New York City, NY · Member since 2015 · 1 post · 0 votes
Hello,
I am a doctor with about 300,000 in medical school debt. Earnings next year will 250, then 330K.
About 100,000 of my debt is 5-6.8%, the other 200,000 is 2.8%-3.8%.
We are moving back to the NYC area and were wondering if we should sell our current Manhattan apartment (we won't be living in Manhattan) and use that money to pay off my higher interest loans and credit card debt and put a down payment on a house versus hold onto the apartment and continue to sublet (rent) it out in the hopes that someday we can sell it for a lot of money or keep it in the family. Its currently worth about 700,000 and a house would run us about 1 - 1.5 million (will likely take out a mortgage)
What are your thoughts on keeping money in the NYC apartment vs liquidating it to pay off debt and invest in a home we will actually live in.
And if we do sell - how can we avoid the 40K in taxes we will pay?
Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
11y
@Jon G.if you can make money at a higher rate than the interest you're paying on your loans then I would invest the money and pay down the loans over time. If you can't then I would pay down now.
Real Estate Agent · New York, NY · Member since 2014 · 160 posts · 45 votes
11y
Hey @Jon G. personally I would look to pay down the high interest loan on the $100k. Rates are great so if you can get a good buy on a house you can be in a good position to move your cash from a sale into a nice downpayment so you don't have a big loan payment each month. The downtown market is beyond hot right now so I think it's best to take advantage. If you're looking to rent it, unless it's giving you positive cash flow each month, you're just adding to your debt.
I talk about this day in/out with clients, happy to chat further if you'd like, and give rental comps. Email is in my signature.
I think the market is sufficiently hott right now in NYC, I would definitely let go of it, especially with these low interest rates. Buyers are trying to outbid each other, use that as an advantage.
If you have occupied the unit in 2 out of the last 5 years you should be exempt from capital gains tax up to $500,000 (please talk to an accountant or attorney to verify, I am not one). Furthermore, a 1031 exchange is another good device for moving the money from one REI purchase to another. I know debt payment is your goal, but you could always 1031 the money, save yourself the 40k, and invest in several single family units that would cashflow (down south).
One strategy would be to build up the equity with those and use the cashflow to pay off your other debts.
Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
11y
@Jon G.if you can make money at a higher rate than the interest you're paying on your loans then I would invest the money and pay down the loans over time. If you can't then I would pay down now.