The beatles Case Study

[The beatles]

Have some good and bad news.

I called around and got the property tax payment plan set up.

The monthly payment is a bit of a shocker, but what can you do?

Moving forward...

http://stackingpennies.org/property-tax-payment-plan-rental-house/

AWESOME work.  Now you know what the requirement is, and you have a path forward.

The next step is figuring out how much money you have in your budget to devote to debt repayment.  That's your starting "snowball" amount.

Run the numbers and calculate what that number is.  Then go back and look at your budget again, and see where you might be able to squeeze more money out of it.  Be ruthless.

Report that number back to us, and we can then suggest a payment plan. 

Great work!

Edit: I read this wrong.

[Malum Prohibitum]

The zoot's post is worded awkwardly, but he said in the first line, "now you know what the requirement is."  He is asking you to figure out how much room you have in your budget to pay it faster.

[Zoot]

Taking everything at face value in your blog post - You can pay at 18% interest

OR

you can sell and walk away with $30,000.

Then use the 30,000 to pay off debt.

Just by selling, you will have eliminated the property tax debt, the HELOC, the car note, all of the credit cards, and, if I am correct, be left with no debt but your mortgage and the $40k to the IRS. 

Is that right?

I know which way I would go.  In one fell swoop, you will have eliminated ALL of those monthly recurring obligations.  The $535 to the property tax lien holder.  The $670 you already did (lunches and massages).  The $393 to the car . . . are you adding this up?  By the way, once you payoff the car, you can reduce the insurance on it and save monthly there, too ($135 a month for insurance is insane).  Plus the $850 monthly on credit cards and furniture debt.  Plus the monthly payment on the HELOC ($135???).  How much a month is that, total?  Start setting it aside each month, stockpiling cash to workout your IRS issue. Then start saving for real.

This, x1000.

I know I've been talking about repayment plans and all that, because Beatles really seemed to want to keep the rental (while disagreeing strongly that he should). 

But what Malum Prohibitum points about above is really the simplest, quickest solution.  It wipes out everything but the IRS debt, and then the "snowball" (and any other funds that can be freed up by economizing) can be applied to that.  Keeps it simple, gets creditors off your back, and puts an end to the insane interest charges that will keep mounting. 

Just wanted to address one other question, by the way. 

Beatles, you mention in your blog that it's $595 per month profit on the rental.  Is this $595 month/$7140 year net of property taxes (and insurance if you could get it), or is it just the gross profit?

If you have to pay ~$3500 year in taxes, and should be paying another ~$500 in insurance, that's $4000 of expenses that eat in to that $7140 gross profit.  Set aside another $100 month (too low, but for the sake of example) for maintenance, and you have $5200 of expenses.  So your true net profit would be $1940/year, or just $161/month.

You are taking on a LOT of risk to keep the rental for what amounts to a very small rate of return on your investment.

I'm not now and have never been a landlord, so I'll let others with more experience correct/amend what I've said above, but to my admittedly inexperienced eyes, it doesn't look like you're getting much bang for your buck, and the bang you're getting comes with way too much risk.  When selling comes with so many other benefits, I can't see my way clear to advise you to hang on to it.

By the way:  I love the new avatar, and the links in your signature to the blog where you spell out some of the details you aren't mentioning here.  Putting together the info in the blog will greatly help you, and it will also greatly help the community here to give more detailed and specific advice.

Keep going!  You can do this!

[Mmm_Donuts]

Doing some quick calculations here, it looks like your minimum monthly debt payment totals $3,538, which includes your mortgage, CC minimums, car and furniture loans, and this new property tax instalment. It doesn't include your IRS debt yet, or paying back your parents. This is (if I understood your initial post correctly) 70% of your net income going towards debts. With IRS payments it will be even more. It leaves you with ca. $1550 in spending money for heat, food, gas, everything day to day.

With the IRS debt it could be as low as 1k a month available to spend to support a family of 4.

Do you think that is feasible for you? Or... should you sell the house and clear a lot of this debt?

[The beatles]

The zoot's post is worded awkwardly, but he said in the first line, "now you know what the requirement is."  He is asking you to figure out how much room you have in your budget to pay it faster.

Gotcha. Thanks!

[Zoot]

The zoot's post is worded awkwardly, but he said in the first line, "now you know what the requirement is."  He is asking you to figure out how much room you have in your budget to pay it faster.

She, actually.  :)

Thanks for the clarification, as what I wrote was in fact worded badly.

Here's another stab at what I meant:

* Add up your monthly income, from all sources
* Add up your monthly expenses
* Subtract monthly expenses from monthly income

The amount you come up with is your "snowball"--the money left over every month after paying the minimum on all your obligations, which you will then use to pay MORE than the minimum, in a strategic fashion.

Once we know that amount, we can advise a payment strategy to help eliminate the CC/property tax/IRS debt in the most efficient way possible.

