Should I sell a property to pay off debt

Question

Hello;

WE have 4 properties. One in Jacksonville is a 500$/month loss- currently for sale. The other 3 in South Florida combine for 1200$ a month.  Property1 we owe 40K- section 8 tenant.  Property2 we owe 80K- a duplex clears 500$/month. Property3 we owe 70k -200$/month. We have 25K line of credit out along with a 13k business line 7K credit card 35K 401K repay over 5 years at 900 a month and 25K 401 repay at 500$month. We are considering selling property 1- a 3/1 sfh for 145K.  Is this the best strategy to sell a property and cancel the debt?

Dutch Smythe · Answer

okay- thanks- the 500$/month loser is on the market. I understand the idea plan out a strategy- thank you

David Dachtera · Answer

@Dutch Smythe,

Sorry for the double post - first attempt errored out.

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."

- DJ Benedict

David Dachtera · Answer

@Dutch Smythe,

You really want to sit down with a financial planner on that one. Your CPA, at the very least.

In my own opinion, ...

Dump the negative cash flow property. That's a HUGE ($500/mo) alligator!

That won't pull you completely out of the fire, though. You may want some advice on how to handle the rest of your situation.

My $0.02...

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."

- DJ Benedict

Ben Travis · Answer

Great question.  There are really two options in debt: 1)managing debt is hard 2)debt is a strategy.  You have to know which you fit in.  If it is #1 then definitely finding methods to get out of debt is important.  If it's #2 then you need to know the interest rate all of the debt is associated with.  I imagine the line of credit and credit card have a higher rate then you are earning on your investment.

If the property is currently running at a $500/mnth loss then I think the answer is easy to get to.  If it is at a loss because the market rent is $500/mnth then:

Value $145k

Loan: $40k + $45k + $60K = $145k

Taxes and commission: $17k

net holding value: -$17k

Annual Gross Rent - $5,400 (90% of fully occupancy)

Expenses (property taxes, insurance, maintenance) - $2,500

Interest expense $2,000

Net rents $320 (after tax of 20%)

That means you are earning 0.36% interest on borrowed money that I am sure you pay more then that for the $17k.  The $60k for 401(k) is irs minimum interest rate and rentals would be a great use for it if you are #2.  Hope that help.