Surviving Self-Employment

Ellen Hendrix Confronts What It's Really Like To Make It On Your Own

it would accrue 10% simple interest per year until I pay her back.”

Right now, Hendrix’s positive cash flow from renting out the property is $120 a month. She is still ambitious about acquiring real estate to build up future sources of income. But more pressing, she wants to know, “What can I do to decrease my debts and at the same time increase my savings?”

THE ADVICE
Hendrix has made a number of strategic moves to insulate herself from a full-scale financial downfall. She has adequate health, life, and homeowners insurance. She has low interest rates on all of her borrowing. She is not living beyond her means. She has made the adjustment to being self-employed.

The biggest thing Hendrix has working in her favor is her credit score. “You can tell by Hendrix’s low interest rates that she has a good credit score (above 700),” says Sterling Laylock, principal of Sterling Financial Advisors in Atlanta. Lenders use a credit scoring system not only to determine whether to give you credit, but how much you pay in interest for a mortgage, car loan, or credit card. Information from your credit report, including late payments, outstanding debt, and collection actions, are used to assign a score from as low as 300 to as high as 850.

The good credit score will significantly boost her efforts to reach financial independence, but there is much more for Hendrix to do. “She needs to increase her cash flow and protect her assets,” says Laylock.

BLACK ENTERPRISE asked Laylock to consult with Hendrix. Here are the opportunites he sees for Hendrix to enhance her finances:

Use equity lines of credit to build emergency fund. Since Hendrix has a good amount of equity in her real estate and excellent credit, this can afford her maximum equity lines at the lowest cost and serve as her emergency fund since her cash position is low. This doesn’t mean that she should take money from the credit lines all at once, but she can access the cash, should she need to. Since the majority of her cash resources are tied up in her two IRA accounts, she can’t access that money without paying tax penalties for withdrawing it. Laylock cautions Hendrix against resorting to charging emergency expenses on high-interest credit cards, and suggests she contribute the $2,000 prize winnings to her rainy-day fund.

Put an emphasis on “flipping” vs. buying long-term rentals. The equity line can also be used for closing costs on additional real estate. While Hendrix wants to build a stream of income by buying and keeping rental properties, Laylock suggests she “buy to sell” instead. Using a method known as “flipping,” he recommends she purchase the properties, repair them to increase their value, and then put them back on the market. After roughly $7,000 in renovations, the rental home she bought for $25,000 two years ago has already appreciated in value to $57,000. She should look at homes in her neighborhood, which have an average sale price of $35,000.

With her credit, Laylock

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