Hope that makes more sense!  :)

[Iplawyer]

From your blog:

"Either way, we have the payment agreement setup, and that means we have a small moment to breathe and assess our next steps."

How do you figure you have a moment to breathe?  Your blog doesn't take into account that you soon owe more than $4K more in property tax on this unit , that you cannot afford this payment, and that it is uninsured - leaving you open to unlimited liability - for instance - if a visiting child trips on a tree root on the property and has lifelong injuries. 

[The beatles]

I don't know what i'm going to tell my parents about netting $30k from a house they have been $120k into.

[The beatles]

From your blog:

"Either way, we have the payment agreement setup, and that means we have a small moment to breathe and assess our next steps."

How do you figure you have a moment to breathe?  Your blog doesn't take into account that you soon owe more than $4K more in property tax on this unit , that you cannot afford this payment, and that it is uninsured - leaving you open to unlimited liability - for instance - if a visiting child trips on a tree root on the property and has lifelong injuries.

Interpret "moment to breath" to equal "they arent going to come take my house tomorrow morning".

[The beatles]

Selling the home would save you almost $3000 monthly in expenses.   Seriously, add up the categories I put up there in post #854 (HELOC, property tax, credit cards, furniture, car payments, and I am including the $670 already saved in work lunches and massages).

Grocery/eating out expense modification could save you another $1000.

That's $4000 a month just by selling the rental.

How soon could you pay off the IRS with an extra $4000 a month available?

10 months.

Or less if they accept the lesser amount the accountant is proposing.

But i'd almost rather sell the other rental that has $100k in equity than walk away with $30k on this one.

Ugh. I dont think any of you realize how frustrating this is.

[Zoot]

I don't know what i'm going to tell my parents about netting $30k from a house they have been $120k into.

Yes, that's a hard pill to swallow. 

But don't think of it as the house.  It's your other spending that has got you into this hole.

If you had paid the $15K in property taxes, instead of spending that money on other things when the bills were due, the net would be $45K, for example. 

Be loyal to your future, not your past.

[emilypsf]

Beatles, why are the insurance companies refusing to insure the rental? 

Have you read MMM's blog?  It's a great read, very entertaining, and I highly recommend reading the whole thing from the beginning.  It's hard not to spend money freely in our culture, particularly when you are used to doing so.  It requires a complete mind shift and habit change, which are things that take a long time to cultivate.  I find reading his blog articles helpful whenever I get off track with spending or my mindset, even 6+ years after finding his blog.

I think he might have some articles that address parents constantly driving kids around to activities that your wife might like.

[Trifle]

How soon could you pay off the IRS with an extra $4000 a month available?

10 months.

Or less if they accept the lesser amount the accountant is proposing.

But i'd almost rather sell the other rental that has $100k in equity than walk away with $30k on this one.

Ugh. I dont think any of you realize how frustrating this is.
[/quote]



**** "the other rental"?   What??????   You have two? 

[emilypsf]

btw, MMM has an article in which he laid out the math on a decision to rent rather than sell a house that he renovated.  His conclusion was that he should have sold and put the money into the market even though he would have sold the house at a loss.  It's worth a read re: your math on your own rental house. 

[The beatles]

btw, MMM has an article in which he laid out the math on a decision to rent rather than sell a house that he renovated.  His conclusion was that he should have sold and put the money into the market even though he would have sold the house at a loss.  It's worth a read re: your math on your own rental house.

I've seen it.

But don't forget; He would have put it into the market. Not paid off debt.

[Iplawyer]

You have another rental you haven't told us about??????

"But i'd almost rather sell the other rental that has $100k in equity than walk away with $30k on this one."

And if you do  - why is the decision to sell this rental so hard?  You are open to so much liability with that rental - I would not be able to sleep if I were you.  I guess that is because I'm a lawyer and I've seen what can happen.

[Zoot]

Ugh. I dont think any of you realize how frustrating this is.

I understand something of the frustration with not yet being at your financial goal.  My own version of it has been saving for a particular goal, over a period of ~18 months.  Watching the number on my spreadsheet graph climb was excruciating--I wanted to be there SO BAD but there was nothing I could do to get there any faster than I already was.  But I will be there at the end of this month, and I can't even put into words how amazing that feels.

I'm also going through it with a weight loss plan I'm on--I have at least 70 pounds I'd like to lose, and I've been at it for 2 weeks, and have lost 6.  My rate of loss will slow to 1 to 2 pounds a week, which means that I will be at this for well over a year to reach my goal.  I so wish I could just snap my fingers and be a size 10 again!  Add that to the fact that I'm a great cook (if I say so myself) and inveterate foodie (I was reading cookbooks by the age of 6), and you can see how hard this is going to be.  But I didn't get here overnight, and neither will I get to my goal overnight.

