A testimony from Jackie
We are determined to pay cash for everything — even big ticket items. So while my husband and I were getting completely out of debt, I set another long-term goal: to pay cash for a rental house once we were debt-free.
The plan was to buy the rental property within a self-directed IRA. (That’s a type of retirement account where you’re allowed to decide what you want to invest in, so long as you stay within the IRS rules.)
Small amounts add up:
I started contributing to my 401k at work. At first I just contributed 3% to see what my check would be like with that amount gone. Once I adjusted to that change, I increased my contribution by 1-2% every few months. I kept that pattern up until eventually I was contributing 30% of my check!
I invested in the options available to me in the 401k, and also got a very small company match. I had in mind that I would be quitting my job at some point in the (then-distant) future to go and work for myself. Once I did, my plan was to roll the 401k money into a self-directed IRA and then buy a rental house within it. The IRA would own the rental property on my behalf.
But before I could do that, the company I worked for was acquired. That meant I could roll the money over to a self-directed IRA earlier than I’d expected. I went ahead and did exactly that. Then I went house shopping!
Finding the house:
I had managed to save up about $80,000 over about 7 years, so I set my rental property budget at $50,000 or less. (I wanted to have extra cash available for repairs and unexpected expenses.)
In order to find a house for that low price, I had to look outside of our area. I found an older home listed at around $40,000 in a small town about 40 miles away. I had my IRA make a full-price cash offer, sight unseen, that was contingent upon inspection. (The property was occupied, and they didn’t want people inspecting who weren’t serious.)
After inspection, I had my IRA withdraw the offer. The house needed a LOT of work. I got a few estimates, and then had my IRA make a new offer at about half the asking price due to the repairs that would be needed. They accepted. Suddenly my IRA owned a rental property, and I’d paid cash for a house.
How it feels to pay cash:
The first time you make a large purchase with cash is amazing! So is every time after that!
Living a debt free life may not be considered “normal”, but it’s awesome — and something I believe everyone can do once they get their finances into shape.
We’re regular people who struggled with debt for years, and we finally beat it. You can too!
Jackie Beck is an entrepreneur and the mom of one college-age son. Her husband is a software tester and avid reader. You can read about how they paid off over $147,000 in debt at TheDebtMyth.com.
Have you saved up and paid cash for something — large or small? Submit your story for possible publication here.