Should i sell to pay off debts?

Question

Hello BP members, i know this has been asked so many times but i will like another insight to help me make the right decisions.

Here's my situation:

Debts

$127K loan @ 16.99% for an investment property rehab - $1963/months fixed

$50K Heloc against primary obtained when rates were low and has since adjusted to market (high) rate

$36K (three business credit cards at diff rates, lowest at 22% apr)

Income

Mortgage 1 income after expenses (primary carrying the heloc -) - $600/month

Mortgage 2 income (also primary) - $ 162/month ( not enough equity in this to sell right away ($70k) but area is growing like crazy)

Mortgage 3 income (investment) - $720/month

Mortgage 4 income (this is the property the127k loan was taken against) - $856/month - This is the one i am considering selling. Granted i was in the process of rehabbing this when the rates started climbing up and i also had DSCR loan. I got the loan at 8% which bites into my cashflow a lot. If i sell this, i may be able to net between 189k - 230k depending on what i get, not including fees (agent)  and capital gains

Goal

To be financially independent in 5 years or less so i can travel the world more. Initial goal was early retirement but i don't know or think that's totally realistic at this point. Maybe work less hours and whenever i want to and not because i absolutely have to? Possibly but i want to make sure i am doing the right thing to get there.

I am 39 years old, no child but plan on having one at some point. I work a fulltime job as well and make about $13000 a month after tax. I max out my 401k but I feel like i am struggling trying to stay up. Sometimes it feels like I am living paycheck to paycheck due to always trying to catchup with the debts. I drive an old car and only spend money on travel, not extravagant. I can't talk to family or friends because everyone around me thinks i am doing better than i am actually doing (or should be doing). Is it realistic to pay off the debt and still keep the house or better to sell? On one hand i am thinking, if i sell, i may regret as i may never be able to find something at the price point in the area plus i put a lot into that unit. On the other hand, i would like to live more comfortably and let my income reflect that in my life choices (and not have fear about losing my job and not being able to pay my debts. Thoughts? Advice?

Basit Siddiqi · Answer

The interest rates you are high and it is not likely that you will make a return that exceeds the cost of that debt.I would consider selling to pay off those debts.

Nathan Gesner · Answer

Yes, you should pay off the debt and remain debt-free.

I would sell the property with the 127k loan at 17% interest, which is ridiculous. Pay off your credit cards immediately. Save a reserve for maintenance and capex. If anything is left, start building a fund for your next investment.

Many people make the mistake of paying off credit cards, student loans, or other debts and then building new debts. You must discipline yourself to carry no debt other than your investment properties. If you aren't disciplined with a little, you won't be disciplined with a lot.

Alecia Loveless · Answer

@Ken Cort With $13,000 in monthly income you should be able to start paying off the credit cards ASAP. I like the advice of a debt snowball approach. I have used this method, it works. I’d focus on the credit cards, then the HELOC then start tackling the mortgages. At 16.99% on a mortgage if you saved up 2-3 months from the $13,000 you could likely recast the mortgage with a $20-30,000 pay down to around 8%.

Nathan Williams · Answer

Properties:

1) Appreciate in value. Look into the average over the last couple years for your properties.

2) Cash flow. Hopefully a lot! Add this in.

3) Provide a tax shelter. Talk to your CPA, add this in!

4) Loan pay down. Consider the amount of money your loans get paid down.

Based on your goals, it may make sense to sell. Long term it probably doesn't though. Only you know your properties 4 pillars well. Call me if this doesn't make sense! Good luck!

Steve Vaughan · Answer

@Ken Cort   Our returns/ROI have to exceed the debt rate to pencil, obviously. You need to earn at least like $17% on every dollar you invest in these to break even.  Probably higher than 17%.

It's not clear to me what you are asking if you should sell? I would think the investment property at 16.99%.

I'd buckle down and apply every saved dollar to the lowest balance business credit card, then the next until all 3 are gone.  You have the rare opportunity to snowball and Avalanche at the same time there.

Should i sell to pay off debts?

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