Long term goals are HARD.  But they are so worth it.  :)

Hang in there!  You can do this!

[The beatles]

Beatles, why are the insurance companies refusing to insure the rental? 

Because the roof is so bad.

Have you read MMM's blog?  It's a great read, very entertaining, and I highly recommend reading the whole thing from the beginning.  It's hard not to spend money freely in our culture, particularly when you are used to doing so.  It requires a complete mind shift and habit change, which are things that take a long time to cultivate.  I find reading his blog articles helpful whenever I get off track with spending or my mindset, even 6+ years after finding his blog.

I think he might have some articles that address parents constantly driving kids around to activities that your wife might like.

I keep laughing when people tell me to read MMM's blog.

How do you people think I got here (this forum) in the first place!! Haha.

[The beatles]

**** "the other rental"?   What?   You have two?

Yeah, but it's honestly not even worth getting into that whole backstory.

[Zoot]

But don't forget; He would have put it into the market. Not paid off debt.

By paying off your debt, you are in fact investing.

The rate of return is the interest rate on the debt you're paying off. 

By paying those debts, you are getting a return in the amount of interest you would have paid had you kept the debt.

If I had the choice between investing at 8% and paying off debt at 25% (or 18%, or 10%), I'd pay off the debt.

[Iplawyer]

I don't know what i'm going to tell my parents about netting $30k from a house they have been $120k into.

Simple - tell them the truth - and ask them if they want to buy it at market value minus the roof cost.  That keeps it in the family.   But in any case - you cannot afford it unless you move back into it.

[Zoot]

Yeah, but it's honestly not even worth getting into that whole backstory.

I would say that it is definitely worth getting into.

We cannot give you sound advice if we don't know the whole picture.

[The beatles]

You have another rental you haven't told us about??????

"But i'd almost rather sell the other rental that has $100k in equity than walk away with $30k on this one."

And if you do  - why is the decision to sell this rental so hard?  You are open to so much liability with that rental - I would not be able to sleep if I were you.  I guess that is because I'm a lawyer and I've seen what can happen.

Because it's an impossible situation.

Not even worth getting into.

I shouldn't have brought it up.

[Iplawyer]

btw, MMM has an article in which he laid out the math on a decision to rent rather than sell a house that he renovated.  His conclusion was that he should have sold and put the money into the market even though he would have sold the house at a loss.  It's worth a read re: your math on your own rental house.

I've seen it.

But don't forget; He would have put it into the market. Not paid off debt.

Nobody forgot that detail.  You apparently have forgotten that HE DID NOT HAVE A MOUNTAIN OF DEBT BURNING HIS HAIR OFF LIKE YOU DO.  If he had debt - he would have paid it off.  If you read what he wrote and don't agree with that - you need to read again.  There is no way anybody on this forum would support keeping date at 3 times the rate of return you can expect to get from investing. 

[Poundwise]

I agree with others, you don't seem to include  the costs of the roof, insurance, and especially, the cost of interest on your CCs and other debts if you don't use the sale of your rental to pay them off.  Also, if the neighborhood has gone downhill, it might keep sinking so what good would it be to wait?

 It could be a nice little investment if you had no other interest-bearing debts to pay. But you do. 

I don't know what i'm going to tell my parents about netting $30k from a house they have been $120k into.

Okay, this is the root of it all.  I thought you were reluctant to sell because the process of selling seemed too large a task.

Selling the rental looks to be the least disruptive way to jump start your debt removal, which is why people recommended it.  If you truly want to save the rental house, how are you going to get the income to pay off your other debts? You may be able to sell your current house + a car, then move into either the rental or a smaller place near work.  But you can't have it all.  Given your current debts-- I repeat-- you just can't have it all. 

Moreover, you don't need it all to be happy.

As for your parents, if they knew the whole situation, I think they would be disappointed, but happier to know that you were debt free and on the way to responsibility.  I don't think it's possible to hide it from them for long. Of course, you know that they will try to step in and rescue you, maybe by offering to "buy" the rental from you. I wouldn't take that offer, but if you have that obligation to them it will be hard to say no.  All I can say is that it's time to man up and clean house by giving up some of the stuff you never really owned in the first place.

[Jakejake]

I don't know what i'm going to tell my parents about netting $30k from a house they have been $120k into.

You tell them the truth. You got in way over your heads, it had become a liability because it was uninsurable, you made the difficult decision to cut your losses now instead of risking losing all of it (or more) in a fire or other accident. That you don't consider it a total loss because it was the final push you needed to realize you need to start being responsible for your own financial decisions. And that you are going to use the profits to pay off your existing debts instead of running to them yet again to be bailed out.

And you will explain all this with humility and integrity - because part of being a financially responsible adult is making responsible decisions, instead of making bad ones because you're worried about what your parents will think..

