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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Diamondpick on September 23, 2013, 10:26:30 PM

Title: Advise for debt consolidation
Post by: Diamondpick on September 23, 2013, 10:26:30 PM
I think I know the answers...but I will ask. I am debt free for everything except the house I live in and 2 other houses out of state. Should I sell my 2 investment properties to pay off my house and be totally debt free? Or should I keep the properties and pay down and then off my house. The properties are rented and in a high dollar desirable place and I make a little on them after expenses over the past 3 years. Or should I pay off the rental houses then the main house?
I am self employed and do ok, but am worried about the state of affairs and healthcare reform hurting me. Looking for advice on how I should proceed, invest, prepare and be able to have option to retire early or work less. Thanks.
Title: Re: Advise for debt consolidation
Post by: gooki on September 24, 2013, 02:59:39 AM
What are the numbers. Property values, interest rates, rents, expenses?
Title: Re: Advise for debt consolidation
Post by: Diamondpick on September 24, 2013, 04:09:20 PM
-#2 rental:  30 year fixed at a rate of 3.625% and an approximate balance $410K

- Main house: 15 year fixed at a rate of 3.3% and an approximate balance of $920K

- #1 rental: 15 year fixed at 3.375% and an approximate loan balance of $382K

these are my only debts. How shall I proceed.?

Title: Re: Advise for debt consolidation
Post by: Another Reader on September 24, 2013, 04:34:50 PM
General worries about the state of affairs are not reasons to make changes.  Are you worried about your income source?  Thinking your tenants will stop paying if the government shuts down?  What is prompting you to think about this now?

There is not enough information to determine what makes sense for the investment properties.  You need to look at the income and expenses, the historical rates of appreciation in those locations, and the rental trends.  How long have you owned these properties and what would be the tax consequences of selling them?  What other investments and savings do you have?  Are you planning on keeping your principal residence long term?  How stable is your income?  Those are the things I would consider, not health care reform or the general direction of our economy.

With regard to FIRE, you should look at this differently.  Among all of your savings and investment vehicles, how much of your total income are you saving and investing?  The higher the percentage that is being invested, the faster you get to FIRE.  The net income and principal paydown for your rentals are part of the money being saved and investing.  Do that math, and you will have a good idea of what changes you need to make to get to FIRE earlier.
Title: Re: Advise for debt consolidation
Post by: Diamondpick on September 24, 2013, 08:37:14 PM
Thanks. The rental income is stable...the health care reform worries me that my very good in come will change fairly drastically and I want to be prepared. Without debt I can't be hurt. My tenets keep coming so I am not worried about that, however I could sell each for at least 800k and pay off main house to be debt free, but then I loose the source that pays me a salary in the long run. Flip side, if I pay off the house I basically save over 100k per year that I could reinvest. I don't make 100 k now off those properties maybe 15k. Don't have really much elsewhere. 325k ski condo paid off, 130ish in Roth IRA, some high end shotguns, 200k in bank at least.

Thanks for thoughts.
Title: Re: Advise for debt consolidation
Post by: Lans Holman on September 25, 2013, 05:20:57 PM
If you could sell the houses for 800k each, subtracting the debt means you've got about that much in equity on the two put together.  If the 15k you make from them is the total income, that's a pretty lousy rate of return, under 2%.  If that's a profit above and beyond the mortgage payment and you are hacking away significantly at the principal each year, that would be better. Again, we need a little more clarity.
To be totally honest, and I don't mean this as an insult, but for the kind of advice you're looking for I'm wonder if this is really the right forum.  The classically "mustachian" thing to do would be to retire right now, sell the almost million dollar house, the ski condo, and the guns, invest all that cash you have sitting in the bank, and figure out a way to live a rewarding, enjoyable life in a smaller house, using the investment income and rents you have coming in.  That way you don't have to worry about how health care reform is going to affect your income.  I know that's not the kind of advice you're looking for but I can't help suggesting it.
Title: Re: Advise for debt consolidation
Post by: Diamondpick on September 25, 2013, 09:07:54 PM
Lans...thank you. Actually that is advise I am looking for and what I want to do most of the time. I can't tell you I'd retire fully because I love what I do but I would significantly reduce my slavery and choose the cases I enjoy most and why I did my fellowship. I think Dave Ramsey would say the same. I have 2 kids that I have missed a lot of life and I don't ride my bike or do other things I like because of the hours I work and the amount of call I take.

The rental houses cash 15k each after all expenses. If I paid them off I'd gross 65-75/year on each house. That makes me want to work until I pay off all this debt. That said, if I sold them and paid off the main house I would save 110 per year. The debt doesn't hurt me now, but I want to be prepared and live more life.

Thanks again for the thoughts.
Title: Re: Advise for debt consolidation
Post by: Lans Holman on September 26, 2013, 12:45:10 PM
Cool, that makes more sense.  If you're getting 70k or so in rent on each of those properties, it sounds like they're actually a pretty good investment, and I assume since they're in other states you've got someone else doing the management, so they're not sucking your time.  So if I understand you correctly, the real issue is the 110k you're paying on your own home each year and what you have to do to make that happen.  So there's a few ways you can deal with that:
1) your original plan, sell the rentals, use that to pay off the mortgage
2) status quo for however long it takes to pay it off
3) some version of the more mustachian plan I described
So it kind of comes down to priorities.  You don't say how old your kids are but if they are still at home, it's certainly worth thinking about how to arrange your life to spend the kind of time you want to spend with them. 
Quick big picture point: you've got to ease up on the negativity.  "Slavery"?  Did somebody force you to buy that million dollar house and the ski condo?  You "don't have much elsewhere"?  Maybe in the social circles you move it doesn't seem like much but by any objective standard it sounds like you're doing pretty well for yourself.  Could be you've made some choices you regret, but if you start thinking about it I think you'll find you have a lot of resources available to create the life you want.
Title: Re: Advise for debt consolidation
Post by: Diamondpick on September 26, 2013, 08:48:04 PM
LANs...thanks again. Don't get me wrong, I am blessed and I love my job....however the slavery is meant in the ball ans chain that comes with taking 24/7 call for 20-25 days a month in a busy area with carnage. The 24/7 call for my office is different and not a bad thing. Sorry to sound so negative and you are right...I never thought I'd live in a house remotely close to this one.

I am just wanting to take a look where I am and get feedback on how I can live a more even balanced life. I love the MMM way...just want to be smart with this.

My kids are 10 and 11.

Anyway thanks for giving me your time and something to chew on.