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Need advice to get out of debt-sell vs hold

Discussion in 'Ask A REIN Coach (Certified REIA)' started by Cindy, Mar 11, 2017.

  1. Cindy
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    Cindy New Member Registered

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    I have a rental property in a great area of Calgary with an illegal suite currently owe $320,201.00 @2.4% interest maturity date is May 2021 then Ill owe $287,641.00. I paid $375000 in 2008 and should be able to sell for at least $400,000
    Mortgage payment is about $1400 +utilities and currently rents for $1200 and $800....used to rent for $1800 and $1200 a year ago
    so I have no cash flow and it just pays for itself.
    I live in a townhouse which I paid $236000 a few years ago and currently owe $205000
    My problem is that I have a bunch of debt Id like to pay off as its costing me $510 per month and is a huge burden for me.....Mainly my debt is student loans totalling approx. $72000 also the rental needs some work and renos before I can sell it.
    I cant refinance as I don't have enough equity and I hate the thought of selling my investment property.
    I need some advice as to what I should do....Should I just sell it as soon as I can or should I wait 4 years until there is more equity then sell or should I still keep it and continue to slowly chip away at my debt?
    The debts and interest rates are as follows:
    LOC #1 =$36000 @3.7%
    LOC#2 =$15000 @9.13%
    Student Loan 1= $8000 @5.2%
    Student Loan 2=$3600 @5.2%
    Student Loan 3=$9000 @2.7%

    Thank you for any help and wisdom
     
  2. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    What is your income / job ? Do you expect that to grow ?

    Certainly pay off the expensive debt first. With some decent income and reduced spending habit that $15,000 can be done in a year.

    House is break even, so why sell it ? Calgary market is at bottom now and just slowly, ever so slowly, starting to recover. Now is not the best time to sell. In addition, it is tough to impossible to sell with a tenant in it. Mortgage rate is great. A house with no cash-flow in Calgary is completely normal. Don't expect cash-flow until mortgage is well under 60% LTV, perhaps 2020 with a new government and oil $60+.

    I'd say: focus on your income. Maybe get a room mate for the TH. Are you married with 2 incomes ? Single ? Income picture and outlook is missing. You seem young so already owning two assets is GREAT and well above average !
     
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  3. kfort
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    kfort Well-Known Member REIN Member

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    Start w the highest interest rate LOC #2. After it's paid add that ~$125 monthly to your payment on student loan #2.
    Etc.

    That said, if your situation is that $510/ month is a huge burden then owning 2 houses currently may not be the best idea either.
     
  4. Cindy
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    Cindy New Member Registered

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    I guess I already know that I don't want to sell, I want to sit and hold and aquire more properties and get rid of that debt...Im just not sure how to leverage what I have to make that happen...I need a mentor in Calgary to show me the way.

    Sent from my SM-G900W8 using myREINspace mobile app
     
  5. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    Mentors cost money too.

    To acquire more assets you need more cash and likely a higher income, too.

    I note you chose not to tell us about your personal income and lifestyle arrangements which is fine, of course, but it may be the cause for the debt anxiety, not the (reasonable) debt on the two assets.

    Your debt burden is not that excessive provided you have a decent job, say $70,000+. Do you ?

    Check your expense habits as a $ saved is like 2 dollars earned. This is one of 80 lessons in my book you might find enlightening.
     
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  6. Cindy
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    Cindy New Member Registered

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    Thanks for the replies! Thomas..Your my inspiration
    Im an ER nurse and make $92000 per year...take home is about $4500 per month. Not much room to increase income. I am on a strict budget and spend very little on variable expenses and track everyrhing.. the rest goes towards current mortgage and bills and debt repayment so it takes awhile to build up extra funds or to pay down debt. It's just frustrating cause I'd like to do more now and not be weighed down with debt repayment for the next 5 to 10 years.

    Sent from my SM-G900W8 using myREINspace mobile app
     
  7. Alvaro Sanchez
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    Alvaro Sanchez Ottawa-Gatineau Investor REIN Member

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    In your case, I would seek advice to options to consolidate some of the loans (lc or even student loans) but I can see that selling is not an option as there is not much equity on each property at the moment. Try lowering your current expenses and perhaps get a second job or rent-out a bedroom for an extra 500-600 a month for a few months (or do both).
     
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  8. kfort
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    kfort Well-Known Member REIN Member

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    Do you have a lump of accessible cash for "what if.." or are you going for your personal best bench press without a spotter here...?
     
  9. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    wow. They pay you $7500+/month and you net only $4500 ?

    There are only two ways to solves this: get more revenue in or cut expenses.

    On the revenue side there is a room mate, or 2, in your TH, or a second job here and there.Sell stuff on ebay or Kijiji, such as any clothing items that you haven't worn for 8 months. A few thousand in cash probably in your wardrobe right there. If you go away or even in high demand season try VRBO or AirBnb for a room rental for some extra cash.