They will react with a combination of disappointment, being mad at themselves, mad at you, being relieved that you are becoming responsible for your own finances, and respecting you for facing reality and making a difficult decision.

*Bonus points if you add that once you are out of this hole, you are going to work at paying them back what you borrowed. Based on what you've said, their reaction will be one of two things. Either they will tell you not to bother (but I promise they will appreciate that you at least offered). Or they will agree to it, and you will pay them back, which may not sit too well with you - but if you can do it on your own time table after your other debts are paid off, it sounds like in the end you will likely inherit it back anyway, and I'm guessing if they had that much to loan you in the first place, they will do fine at investing it. So it's not like you'd be losing any investment opportunities by paying it back to them.

** after reading the latest posts, either you sell the other rental with the $100k to start paying back your parents (after the other debt of course), or the profits from that rental, if there are any, go to your parents to pay them back. Or you move into that rental, sell your existing home, and use that money to pay back your parents.

[Papa bear]

Selling the home would save you almost $3000 monthly in expenses.   Seriously, add up the categories I put up there in post #854 (HELOC, property tax, credit cards, furniture, car payments, and I am including the $670 already saved in work lunches and massages).

Grocery/eating out expense modification could save you another $1000.

That's $4000 a month just by selling the rental.

How soon could you pay off the IRS with an extra $4000 a month available?

10 months.

Or less if they accept the lesser amount the accountant is proposing.

But i'd almost rather sell the other rental that has $100k in equity than walk away with $30k on this one.

Ugh. I dont think any of you realize how frustrating this is.

Ok, you have a finance degree. Why don't you run an NPV of the rental situation keep vs sell.  Those other calculations weren't finance. Do the math.

I haven't and don't want to do it. You should though.  If you can't remember how to set up an NPV calculation, go back to your old finance notes or look it up.  And you may have to run multiples to account for probabilities of not making tax payments and losing the house or having some disaster or liability claim that would bring value to 0 or less. Because these situations exist and can't be discounted.


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[kms]

YOU HAVE ANOTHER RENTAL???

You know what, I'm out. This is ridiculous. You do realize that at this point nobody can take you serious anymore? You're acting like a little child here and occasionally, every couple of pages, you drop a bomb like this. You "forget" 40k IRS debt. You "forget" property tax debt. You "forget" to mention that in addition to house #1 and house #2 there's another house.

This is a total waste of time, and not worth any effort. At this point, I am beating the troll drum, and I think you're making all this up as we go. And even if this is all true and you're not making it up then you, sir, are the only person in here not realizing how frustrating trying to help you is.

Good luck. I'm out.

[notactiveanymore]

Selling the home would save you almost $3000 monthly in expenses.   Seriously, add up the categories I put up there in post #854 (HELOC, property tax, credit cards, furniture, car payments, and I am including the $670 already saved in work lunches and massages).

Grocery/eating out expense modification could save you another $1000.

That's $4000 a month just by selling the rental.

How soon could you pay off the IRS with an extra $4000 a month available?

10 months.

Or less if they accept the lesser amount the accountant is proposing.

But i'd almost rather sell the other rental that has $100k in equity than walk away with $30k on this one.

Ugh. I dont think any of you realize how frustrating this is.

Yeah, seconded with: WHAT OTHER RENTAL????

Here's my deal. You have all the tools to be able to be debt free in about 8 months (if you sell the car and the rental). That's an amazing short period of time considering how deeply in debt you are and at such terrible rates. Yet you say conflicting things like a) that's not fast enough OR b) I don't want to use the options available to me.

You don't realize how frustrating it is to see someone who has that kind of awesome option in front of them and watch them refuse to use it. It's not usually so easy to pay off debt. My husband and I spent 21 long months paying off 55k in student loans at 6.8%, putting over 50% of our income towards it while making an average of about 75k annual gross during that time. We didn't have any assets to sell. We barely had any furniture. My husband got hit by an uninsured driver and for a few months we used duct tape to keep his headlight in place from that. We didn't have anything else to cut out of our lives. Instead we hustled for 21 months to pay it off so that we could be debt free. You know what I did when I felt the itch to spend money or get some retail therapy after a bad day? I went to the dollar store with my strictly limited cash spending money and bought a notebook or candy or something. We said no to going out. We learned how to cook better and cheaper at home.

And guess what? We're better off for having done the work. Our budget hasn't actually gone up all that much in the last few months since payoff. Instead we've bought a new (used Saturn Ion with 30k miles for 5.5k) car in cash, we've saved up a 10k emergency fund, we've started saving about 14% for retirement and started saving for a house. Doing the hard things to sort out your financial life pay off. You could end 2017 with no debt and 10k+ in an emergency fund. So go do it.

[emilypsf]

But don't forget; He would have put it into the market. Not paid off debt.

By paying off your debt, you are in fact investing.

