Help With Budget!!!!!

[disneysteve]

You must be making good money

That's just it. OP lives in Los Angeles and is earning $132,000. That isn't a lot of money at all.

Home mortgage (not counting taxes and insurance) is $3,800. That works out to a loan of about $640,000 plus whatever down payment was made. So OP spent around 5 times income, or more, on his home. PITI is around 35% of income (I'm assuming the 11K is take home. It if is gross, the percentage is even higher.). Now, 35% is on the high side but might be feasible if OP didn't also have $79,000 in other debt between CCs and the car loan.

OP, you asked what advice we have besides selling the rentals. Tell us more about your home. How much is it currently worth in today's market and what is the balance on the mortgage?

[Angio333]

Immediately dump the gardener and the cleaning service. Also, you may want to get a second job to help pay everything down.

You may also want to consider selling the rentals. It maybe tough to mentally do it, but you probably should do it.


Sell the car too, and drive a beater.

[maat55]

That's just it. OP lives in Los Angeles and is earning $132,000. That isn't a lot of money at all.

Home mortgage (not counting taxes and insurance) is $3,800. That works out to a loan of about $640,000 plus whatever down payment was made. So OP spent around 5 times income, or more, on his home. PITI is around 35% of income (I'm assuming the 11K is take home. It if is gross, the percentage is even higher.). Now, 35% is on the high side but might be feasible if OP didn't also have $79,000 in other debt between CCs and the car loan.

OP, you asked what advice we have besides selling the rentals. Tell us more about your home. How much is it currently worth in today's market and what is the balance on the mortgage?

I hate to say it, but I think OP is on a sinking ship and won't jump. OP is looking for small bandaids to fix a gaping wound. Between lifestyle and poor investment thinking, drastic change needs to occur.

[CCFREEDOM]

Hi..thanks for your input. I really dont think I can sell these properties. Also, being self-employed I get a tax write off of about $29,000 on my taxes because of these properties.. If I didnt have them, I would be paying an additional $6,000 to the IRS. I will be raising one of the rents to $100 and that will give me some $1200 per year. I will be raising the rent on the other property if and when my tenants move..they are very good tenants and I dont want to make them unhappy by raising their rent. I think they will be moving out as soon as their daughter graduates from the school (within a year or 2) they wanted her to go to in my school district. I could get another $300 on that property once they move out. I was also thinking of renting one of the rooms in my house or 2.. I live in a 4 bd. house, but do like my privacy, but for the sake of keeping my investments...I guess I could sacrifice. At one time I was renting a room for $900.00 so it is possible.

For now, I am hoping for more business and hopefully pay off these bills little by little. I know I can pay one lump sum for $5000 at one time because I have done it. My biggest problem was opening the other business the last 6 months wherein i lost money. That business is now closed and I can concentrate on paying off the debts now.

[terry1156]

CCFreedom,

Welcome to the forums. "I really don't think I can sell these properties." isn't going to cut in these forums. You asked for help, so you have to show why you can't. How much equity do you have in each, how much are houses in the area selling for, etc. You need to show us the numbers that justifies the statement - not just make the statement.

My guess is that you don't want to take a loss on the houses so you think if you can just hold on, the housing market will recover and you will be able to break even or make a bit in 5 years (even after all the losses). The problem with this thinking is it doesn't take into account your credit card debt. What % are you paying on each card? Even if it is only 10%, paying off these will give you a much better return than the housing ever will.

My guess is that if you sell your houses for a loss now, but end up getting the credit card debt settled quickly, you can rebuy rental properties down the road and come out much ahead and with properties that are earning money for you from day one. It's a hard lesson, but you may just have to suck it up.

This is all speculation because we don't have enough detail. The more you give, the better opinions we can give to help.

[Angio333]

I don't mean to be rude, but keeping two properties that are killing you to save a total of $6,000 doesn't make sense. According to your post, you would have to pay about $6,000 MORE to the IRS if you did NOT have them.

Lets take a quick look at the math.

In one year you are paying about $50,768 in mortage payments, insurance, and property taxes.

In one year, the rent your tenants are paying you total of $40,860. That is AFTER you figure in the extra $1,200.

$50,768 - $40,860 = $9,908.

That means you are losing $9,908 a year in your rentals. However, you stated that owning the properties saves you $6,000 in taxes. After you deduct the $6,000 in tax savings, you still are losing $3,908 a year in your rentals.

