Hello out there in real estate wisdom cyber-space! We need some advice on a opportunity that has presented itself.
We have been in the rental business for two years and have two rental properties. We have lived in our home for 10 years and have outgrown it. When one of our properties came open we had considered selling it to pay off our business debt. Thinking a little more on it, we realized that if we were to sell OUR house it would pay off ALL of our debt; business and personal. So, we moved into our rental and listed our house for sale.
We have had lots of interest in the house for sale but only one offer (WAY too low) so far. It has been on the market for less than 2 months The home has a lot of equity built in. We owe $58,000 (at 3.9% interest) on it and the monthly payment is only $470. We could rent the house for $800 with NO problem but could really ask $1500 for it. Right now, the income from our other rental is paying the bills for BOTH rentals and we are paying the bills for the house that's for sale.
Here's my question:
Do we sell the house and pay off our debt or do we rent the house??
I think the question you need to answer, to yourself at least, is what is your position concerning debt?
Is being able to pay off all your debt going to allow you to do something that you can not do now?
If you pay off all your debt, are you going to cashflow even more and is that what you are looking for?
My point being that there is not a generic right or wrong answer without knowing what you are aiming at.
You said you have a lot of equity in your house. Why not refinance to get a large part of that equity out, and rent the house at a little lower cash flow? Pay off your biz debt with that, keep the house as a rental, with the tenant (1500) paying off the debt.
You get to keep cash flow, keep a house to live in, and pay off your biz debt.
Ahhh, thank you for the great responses!
Bram, I don't think paying off our debt would put us in any greater position than we are in now. We do want to purchase a home that suits us and I think having no personal debt would allow us a better position on acquiring a loan for that. BUT if our business bought our house from us, we would still be showing no personal debt (the house is the only personal debt we have). Being pretty new at all of this I'm not sure if that's a good option or not - or even how to do that ...just thinking. We don't mind debt right now as long as our business is paying the bill. We are not in this for an immediate pay-off but for a "secure" future standing. Our goal is, of course, to be out of debt...but is this the right timing? I kind of feel like if we sell this house we are letting go of a great business property.
Joe, I really like that option. I think it fits with our purpose. Thank you for the different perspective!
I am supportive of the approach @Joe Villeneuve suggests.
If your market provides the option, consider buying a multi-family as your primary in place of renting for your housing.
Ensure the rental(s) on your new multi-family primary covers your living expense.
In such a scenario you are cost free with an expanded portfolio.
Rich Dad would be proud of you in such an arrangement.
@Britnie Daugherty Right now, is the time to exploit leveraging. You have equity to access...go get it...and turn it into something more. Paying off debt is what you do after you've leveraged your assets into a duplication of those assets. You are correct in questioning if now is the time to have no debt. Now is the time to take advantage of "good debt". If your tenants pay off all your debt, and other expenses, and part of that debt is turning your equity into cash that you can invest and grow (thank you Mr/Mrs/Ms tenant), then go for it.
Take it a step further. Any new use of that cash, as long as it was invested in another cash flow property, from the refi can also be refinanced out of that property, for use on another property....and so on, and so on and ...
If you take a closer look, you never actually are spending the money (cash from 1st refi), you're just using it over and over again. In the end, when you refi it out of the last house you decide to buy, you get it back...never having spent it.
"Paying off debt is what you do after you've leveraged your assets into a duplication of those assets."
Thank you for that direction Joe! I do think your advice is in line with our goals for our business/life. So, does it matter that the home (loan) is in our personal names? Should we have it put in the business name? If so, what would be the best method for accomplishing that?
Any refinancing you do, even if it is on an investment property, will be in your personal name...so no, you can leave it in your personal name.
Thank you SO much for your time and thought!! I'm looking forward to crunching some numbers now :o)
Happy Thanksgiving to you!
...any questions let me know.
Happy Thanksgiving to you too
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