The rate of return is the interest rate on the debt you're paying off. 

By paying those debts, you are getting a return in the amount of interest you would have paid had you kept the debt.

If I had the choice between investing at 8% and paying off debt at 25% (or 18%, or 10%), I'd pay off the debt.

Right.  This is why some people advocate paying off a mortgage instead of investing in the market.  When you pay off debt, you're getting a guaranteed rate of return of whatever the rate is on the debt.  Same as if you invested and got that rate.

I think people keep asking if you've read the blog because many of the answers to the questions you're asking here are in the blog.  It might be worth another read.

[begood]

I don't know what i'm going to tell my parents about netting $30k from a house they have been $120k into.

Oh, Beatles. Like telling your coworkers about lunch, this is going to be a tough conversation. But every day you don't have it, your financial hole just gets deeper. You just added an 18% interest payment plan on top of everything else, for a property that is uninsured, needs a new roof, and has month-to-month renters.

You haven't followed the most basic rules of landlording: stay current on taxes and set aside money for repairs/maintenance/vacancy. Every day you own it, it's costing you more money - right now it's costing you 18% more.

We get how frustrating it is. What we're worried you don't get is how terrifyingly close you are to the edge. A difficult conversation with your parents, who clearly love you and want what's best for you, might actually be the easiest thing you face.

[researcher1]

Do you think I'm a moron? That's an open question to everyone, as that's the vibe I'm getting.

Do you really want us to answer this question?

I won't even get into the flawed logic and inaccurate "profit" calculations you've made.  Instead, let's just deal with a few small aspects of the rental property...
- Do you currently have an extra $535/mo. in cash flow for the property tax repayment plan?
- Do you have ~$4,000 saved up to pay the current property taxes that will be due in 2 months?
- Do you have another $4,000 to pay for the desperately needed new roof?
- Do you have additional cash flow to pay for homeowner's insurance once the roof is replaced?

Unless the answer to all of these questions is "YES," then the rental should have already been put on the market.

You, and everyone else, knows that the answer to most/all of these questions in "NO." 
Since you are determined not to sell, what is your plan to deal with all of the expenses noted above?

[a-scho]

I understand why people are saying you can't take a break - this is an emergency. Going back to the hair-on-fire metaphor, you can't be the fireman and decide in the midst of the fire - I'm going to just sit for ten minutes. Because the fire will get worse. I get that. But also - I get that you will need some down time. Even firemen battling raging wildfires take shifts.

Yes, firemen need to take breaks. But he is not a metaphorical fireman.....he's the person on fire. If you were literally on fire, would you sit down and take a ten minute break??
Jokes aside, ok he's not really on fire.....but the MMM community, at least me, would like to have him act as if he was. I want to hear screaming(oh gawd oh gawd OH GAWD!!!!!!!), running around in circles, swatting at himself maniacally, third degree burns on 90% of his body kind of behavior.
But, I am not getting that vibe. What I hear is, "Soooooooo, I have this SITUATION. It kind of sux. There are ways to get out of it.....mainly my parents money. I don't really want to go that route, cuz, well, I am thirty years old. You guys(MMM) seem to have your act together. Can I pick your brain for ideas?" Of course we oblige. "Ummmmmmm, I don't wanna do most of those things and even if I did, I want it to take less than nine months to reach my goal." After many face punches, "You guys are wrong, overreacting, getting up in my grill, implying that I'm mentally retarded." We rebuttal with our own arguments. "No, I'm right cuz of blah blah blah." No, you are wrong cuz of one, two, three, etc. "I've got it totally under control after one whole week!! Phew!!! The last few days have been INSANE. I think I have earned the right to spend some unwind time on my new blog/startup. Hun?, do we have any more of those tasty Skinny Cows left in the house? Oh, and bring me a soda too."

[Trifle]

YOU HAVE ANOTHER RENTAL???

You know what, I'm out. This is ridiculous. You do realize that at this point nobody can take you serious anymore? You're acting like a little child here and occasionally, every couple of pages, you drop a bomb like this. You "forget" 40k IRS debt. You "forget" property tax debt. You "forget" to mention that in addition to house #1 and house #2 there's another house.

This is a total waste of time, and not worth any effort. At this point, I am beating the troll drum, and I think you're making all this up as we go. And even if this is all true and you're not making it up then you, sir, are the only person in here not realizing how frustrating trying to help you is.

Good luck. I'm out.

Beatles, you are going to have to explain how you "forgot" to mention before now that you own another house that has $100k in equity.  That obviously has a huge bearing on all the advice you've been given.  If you don't explain that, then more of us are going to conclude you are having us on.

