Author Topic: California real estate, disabled and in debt - help!  (Read 704 times)

SePaHale

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California real estate, disabled and in debt - help!
« on: September 28, 2018, 05:27:30 PM »
Hi all,

We are really in need of advice. Here is our situation: we own a home in Northern California. It is too expensive for us to live in, I got transverse myelitis (freak spinal infection) and cannot work nor can I maintain the house (2,000 sq. ft. on 1/3 acre parcel). We have approximately $80,000 debt from student loans and two credit cards (we didn't know any better then, we do now). Husband has a good job and makes about $70,000 annually but much of that unfortunately goes to medical and care for me so we are not doing as well as we might normally be. We have a great apartment that is reasonably priced and can stay here for a bit (but probably not for more than another year or two).

The house is currently under remediation from mold but once it's all done it will be a very nice home. Since we aren't going to live there anymore, here are our current options:

Option 1: Sell house, use equity of ~$100,000 to pay off all debt, travel a bit (we normally wouldn't until we are more secure but my condition is progressive and it may become much more difficult in the future - we want to make memories with our family now), come back and start over with a clean slate. Concern here is that we may not be able to get back into the real estate market. We only could purchase our home because I bought the first home in 2011 for cheap and we rolled the equity into the new home. Starting from nothing again is scary.

Option 2: Sell house, pay off some debt, purchase another smaller home to rent out for rental income. We are honestly not positive that our credit will qualify us for another mortgage (pesky medical bills have thrashed husband's credit) but we want to consider this option anyway. Downside is that we can pay off the credit cards but not the student loans since we'll need that money for the next house. Benefit is that we stay in the market and don't get shut out.

Option 3: Keep the house and rent it out. Rental market is very strong in our area and we'll be able to find tenants with minimal issue. However we won't be able to pay the debt off nearly as quickly. Another concern is that the house will need some maintenance soon, like a new roof. It's been a very problematic house since we bought it and I doubt the roof will be the end of it.

So there it is; what do we do?

Thanks in advance! We are new to this and don't want to make a huge mistake. 

Sibley

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Re: California real estate, disabled and in debt - help!
« Reply #1 on: September 28, 2018, 07:25:01 PM »
My vote would be to sell the house, but you need to do the math on what you can get from renting it.

ChpBstrd

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Re: California real estate, disabled and in debt - help!
« Reply #2 on: September 28, 2018, 08:21:09 PM »
Option 2:
-Eliminates the credit card debt.
-Reduces the upkeep (which would double in the rental scenario)
-Reduces risk of business failure (i.e. the classic absentee landlord can't keep up with property's deterioration story)

But honestly, I'd consider a more radical option 4:
-Completely cash out of the house
-Move to a LCOL area and rent near a medical center, cut living expenses probably in half, experience a new area/climate/culture.
-Wipe out all debt over 5% interest rate.
-Do some frugal travel - no all-inclusive New York City guided tour shit - more like road trips and flights on CC points.
-Not wiped out if HCOL area property values take a dive again (see current affordability metrics that look a lot like 2007).

Sounds like you have some serious Fear Of Missing Out (FOMO) regarding (1) real estate prices and (2) travel before health deteriorates. Consider that through either geographic arbitrage or renting, you could have both a home and a travel budget while cutting your debt. Also, in California, either you or your landlord is lucky to be earning 1-2% ROE on a rental. I'd much prefer a landlord to take the 1-2% and I'll invest my would-be-downpayment in the markets. Improving your investment performance might be a crucial way to manage your health issue without going or feeling broke. But option 4 is also a more risk-averse direction.