Pay off Debt by Selling Investment Property?

[detjason]

I am trying to figure out if it makes sense to sell my rental property to pay off my debt. Here is my scenario:

-100k in revolving credit debt at about 15% interest rate
-Rental property has about $175k in equity, but it generates $20k net income per year.
-In 3 years, I will have the opportunity to pay off the $100k debt with other assets, should I wait until then?

Thank you for your time.

[tripods68]

This is a good question.


Did you calculate how much interest costing you for the next 3 years in keeping the debt?

[Nutria]

I am trying to figure out if it makes sense to sell my rental property to pay off my debt. Here is my scenario:

-100k in revolving credit debt at about 15% interest rate

That's a lot, at a very high rate. But you know that...

How quickly are you paying it down?

Are you using 0% balance transfer offers to speed up the process?

-Rental property has about $175k in equity, but it generates $20k net income per year.

Are you using that money to live, or to live beyond your means?

-In 3 years, I will have the opportunity to pay off the $100k debt with other assets, should I wait until then?

The impulse is to say, "pay off that huge debt and high rate now", but you've given us too little info for educated judgments.

For example: have you stopped living far beyond your means? If not, then you'll soon burn through the extra $75K and be in the same mess, but without that asset.

If you're just paying the 2% minimum, then only $750 each month is going to balance reduction, and you'll still have approx $73K debt in 3 years, while having pissed away right down the toilet $45,000 in interest payments.

But if that $20K (or the bulk of it) is going towards the CC debt, then it's probably worthwhile to keep the property.

[sv2007]

I am trying to figure out if it makes sense to sell my rental property to pay off my debt. Here is my scenario:

-100k in revolving credit debt at about 15% interest rate
-Rental property has about $175k in equity, but it generates $20k net income per year.
-In 3 years, I will have the opportunity to pay off the $100k debt with other assets, should I wait until then?

Thank you for your time.

I'd pay off the CC debt. 15% is very high, def. higher than your rental return.
Why hold on to the rental? you think it'll appreciate?

[JeffH]

I know that 3 years doesn't sounds like a long time. However a lot can happen in that time period. Not saying that this will happen, but what if you loose your job. where will that put you with all that debt. Will it make it a worse situation for you?

I've paid off almost $400,000 in debt over the last year by selling off everything that I had. I'm currently debt free. I can't even tell you how much more relaxed I am. Yes you have a large debt. I think getting to zero debt and having a cash reserve for in-case something happens is the best thing that I think anyone can do.

Once you're there, then focus on buying another rental with cash or look at private lending options to make a good return without worrying about debt.

I'm not sure what you're making after all expenses on the rental (my experience for most people it's actually negative on NET NET NET return which includes your time).

I feel that we as a society want to have the home run every time when really we just consistently just need to keep getting on base everytime. There's a simple easy way to do this. But it needs be done in steps. If you want to find out more about how to set yourself to win, PM me.

[PhilDanley]

Not Enough Data to Offer Any Counsel

Hello. We need more info to help you out. Do you have a short-term emergency fund? A long-term fund (3-6 months of expenses)? Are you using the $20K from this property to live on? Other income?

[james.hendrickson]

Dude, this is such a no brainer - keep the property and either use the cash flow to pay off the debt or take a Home Equity Line of credit on the place to whittle the cards down. The HELOC is almost certainly has a lower interest rate than the cards and likely its tax deductible whereas the cards interest isn't.

Or...you could just give the properly to me. Thats probably your best best.

[snafu]

Nutria laid it out! It's not smart to carry revolving credit debt at 15% interest. Savings barely generates 1%. How many hours do you work each week to pay 15% interest on revolving credit? How much of your income is going out the door to interest? What benefit do you get?

You've not provided sufficient information for us to be helpful but you can make serious changes to get this mess fixed.

[Jovanny]

Sell off your rental property to clear the debts.

[TexasHusker]

Keep the rental property, using the income to extinguish the debt. After that, use the income to help you finance more rental property.

Rinse, lather, and repeat.

[corn18]

Keeping rental property vs paying off a 100k debt at 15% interest? pay off the debt and reset your life.

[Nutria]

Keeping rental property vs paying off a 100k debt at 15% interest? pay off the debt and reset your life.

Only if OP is not living beyond his means. Because if he is, then that $100K debt will reappear tout de suite, but he'll be assetless this time.

[TexasHusker]

Keeping rental property vs paying off a 100k debt at 15% interest? pay off the debt and reset your life.

Refi the debt for sure.

[clatoden99]

That depends on how recently you bought it, how well your market is doing, how much rent costs etc.

If rent is nearly as much as a mortgage + taxes + upkeep, then I would say no. You'll be building equity in your house faster than the interest in your debt will be piling up.

There are lots of factors that would go into the decision.

[Randomsaver]

Sell the property, kill the cc debt.

Combine what's left from the sale with the other assets cashflow you mentioned 3 years down the road to buy another rental property, if that's what you still want to do. At least by then, you will be dealing with a mortgage interest (which institutionally is less than credit card interest).