[Unique User]

I don't get the impression it is a HCOL area.  Beatle - you say don't want to lose the $500 a month in rent, I understand, but how much will insurance cost?  And what if property taxes go up?  And what happens when they move out and it needs to be painted and carpets cleaned or they break the microwave.  What happens when the tenants move out in the middle of the night and you find they left a pile of crap for you to clean up.  These things have all happened to me with rentals.  $500 is just not enough per month to justify when you are in this kind of situation.  Maybe you are not truly freaked out because your parents will bail you out.  Maybe you just don't think it will happen to you.  But, you need to sell the rental or move into it and sell the other house.  You can't have a rental without insurance, that is potential financial ruin, please don't do this to yourself or your family.

Being a landlord yourself, what is enough to make it worthwhile for you?

How much do you require your properties to net you?

I only have two properties.  One we bought as a rental 9 years ago.  Mortgage interest, taxes and insurance are around $425 per month, principal is another $360.  It rents for $1,150 per month, so $725 extra per month which includes the principal payoff amount.  But this one turns over a lot.  Second one is my old house.  The seller's market sucks, but the rental market is great so it's been rented for the last four years and I'm only on my second tenant who just renewed for another year.  Mortgage interest, taxes and insurance are around $730 per month, principal is another $500.  It rents for $1,650 per month, so $920 extra per month which includes the principal payoff amount.  Neither one is great for cash flow, last four years we've ended up pretty cash neutral due to AC units, hurricane damage, new roof and tenant turnover.  But, we take depreciation each year which gives me a loss for my taxes. 

Looking at those numbers, not so hot, I am the first to agree and probably some of the longtime landlord experts here on MMM would laugh at me.  But in three years (my teen graduates high school in 2.5 years), the plan is to move back to that town and into my house for two years, then sell it.  That converts it back into a primary residence and wipes out any depreciation I'd have to pay back.  After it's sold, move into the rental, repeat and then find a new place to live. 

This is long, but my point is that I had to look at all four aspects to get my justification.  The cash is not enough, there always seems to be something to pay for.  Someone else paying the mortgage, nice also, but still not enough.  A paper loss for tax purposes and being able to wipe out having to pay it back by living in them - put all four together and it's worth it to me. 

In your situation, I'd put emotion aside and sell the damn thing.  I took a $90k loss on a house once, it was painful and I still kick myself over the stupidity, but it had to be done so we did it. 

[The beatles]

YOU HAVE ANOTHER RENTAL???

You know what, I'm out. This is ridiculous. You do realize that at this point nobody can take you serious anymore? You're acting like a little child here and occasionally, every couple of pages, you drop a bomb like this. You "forget" 40k IRS debt. You "forget" property tax debt. You "forget" to mention that in addition to house #1 and house #2 there's another house.

This is a total waste of time, and not worth any effort. At this point, I am beating the troll drum, and I think you're making all this up as we go. And even if this is all true and you're not making it up then you, sir, are the only person in here not realizing how frustrating trying to help you is.

Good luck. I'm out.

What?

I never forgot the IRS debt.

It has been part of this thread since day 1. People just didn't see it at the bottom of the post.

The only thing I didn't tell people about is the 2nd rental and I REGRET THAT I DID. There is NOTHING I can do about it. It's an impossible situation. Why bring up something you cant change? It's like being mad that the sky is blue.

[The beatles]

YOU HAVE ANOTHER RENTAL???

You know what, I'm out. This is ridiculous. You do realize that at this point nobody can take you serious anymore? You're acting like a little child here and occasionally, every couple of pages, you drop a bomb like this. You "forget" 40k IRS debt. You "forget" property tax debt. You "forget" to mention that in addition to house #1 and house #2 there's another house.

This is a total waste of time, and not worth any effort. At this point, I am beating the troll drum, and I think you're making all this up as we go. And even if this is all true and you're not making it up then you, sir, are the only person in here not realizing how frustrating trying to help you is.

Good luck. I'm out.

Beatles, you are going to have to explain how you "forgot" to mention before now that you own another house that has $100k in equity.  That obviously has a huge bearing on all the advice you've been given.  If you don't explain that, then more of us are going to conclude you are having us on.

I didn't forget it.

I purposely didn't include it because its not consequental.

I dont know why I brought it up. Sorry. Just pretend I never said it.

[Khaetra]

I am guessing it is this pride at your degrees and intelligence that is standing in the way of your financial success.  Learn to listen to some people who may have been where you are but turned it around.  They may have degrees, too.  They may not.  But learn what you can from those who have succeeded in having high savings rates.

I am a junior-high dropout.  Yep, never went to high school or college, worked since I was 14 and am stupid as hell about math.  But my net worth (at last check) was almost $2M.  Yep, a dropout worth 2 Million and whose monthly expenses are just shy of  $900/month.  And I still put money away monthly too :).

[PharmaStache]

How soon could you pay off the IRS with an extra $4000 a month available?

10 months.

Or less if they accept the lesser amount the accountant is proposing.

But i'd almost rather sell the other rental that has $100k in equity than walk away with $30k on this one.

