage insurance, which is typically required when purchasers put less than 20% down.

A duplex is also appealing because it is an appreciating asset that will bring in supplementary income. Interest costs are 100% deductible and, as Folmar explains, “Chris can change his payroll withholding allowances to get the tax savings into his paycheck. Renting out the duplex will further increase his monthly cash flow.” Butler also needs to attend homeownership classes to learn how to maintain and manage his property.

Assess asset allocation. Butler invests $75 a month in stocks. Folmar recommends increasing his monthly contribution and investing in mutual funds. According to Folmar’s review, about 60% of Butler’s 403(b) is invested in one asset class. “While this may work in the short term, in the long term, it could have unfavorable consequences.” Butler should determine his risk tolerance and then reallocate his 403(b) using at least four to five asset classes.

Take advantage of tax credits. Butler has a student loan of $42,000, with a 3.5% interest rate. Were he to pay $300 a month, it would take him 15 years to pay off the loan; he’d also pay $804 in interest annually. Currently, the government allows a maximum student loan tax credit of $2,500 for those whose adjusted gross income (AGI) is $65,000 or less. Butler qualifies and can lower his AGI by increasing his 403(b) contribution, says Folmar. “Chris is on the right track,” says Folmar, although his goal of retiring at 40 is a lot to ask. “He knows the building blocks for a sound financial future. He’ll get that duplex today, an apartment or office building tomorrow. As he further defines his plans, he’ll end up where he wants to be.”