I'll repeat it so that it hits home. You are LOSING $3,908 inorder to have a tax write off that is actually putiing you more behind.

Is my logic and very basic math correct or am I missing something?

[LivingAlmostLarge]

Gotta agree with the $4k/year loss. According to you, in 5 years you will have 2 places that have appreciated at least $20k each on top of what you sell to break even. Doesn't sound like a winning proposition.

[CCFREEDOM]

Hi...My larger rental i owe about $450,000. and the properties there are selling for about that much..it was once worth $600,000. Right now the tenant covers the mortgage completely so I just pay the property taxes and the insurance at the end of the year..roughly $4700.00. The tenant takes care of the upkeep of the house.

The second house I owed about $196,000 in another state (properties for about the same if I sold). The rent is about $1,000 minus the management fee..so I get $905.00 and the mortgage is $985.00 then I pay the property tax which is $940.00 and the insurance another $420.00. The tenant there I assume takes care of the maintenance because the property management has never asked me for any additional moneys for repairs.

So I am really out about $6,000 which I would have to pay the IRS if I didnt have the properties. I dont know who came up with a loss of $11,600.00 or how he calculated that amount. If I raise the rent on the 2nd property that will give me an additional $1200.00 bringing the loss to $4800.00, plus when the higher renter moves out I can rent out for $2700.00 at another $2400 per year.

[Angio333]

My math in the post that I made a few hours ago is based upon the numbers in your first post. You wrote....

===============================================
I also have 2 rentals:

1st $2601.00 Morgages (1st & Equity Line)
2400.00 Rent

Yearly Taxes $4,200.00
Insurance 600.00

2nd $1113.00 Mortgages (1st & 2nd)
905.00 Rent

Yearly taxes $940.00
Insurance 460.00
================================================

Now you are saying that the tenant in house # 1 covers the mortage completely. However, your first post says that your mortage is $2601 including your equity line (which must be factored in) and the rent was only $2400.

You originally said the your 1st and second mortage on house # 2 equaled $1113. Which one is right?

In order to offer you accurate advice, we need to know the actual numbers.

Also, why are you using a management compay for two properties? You should dump them and handle it yourself. It will save you money as well.

[terry1156]

First, it's important to forget about what you houses where once worth. They aren't worth that now and there is no guarantee they ever will be again. It sucks that they were once worth more than they are now, but that is irrelevant to this discussion. That is probably one of the main reasons holding you back from selling.

We do need the accurate numbers - are they the first numbers you gave or the ones in your last post? It makes a big difference and will change the advice people will give.

[CCFREEDOM]

sorry...miscalculated figures here. these payments are taken out automatically so I never really pay much attention

the first rental is $1075 (1st) and $1426 (equity line)
taxes are about $4200.00 per year but I am having them reduced next year due to the lower value now. The insurance on that property is about $550.00 roughly..have to check. No management company for this one.

I could get $2700 in rent..but I like my tenants and they keep my house in very good condition and have always paid on time. I will raise the rent another $100 next May 2009 which would make it 2 yrs since the last rent increase.

The 2nd property is $985.00 for 1st and $128.0o for second.
the rent is $1000 and the management company is about $85.
The yearly property tax is about $900 and the insurance is $440.00

This is in another state and this tenant has missed his rent a few times and have had to have the managemnt co. serve eviction notice so they have served a purpose. he always comes up with the rent and the eviction stops and he pays all late fees. But I have to really think of getting rid of the management fees and that would be almost $1000 in savings.

Now I will be raising that rent to about $1100.00 since he has lived there for about 1-1/2 yr. Before that I had it rented for $850 or so, it has gradually gone up and I have only had it for 4 yrs.

Please remember that being self employed and earning over $130,000 I have to pay a lot of taxes and self-employement taxes so having these properties and their depreciation saves me some tax money. Last year my tax write off for these properties was $29,000.00. This year I am projecting to make a little over that amount if all goes well and with God's blessings.

My current house did not lose much equity..It is still holding its value at almost $900,000 and I bought it for less than that.


My stress is over the credit cards, those I used for a new business venture that I started 6 months ago and now closed out. Between last Christmas and last month when I closed out that business, I had spent close to $25,000 in setting up the business, marketing, rental lease and supplies and some salary. I also have not been very conscious of my spending over the years. Have always spent without really budgeting and hense my problems now. Last year I spent 3 weeks in Europe (with relatives) so that meant losing money in my business for not being there and also travel expenses. I had always taken vacations every 6 months or so and used to love to shop all the time (by the way, I am a woman) Now that I am in this crisis due to the credit card debts..I have really tighten up and created a budget for the first time in my life. I dont plan to go out very much as I used to and there wont be vacations for me for the next 2 years.