Ugh. I dont think any of you realize how frustrating this is.

**** "the other rental"?   What??????   You have two?
[/quote]

There's a new twist every day!

Anyone want to take a guess at the next one?

[honeybbq]

I don't know what i'm going to tell my parents about netting $30k from a house they have been $120k into.

What are they expecting? What is your agreement with them? Do they know you are 3+ years behind on property taxes?

[The beatles]

I don't get the impression it is a HCOL area.  Beatle - you say don't want to lose the $500 a month in rent, I understand, but how much will insurance cost?  And what if property taxes go up?  And what happens when they move out and it needs to be painted and carpets cleaned or they break the microwave.  What happens when the tenants move out in the middle of the night and you find they left a pile of crap for you to clean up.  These things have all happened to me with rentals.  $500 is just not enough per month to justify when you are in this kind of situation.  Maybe you are not truly freaked out because your parents will bail you out.  Maybe you just don't think it will happen to you.  But, you need to sell the rental or move into it and sell the other house.  You can't have a rental without insurance, that is potential financial ruin, please don't do this to yourself or your family.

Being a landlord yourself, what is enough to make it worthwhile for you?

How much do you require your properties to net you?

I only have two properties.  One we bought as a rental 9 years ago.  Mortgage interest, taxes and insurance are around $425 per month, principal is another $360.  It rents for $1,150 per month, so $725 extra per month which includes the principal payoff amount.  But this one turns over a lot.  Second one is my old house.  The seller's market sucks, but the rental market is great so it's been rented for the last four years and I'm only on my second tenant who just renewed for another year.  Mortgage interest, taxes and insurance are around $730 per month, principal is another $500.  It rents for $1,650 per month, so $920 extra per month which includes the principal payoff amount.  Neither one is great for cash flow, last four years we've ended up pretty cash neutral due to AC units, hurricane damage, new roof and tenant turnover.  But, we take depreciation each year which gives me a loss for my taxes. 

Looking at those numbers, not so hot, I am the first to agree and probably some of the longtime landlord experts here on MMM would laugh at me.  But in three years (my teen graduates high school in 2.5 years), the plan is to move back to that town and into my house for two years, then sell it.  That converts it back into a primary residence and wipes out any depreciation I'd have to pay back.  After it's sold, move into the rental, repeat and then find a new place to live. 

This is long, but my point is that I had to look at all four aspects to get my justification.  The cash is not enough, there always seems to be something to pay for.  Someone else paying the mortgage, nice also, but still not enough.  A paper loss for tax purposes and being able to wipe out having to pay it back by living in them - put all four together and it's worth it to me. 

In your situation, I'd put emotion aside and sell the damn thing.  I took a $90k loss on a house once, it was painful and I still kick myself over the stupidity, but it had to be done so we did it.

Those seem like great numbers.

I'm on a forum called Bigger Pockets as well, and many LL's on there feel tahat anything over $500/mo is great.

Some even set the edge at $300/mo.

[honeybbq]

btw, MMM has an article in which he laid out the math on a decision to rent rather than sell a house that he renovated.  His conclusion was that he should have sold and put the money into the market even though he would have sold the house at a loss.  It's worth a read re: your math on your own rental house.

I've seen it.

But don't forget; He would have put it into the market. Not paid off debt.

No, the markets are fickle. Debt payoff is a guaranteed return.

[honeybbq]

**** "the other rental"?   What?   You have two?

Yeah, but it's honestly not even worth getting into that whole backstory.

Now I'm thinking the T word. As explained time and time again, you can't get honest and useful help without the full picture.  Is this mommy and daddy's rental? What is it?

[The beatles]

I am guessing it is this pride at your degrees and intelligence that is standing in the way of your financial success.  Learn to listen to some people who may have been where you are but turned it around.  They may have degrees, too.  They may not.  But learn what you can from those who have succeeded in having high savings rates.

I am a junior-high dropout.  Yep, never went to high school or college, worked since I was 14 and am stupid as hell about math.  But my net worth (at last check) was almost $2M.  Yep, a dropout worth 2 Million and whose monthly expenses are just shy of  $900/month.  And I still put money away monthly too :).

How'd you do that??

Spill the beans.

Do you have a family? Single? High paying job?

[honeybbq]

YOU HAVE ANOTHER RENTAL???

You know what, I'm out. This is ridiculous. You do realize that at this point nobody can take you serious anymore? You're acting like a little child here and occasionally, every couple of pages, you drop a bomb like this. You "forget" 40k IRS debt. You "forget" property tax debt. You "forget" to mention that in addition to house #1 and house #2 there's another house.

This is a total waste of time, and not worth any effort. At this point, I am beating the troll drum, and I think you're making all this up as we go. And even if this is all true and you're not making it up then you, sir, are the only person in here not realizing how frustrating trying to help you is.

