Property Manager · Murfreesboro, TN · Member since 2015 · 85 posts · 48 votes
I have two duplexes that have some decent equity in them. Total combined would be about $70k. I started the Dave Ramsey program earlier this year and I am debating on selling them and paying off some personal debt car and credit cards etc. But something about that just doesn't sit well with me. Option #2 Sell both and use profits as a nice DP to scale up to a better quality property. Option #3 Keep both properties, pull equity out and leverage. These are class C/D properties. More so D. Cash flow is great on both properties $800 one and $670 other. I have switched gears now and going for properties in better neighborhoods and better schools. Appreciation is more important to me now than cash flow.
@Candace Ellison. I have this conversation with friends all the time. Ramsey's ideas are great if you really struggling to budget and have accumulated some bad debt. If you have your house in order, though, then it's time to think more along the lines of taking on good debt to grow your wealth. You don't want to sell such high-performing assets just because some slick-talking guy tricked most of the country into thinking he has all the answers. He has the answer for the average American - the family with no savings, but tons of credit card debt, that's living paycheck to paycheck. If you own cash-flowing properties, his ideas are good to keep in mind in your personal finances, but really don't make sense for you.
If you have 70k total and your true cash flow is $1470/month, you are crushing any benefit you would get by paying off any debt that has a lower interest rate than 25%. My advice would be to use your cash flow from the properties to pay off the credit card debt. The car debt is probably at a low interest rate, so I wouldn't worry about that one unless you have a reason to.
@Candace Ellison. I have this conversation with friends all the time. Ramsey's ideas are great if you really struggling to budget and have accumulated some bad debt. If you have your house in order, though, then it's time to think more along the lines of taking on good debt to grow your wealth. You don't want to sell such high-performing assets just because some slick-talking guy tricked most of the country into thinking he has all the answers. He has the answer for the average American - the family with no savings, but tons of credit card debt, that's living paycheck to paycheck. If you own cash-flowing properties, his ideas are good to keep in mind in your personal finances, but really don't make sense for you.
If you have 70k total and your true cash flow is $1470/month, you are crushing any benefit you would get by paying off any debt that has a lower interest rate than 25%. My advice would be to use your cash flow from the properties to pay off the credit card debt. The car debt is probably at a low interest rate, so I wouldn't worry about that one unless you have a reason to.
@Candace Ellison Hi Candace, you are on the right path. I would not sell these cash-flowing assets, I would instead cash-out refi them and use that money to put down on an apartment building, perhaps a 4 unit with good cashflow, and expand your portfolio, I would use your cashflow to continue saving for additional down payments if you are stable enough to use W2 income to cover your personal debts.
If the Cashflow is being consumed by the debt service on your debt...then it is non-existent and only serves to pay debt service. I would need a lot more specific information to give you any relevant guidance and advice. It sounds wonderful to have "cash flow". I personally would rather have zero debt, 12 months emergency fund and then begin to build a portfolio of cash flow producing properties that give me multiple income producing benefits not just money to pay interest on debt to someone else..,for their benefit. Go to FPU and then see if you think DR's plan makes more sense than yours or others.
Great advice everyone. @Charlie Fritzgerald DR recommends selling to pay off debt and buy free and clear. I struggle with the time it takes to get to this point.
I am leaning heavily towards this. I was afraid of being over leveraged. I will explore those options in more detail. I have 7 doors now. All cash flowing nicely but for some reason I'm feeling less of a risk taker than I was 8 years ago starting out.
Good evening! I was on Dave Ramsey for years and had my emergency fund and my wife and I threw all of your effort in paying off our house which we successfully accomplished several years ago. With that said, I found myself saying now what? What was my next step??? As I researched more I found myself saying that instead of focusing my time in paying off my debt i should have purchased real estate at probably the cheapest time in my lifetime. Now I am socking away cash and looking for real estate in a frothy market. I don't regret what I did but now realizing my goals I probably could have used leverage to be better prepared to reach my financial goals than I am now. This is very personal as some people cannot put a price tag on being debt free. Think very clearly in what your future goals are. As many people stated, DR is perfect for someone who lives daily with a trainwreck financially speaking. I could start with my own family, (overleveraged, pay check to paycheck, no goals, blaming the man, etc. etc.) If you have two multi families I don't think you are in the same league. This again depends on your goals. I like your #2 to 1031 exchange up to better class properties but always go for cash flow. It doesn't have to be either/or why not cash flow and appreciation. Just a thought.
Buying for appreciation is a gamble. You could sell off these properties (which appear to cash flow nicely), buy something else and then find that the market has cooled (many are predicting a dip in the next 12-18 months) and that your new properties are not appreciating as you had thought.... Unless your new properties also cash flow well, of course.
By all means, get your financial house in order, but don't kill the golden goose to try to get all the eggs at once, as you might find yourself with only a dead goose and no eggs.
@Candace Ellisonthe answer is in the numbers... Take a hard look at the debt and the true cash flow of the properties to see which is higher. If the current debt and or change in interest rates on CC's over time x out the cash flow on the properties then there's your answer. Best of luck to you.
keep cash flowing, there's no rush your doing good no need to play leap frog when your plan is working, before you know it you will be right where you want to be and without taking heavy risks
Having no debt is a kind of leverage. But also using other people's money to make more money is obviously leverage. Pick what you are comfortable with at the stage you are in.
I personally think doing real estate without leverage gives up one of its great advantages. And further, I think killing off your money that is making money is counterproductive. In fact, I'd say what you are talking about is little better than a loan consolidation.
I'd rather you keep the houses and do what he really suggests. Downgrade your car and pay for a replacement in cash, get that second job and pay down those loans. Selling the houses gets you there fast, but is little better than a crash diet and doesn't address the underlying issues.
If it's a smart financial decision or it gives you peace to sell those houses now then do it. But, make sure you are doing the right thing for you for the right reasons.
I asked myself the same thing. What's next. I am more conservation and have always hated debt and it bothers me greatly to have it hanging over my head. On the other hand, this is my 8th year landlording and I feel stuck and I want to grow at a faster rate and leveraging with equity seems to be the way to go. I see I can't have my cake and eat it too.
@Account Closed
I love that analogy. There are so many variables to consider. Thanks for your input.
I asked myself the same thing. What's next. I am more conservation and have always hated debt and it bothers me greatly to have it hanging over my head. On the other hand, this is my 8th year landlording and I feel stuck and I want to grow at a faster rate and leveraging with equity seems to be the way to go. I see I can't have my cake and eat it too.
@Account Closed
I love that analogy. There are so many variables to consider. Thanks for your input.
Seems to me that somewhere along the way, you let your lifestyle get ahead of your cash flow. Dave Ramsey of course takes a VERY dim view of that. But, that's no reason to SELL income-producing assets! Rather, why not sell (or at least pay off) your income-sucking liabilities?
eg. Do you NEED such an expensive car? My 2c. All the best....