Author Topic: Remove debt or keep saving?  (Read 977 times)

HouseofLife

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Remove debt or keep saving?
« on: May 09, 2018, 07:24:13 AM »
Greetings mustachians.

I'm new to the forums but have been following for a few years and this community has inspired me to achieve financial independence. I have a question regarding the best next step: Should I completely eliminate my debts or should I continue saving for investments?

Salary: 54,000

Savings
1. Down payment/marriage fund: 3400
2.Emergency Savings: 1000
3. Rental property down payment: 4400


Expenses:
Rent & Utilities:555
Grocery:248
phone: 40
auto insurance:40
gas:40
restaurants: 150
student loans: 434

I also have a rental property that I've converted into a triplex in 2014. When I zoned it, I bought upon myself a whole new set of complications with out local licenses and inspections. Basically, I've been told I need to install a fire suppression system, new exit windows and a slew of electrical work. I've had to take out loans to cover these new upgrades but this has drastically reduced my cash flow to the point where I'll need to start paying out of pocket to keep the property up:

Property info:
Mortgage: 92000
Loan 1: 5500
Loan 2: 18666
Loan 3: 15000

3 units
A: Vacant
B: 650/m
C:Vacant

Expenses:
1983.00

Therefore, I've been using loan proceeds to help keep the property up. I'm in a bit of a holding pattern now because until the violations that the license and inspection are fixed (which I'm doing with the loans,) I cannot sell the property at it's highest possibly value. My goal is to either refinance or sell the property once all alterations are complete.

Question: regarding my own personal finances: Should I use my saved funds to pay down some of the personal loans associated with the property or should I continue saving and plan to purchase another property that cash flows better?

Thanks all.

MommyCake

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Re: Remove debt or keep saving?
« Reply #1 on: May 09, 2018, 08:20:11 AM »
If these are personal loans at the typical higher interest rates, I would pay these first before saving for anything.  In fact I think I would probably take savings #1 & #3 and throw them on the fire.  I think if you add in the interest rates and your net income people will be able to give you more advice.  When do you expect the house to be complete?

HouseofLife

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Re: Remove debt or keep saving?
« Reply #2 on: May 09, 2018, 09:56:49 AM »
Thanks for the reply MommyCake:

At the moment, interest rates for the personal loans are as follows:

5k loan @ 7.5%
18666 loan @9%
15K loan @ 9.5%

My net income from work is about 1200 after the above mentioned expenses. I usually put in 200/m towards purchasing a home with my fiance and the rest of that goes into the rental property fund.

I wish I could give you a response. The licenses and inspections department in my city is extremely incompetent and have not given me a clear idea of when things will finish but I'm pushing to have this finished by the end of July.

RWD

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Re: Remove debt or keep saving?
« Reply #3 on: May 09, 2018, 10:10:48 AM »
At the moment, interest rates for the personal loans are as follows:

5k loan @ 7.5%
18666 loan @9%
15K loan @ 9.5%

Kill that debt ASAP.

See also: Investment Order.

Laura33

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Re: Remove debt or keep saving?
« Reply #4 on: May 09, 2018, 10:29:02 AM »
Keep a reasonable emergency fund, then throw the rest at the debt, highest interest rate first.  The things you are saving for are either consumption items (personal home, wedding) or will involve taking on even more debt (new rental property).  First Rule of Holes:  when you're in one, stop digging.  You need to dig yourself out of this first rental unit before jumping into a second. 

You have time -- you don't need to do everything right now.  Be patient, take a few months, and spend your time/energy/money getting the current rental fixed and rented and the debt paid down.  Then see where the monthly cash flow settles out when the expenses are gone and the additional income is flowing in.  If you're making good money from this rental when all is said and done, that will then help you get the rest of the debt cleared quickly, and you can resume saving for your other wants.

HouseofLife

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Re: Remove debt or keep saving?
« Reply #5 on: May 09, 2018, 10:52:41 AM »
Thanks folks. I appreciate your insight. This past 4 years of managing this property have taught me a lot about the following:
1. Managing property
2. Buying right
3.Knowing what activates licenses and inspections in the city

That being said, all this definitely has to come in balance with my personal life and I believe tackling the debt will help reduce a lot of burdens.

Much appreciated.

Catbert

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Re: Remove debt or keep saving?
« Reply #6 on: May 09, 2018, 11:00:43 AM »
Why are two of the three units vacant?  Is the required work not done so you can't rent them?  Or what?  You need to do whatever you must to get them rented!  Are you planning on living in one of them?  If not, why not?  Seems a partial solution to your cash flow and debt problem.

HouseofLife

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Re: Remove debt or keep saving?
« Reply #7 on: May 09, 2018, 11:09:51 AM »
Hi Catbert:

They are vacant due to construction. I agree that renting them out if a definite solution to the cash-flow issue.

Imma

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Re: Remove debt or keep saving?
« Reply #8 on: May 09, 2018, 11:13:29 AM »
Why are two of the three units vacant?  Is the required work not done so you can't rent them?  Or what?  You need to do whatever you must to get them rented!  Are you planning on living in one of them?  If not, why not?  Seems a partial solution to your cash flow and debt problem.

Yes, this! Why are you paying rent when you own two vacant apartments? Since there are tenants living in one of the apartments, I assume it's not illegal for someone to live there right now. Even if it's harder to find a tenant because of ongoing work or something, you can always move in there yourself. If you moved into one of the vacant apartments and stopped going to restaurants, you'd be able to pay 700/month more towards your high interest debts.

I would also put the downpayment for the next rental property towards killing off your debts. There's no point in saving for another rental property when you already own 3 apartments and can barely afford to keep them. You need to fix what you need to fix, pay off your debts and get a positive cashflow from this rental property before taking on the next.

HouseofLife

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Re: Remove debt or keep saving?
« Reply #9 on: May 09, 2018, 11:21:22 AM »
Duly noted! These are feelings I've been having but it's good to hear it from you all to give me some momentum in getting folks back into those apartments.