Even though I have these debts to take care of...I feel in some control over my situation as I know where everything is going now and have learned my lesson. I dont miss the shopping as I have enough things and all that I need, I feel that if I work hard enough I will be out of debt in about 2 years. This is not easy..but I feel very confident that I will get through this and very thankful for this forum. Last year I hardly had any credit card debts and I was able to pay the balances at the end of the month. I just hate having these credit cards company charging these outrages fees, taking a bulk of my monthly earnings ( a good $2,000) with a good chunk going into interest.

[terry1156]

Thank you for taking the time to clarify the numbers.

You seem to look at the issue as two different things. One is the rental houses that you aren't worried about because you assume you will make money in the long term and the other is credit card balances which you are very worried about, but nobody seems to want to talk about here. While you may view them as separate, I don't think they are.

For any amount that you lose on the houses (even if they do recover in value in the future) is money that today can't go to reducing the credit card debt. I'm not sure what you are paying on the credit cards (you need to give the interest rates for all the cards to us as well), but I think I'm pretty safe in guessing it is double digit.

The numbers you give say you are paying $2501 for mortgage (1st and 2nd) on the first house and getting $2400 which means you're losing $100 a month or $1200 a year. On the second you are paying $1198 (1st, 2nd and management co) and getting $1000 so you're losing $200 amount or $2400 for a total loss of $3600 a year on both rental properties not counting taxes.

In my opinion, the 2nd rental has to go for the following reasons. Your losing $200 a month and the renter is not reliable. If he doesn't pay (or can't afford the rent increase you are planning) then all of a sudden you have a house that isn't being rented and you still need to make payments on (and depending on eviction laws, could make the house unrentable for several months). There is very little upside with keeping it and a whole lot of downside that could easily make your already tough situation a lot worse.

The first rental probably needs to go too, but I would concentrate on the 2nd rental and work on selling it asap. That will free up $2400 a year toward credit card payments.

Is there a reason why you still want to keep the 2nd rental?

[CCFREEDOM]

So I have I have calculated rought $8,400 loss for both. Next year with the raise in rent I will decrease that to $6,100.00 minus the lower property taxes for the lower value, roughtly another $500 or $600 minus that amount. It is still $4,500.00...but I would be reducing my tax bill.

According to my accountant, had I not had these properties I would have been paying between $6,000 to $8,000 more to the IRS....so do I pay the IRS the extra money or do I hold on to these properties and continue to raise the rent and eventually break even? Of course I could sell these properties very low and buy other properties and possibly break even..but with my credit card debts I would not be able to buy anything right now. Being self-employed I would have to show a lot of documentation and some money saved which I unfortunately do not have at this point. I understand that it is very hard to qualify for a loan nowadays. My intent with these properties is that when I retire in about 10 - 15 years they would have appreciated well enough that I could either sell them at a profit or that the rent is high enough that I could use it as income.

The one property that I rent out for $2,400 I bought for $250,000 22 years ago...in the early 90's the house went down to $150,00.00 then 3 years ago went up to $650,000.00. I have used the equity on that house to buy this present house so the house has served its purpose as far as making money for me as I have reinvested the money. I think that the market will come back up again and I will be able to recover the money lost in rents as some of you have stated But of course this is my thinking, you probably dont agree with me

[CCFREEDOM]

Thank you Terry..

I feel like credit cards I am throwing money away without any return..at least with real estate there is a chance of making some of the money back and with the rents going up each year...I will eventually break even. My whole idea was not to make money immediately but over a time..sort of my investment for retirement. Some people invest in 401K and mutual funds..I like to invest in real estate. I have made good money in real estate over time but have reinvested it. I do regret not having sold my second home at the time that it was worth $650,000 but now its too late.

[CCFREEDOM]

I would really like to get rid of the out of state property. I went online to check the prices and it is $40,000 lower than what I owe on the property. That would mean selling on shortsale and that would impact my credit. So I dont think that would be an option right now. Although my credit score is kind of low right now because of the credit lines...I know that once I pay some of those balances, it will go up again. I am in a business where my credit score has to be at a certain number in order to be bonded otherwise I have to pay an additional $2,000. With a shortsale who knows how long my credit score will be low.