    The issue then is EXPENSE MANAGEMENT.

    You need to go on a EXPENSE DIET for a year. Do this, for a year, then re-visit:
    a) no booze, drugs, chocolate, sweets or cigarettes
    b) no going out in pubs or restaurants, except as a reward once a quarter - have friends over instead and let them bring wine as you won't serve any
    c) cancel all your credit cards. Get a debit card with a credit card feature
    d) no new clothes
    e) no skiing or quick trips to the Okanagan or Las Vegas on the weekend
    f) no vacations
    g) no starbucks or hospital food .. bring your own
    h) what about a car ? Do you need one or can you take the C-Train/bus ? A car is a money pit (another lesson in my book btw)
    i) what about TV or cell phone or newspaper subscription ? reduce them all to the bare minimum, say $100/month all in (incl $10 for Netflix)
    j) what about club memberships

    In summary: look at every $ spent and cut it or reduce it.

    That should allow you to save $12-15,000/year or AT LEAST $1000/month. You can live like a queen for $3200-$3500/month. Apply those savings to the most expensive debt first. Then revisit this strategy in a year and ease off, say go out 1x/month or take a vacation as there are many bargain offerings. You'll lose a ton of weight too, and folks will comment on how good you look. Instead of brining wine or beer to a party bake a cake or cookies that cost 1/5th.

    To live like a king (or a queen in your instance) you have to work (and spend) like a slave !
     
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  10. Cindy
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    Cindy New Member Registered

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    Kfort....I have only about $10000 and ya was trying to bench more lol I was hoping to somehow leverage the properties I do have but it looks like it may be to early for that and I need more equity.

    Sent from my SM-G900W8 using myREINspace mobile app
     
  11. Alvaro Sanchez
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    Alvaro Sanchez Ottawa-Gatineau Investor REIN Member

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    She works as ER nurse... do you think she gets scare about blood?

     
    Last edited: Mar 13, 2017
  12. kfort
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    kfort Well-Known Member REIN Member

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    Why not do as stated above with the sound money management suggestions & ride it out for ~18 months as values rise slowly? Refinancing at the bottom of the cycle isn't probably an ideal goal.
     
    Last edited: Mar 15, 2017
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  13. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    or selling for that matter.
     
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  14. Cindy
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    Cindy New Member Registered

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    Thanks Thomas
    Yes the taxes and stuff that come off my pay check are painful although 10-15% of that is RRSP and pension deductions.
    I am already pretty much living the way you described and able to set almost an extra $1000/month towards debt but you gave several more great ideas! Im definitely a slave to work and have no life...work eat sleep lol
    Am I right in wanting to pay down my debt before focusing on growing my real estate portfolio?? At this rate it will take me several years to get it paid off and then to build a savings for the next property.
    If I can save $15000 to $30000 in the next year or 2... should it go on debt or towards real estate investments?
    My long term goals are to have at least $3000 to $4000 per month in cash flow income and to be able to travel, preferably in the next 5-10 years.
     
  15. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    It makes total sense to borrow to buy income producing assets. That is the #1 way to build wealth. Forget the cash flow. You have a job and need to build net worth. Once networth is up you can always turn $1M or $4M into cash flow.

    $1M at 6% is $5000/month in cash flow. $2M is $12,000/month. One can live nicely off that.

    Read some of the post linked in here especially the last - cash flow vs high ROI http://myreinspace.com/threads/educational-rein-posts-by-thomas-beyer.10663/
     
    Last edited: Mar 16, 2017
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  16. kfort
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    kfort Well-Known Member REIN Member

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    Why not have a preemptive chat w a great mortgage broker to make sure you're able to service the debt you're after in a year or two? They may need a couple of those payments disappeared by then. Or not. You've got time, make a plan, then execute it as best you can in the ever changing world of finance rules and life changes.
     
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  17. Cindy
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    Cindy New Member Registered

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    Thanks again everyone for all the advice. Ive been on the REIN page on/off for several years and this was my first post. Ive been dealing with that rental for 9 years and know that I want to work towards building and expanding my portfolio and reducing personal debt but I feel like Ive been stuck because Ive just been keeping to myself and not reaching out or networkng with people like you.
    Im going to keep checking in and continue my learning and look forward to updating you with my progress :)
     
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  18. Vine Group
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    Vine Group Active Member REIN Member

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    Unfortunately, at this time there isn’t sufficient equity to refinance. When you refinance, the mortgage can’t exceed 80% of the value. If you sell, you need to ask yourself, will you qualify to purchase in the future? Allot has changed since 2008. Many people who got a mortgage before Nov 1st 2016, don’t qualify under today’s regulations. I recommended getting pre-positioned for the next investment before you commit to selling.

    Feel free to contact us at 1.844.411.VINE or solutions@vinegroup.ca.
     
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  19. Cindy
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    Cindy New Member Registered

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    Thank you David

    Sent from my SM-G900W8 using myREINspace mobile app
     

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