Good luck. I'm out.

What?

I never forgot the IRS debt.

It has been part of this thread since day 1. People just didn't see it at the bottom of the post.

The only thing I didn't tell people about is the 2nd rental and I REGRET THAT I DID. There is NOTHING I can do about it. It's an impossible situation. Why bring up something you cant change? It's like being mad that the sky is blue.

You never said you were 3 years delinquent in your taxes. You seemed to forget that part.

[The beatles]

**** "the other rental"?   What?   You have two?

Yeah, but it's honestly not even worth getting into that whole backstory.

Now I'm thinking the T word. As explained time and time again, you can't get honest and useful help without the full picture.  Is this mommy and daddy's rental? What is it?

I'm refusing to respond to anyone who calls, or hints at calling me a troll.

I'm tired of it.

I have spent over a week on this forum, countless hours, PHOTOS, receipts, interest rates ... Eveything.

If people want to think i'm a troll - fine.

But I'm not going to respond to them.

[kms]

There's a new twist every day!

Anyone want to take a guess at the next one?

$5 on another $100k debt somewhere that beatles intentionally didn't mention. Because, you know, "it's not consequential" and "there is NOTHING he can do about it. It's an impossible situation. Why bring up something you cant change?"

[Zoot]

The only thing I didn't tell people about is the 2nd rental and I REGRET THAT I DID. There is NOTHING I can do about it. It's an impossible situation. Why bring up something you cant change? It's like being mad that the sky is blue.

I respect your right to keep the details private if you want.  And I will take you at your word when you say that there's nothing else you haven't told us about, and that we now have the whole picture. 

If there is anything else you want to put into the mix, now would be a good time.  Some recent details that have come to light after the original case study have in fact been critical to planning the strategy (the fact that the property taxes were delinquent for three years, the fact that the rental was not insured).  If there's anything else that might be significant, especially in regards to cash flow, liabilities, insurance, tax, or any other issues related to Rental #2, get it out now, to the extent you can.

I will offer a suggestion, however:  you say that the second rental is an impossible situation you can do nothing about.  You have an incredible team of experienced professionals here (including landlords, lawyers, CPA's, builders, engineers, and so on) who might be able to offer you a different perspective if they know the details.  Don't take this for granted--this is an incredible gift that you are being given by these people, who all want the best for you and would jump up and down to see you succeed.

[Laura33]

btw, MMM has an article in which he laid out the math on a decision to rent rather than sell a house that he renovated.  His conclusion was that he should have sold and put the money into the market even though he would have sold the house at a loss.  It's worth a read re: your math on your own rental house.

I've seen it.

But don't forget; He would have put it into the market. Not paid off debt.

And therefore, you have the option to make an even bigger impact on your bottom line.  Putting it toward your CCs gets you an 18-25% guaranteed return.  You really think the market is going to do better than that over time?

Every dollar you make you can spend only once, and each choice gets you a different rate of return.  You can spend it on needs/wants, which means it can't be used to invest, pay down debt, cover the costs of the rental (i.e., 0% rate of return); you can invest (what, 8-10% rate of return?), but then you can't spend, pay down debt, or cover rental; etc.  So here, sure, you can hang onto the dollars that are currently in your rental (equity) and continue to put your monthly dollars toward the carrying costs, to earn your $500/mo. profit*, instead of using those dollars to pay off your massive debt.  But that means you are effectively paying 18-25% interest for the privilege of keeping that rental (because you could otherwise have used those dollars to pay off one or more CCs, and the CC company will keep charging you 18-25% on each dollar you owe until you do so). 

Do the math for yourself -- do a spreadsheet of "what ifs," and figure out your net worth in 10 years under each option.  At those CC rates, I can't imagine that anything will work out better than "sell and throw all available $$ at the debt." 

*Not counting the various other costs of ownership discussed in the many, many earlier pages of this thread, the possibility of total loss from a fire/lawsuit, etc.

[The beatles]

There's a new twist every day!

Anyone want to take a guess at the next one?

$5 on another $100k debt somewhere that beatles intentionally didn't mention. Because, you know, it's not consequential and "there is NOTHING he can do about it. It's an impossible situation. Why bring up something you cant change?"

For fucks sake...

The other rental is a home we owned in the past.

I actually mentioned it in this very thread, several pages ago, but left out the part that we still own it.

It's worth about $300k, and with mortgage/heloc included we owe about $200k.

It is a 2,500 sq foot house with a 1,000 sq foot apartment that is detached from the primary home, but shares a driveway.

The monthly payment was simply too much which is why we moved out.

We were going to sell the property but then my wifes family needed a place to live so a deal was worked out where they could live and just assume the bills for that property.

So we pay NOTHING over there.

It's all on them.

That's why it doesn't matter and it wasn't worth bringing up.

Fuck.