Author Topic: Help my co-worker  (Read 2190 times)

wesley

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Help my co-worker
« on: March 24, 2014, 07:22:20 AM »
My friend at work is open to advice and since the start of 2014 has made huge inroads towards FI (as far as I can see)

He is currently considering selling an asset to pay off personal debt , stats as follows:

-Rental property: worth 260-270k, loan of 215k, rent equals mortgage payment plus taxes and other costs.

-Personal debt (accumulated crap, nothing to show for it): 50k

-Savings account: 5k

income 4k per month, saving 2k per month 1k for the 50k debt and 1k for everything else (also as a bonus, lives rent free with family).

now this guy turned a new leaf from the start of 2014, brings lunch to work, moved out of the rental (was too big for him) and moved in with family to save etc. but is considering selling the property to clear personal debt, and become debt free and therefore save 65-75% of his wage each month.

He is 30 with no dependants, my thinking is he is doing so well by saving right now - he can put it into the personal debt and still keep the rental home, afterall 3k per month should clear that loan within 2 years depending on the interest rate ( it has to be 13-17% knowing the lenders).

He is keen to start investing though, getting a better quality rental and investing in vanguard funds. I cant help but think he already has a rental so why go through the costs and hassle of getting another in 1 - 2years when he saves enough for a down payment, then again he would love to clear the 50k debt, thats killing him...

MKinVA

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Re: Help my co-worker
« Reply #1 on: March 24, 2014, 08:15:52 AM »
You are giving him good advice. I find that impatience ruins even the best laid plans. He needs to focus every nickel on that debt. And what is he spending a thousand bucks a month on? Isn't he living nearly rent free? I think he should keep the rental if it's paying for itself and while he has a good living situation.

To fight impatience, he should brush up on his skills at taking care of rental property (carpentry, plumbing, electricals, etc.), then study the market in his area diligently if he wants another rental.

horsepoor

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Re: Help my co-worker
« Reply #2 on: March 24, 2014, 08:22:20 PM »
I'd say sell the rental if it isn't providing positive cash flow.  That could clear nearly all his debt, he'd be able to start saving 75% of his income right away and thus have 36K in the bank next year, or max his 401K if he has one, etc.  Whether an other rental would be a good idea or not depends on the local market, but it might be a good idea for him to look at duplexes or other multi-family units.  They'd probably have a better chance of positive cash flow, and he'd always have the option of livingi in one of the units if staying with the family ever gets old.  Renting a large house would make me nervous - the bigger it is, the more things cost to fix and replace, and I *suspect* that they would be harder to keep renters in for long periods.

wesley

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Re: Help my co-worker
« Reply #3 on: March 25, 2014, 03:13:36 AM »
Both good points!

At the end of the day the decision will end with him, I wouldn't steer him either way but its good to give options.

I do think he can have the best of both worlds though - put 75% of income into debt and keep the rental, within 18 months (depending on interest rate) he will be debt free and have the property...