My situation... want to get ahead... advice appreciated!

[tommy]

Hello! I have been a lurker for a long while now listening to people's advice to others. It has greatly helped me budget and set some goals for myself. I would like to write what my current situation is and see what you great minds think.

I am 28 years old, make a salary of $78,000/year, and bonus of about $5,000 in a good year. I currently own a townhouse for which I paid $214,000 and put $15,000 down on in Jan 2005. My monthly condo fee is $286. Right now I have about zero in savings and have recently opened an INGDirect Orange Savings account. I currently have about $1600 on my credit card (not sure the exact number but I know the interest rate is high). I have an Altima of which I owe about $15,000 on. I have school loans (in defferral) of about $11,000 or about $230/month. I have a home equity line of credit I used to do some debt consolidation to which I owe $5600, payment to this is $128/month. I contribute 5% of my pay to my company's 401K plan with Fidelity. In the past I have been somewhat irresponsible with money, but have since changed my ways. Times of feeling depressed I would go to the mall, etc. I make it through okay, just with nothing left over at the end of the month, and I really want to get ahead financially. I am very critical of myself but have often told myself that hindsight is 20/20.

I am currently engaged and once we are married (in a year or so) I will adopt her 11 yo daughter. She makes about $55,000/year and owns a garden style condo that she paid $169,000 for. Her mortgage and condo fees are about $1400/month.

We are going to be renting out her place for $800/month to her friend and her brother to help them out. We will both be moving into my place over the next week and a half. My cousin rents from me for $300/month. By the end of this coming summer, we want to sell my townhouse and buy a single family home in the town she currently lives in for approx $320,000-$340,000.

So there it is. I would be more than happy to answer any questions, and thank you very much in advance!

[disneysteve]

I see one BIG problem. You are planning to rent out her condo for $800 but the monthly expenses are $1,400. Can you really afford to lose $600/month? That is going to be a giant drag on your finances. At the same time, you will lose the $300/month you currently take in from your cousin renting from you (I'm assuming he will be moving out).

I think you need to reconsider that rental plan.

As for buying a house within the year, what's the rush? You have over $33,000 in debt that you've mentioned, plus the $600/month you'll be losing on the rental. I think you should stay in the townhouse for a couple of years, sell the condo, build a 3-6 month emergency fund and then think about buying a house.

[mariogreymist]

I agree with disneysteve on the rental idea. Taking a monthly loss on a rental property is something to avoid at all costs. Tennants won't treat your property as well as you do, and you could find yourself having to do renovations before being able to sell in the long run. As much as it hurts to sell in a buyer's market, it is probably the best thing in the long run.

I do tend to disagree with disneysteve on the house purchase idea. (to a small extent) If you see yourself moving into a single family dwelling in the next 3-5 years, and you can swing it in the next twelve months, you should do it. Single family dwellings will regain their power in the market before condominiums, and if you wait until the market fully turns, you are likely to see the relative values of selling the condos vs buying the home go down. Of course, take this like any speculative investment advice - I could very easily be wrong and the RE market could bottom out five years from now or Condos could keep and build market value better as today's more sedentary population enters the market.

[tommy]

Thanks for the responses thus far. The roommate (my cousin) will actually be staying with us for the additional $300/month.

We want/need to move into a single family home hopefully mid-end of summer due to the school system jurisdictions and that sort of thing. That really is the only "rush".

[anonymous_saver]

(1) I agree with the other posters. Your fiance should sell her condo instead of having renters. $600/month is just WAY too much money to be giving away. Then she should use the proceeds to help put a down payment on that new single family home or to pay off any high interest debt that she may individually have.

(2) Does your fiance also contribute up to her employers match in her 401(k) or other retirement account(s)? I would keep up with your contributions, once you are able to pay off your high interest debt, I would start saving more (perhaps in an IRA instead of your 401(k), depending on whether or not you qualify).

(3) I would agressively try to pay off your $1,600 credit card debt. The high interest rate is not worth it. Then once you pay it off, don't use it again unless you are sure that you can pay the balance off each month. I would even set aside $1,000 first as a start to an emergency fund first before doing this.

(4) I would think of selling your car and buying a different car outright. I know that doesn't sound fun, but it will mean getting into a better financial situation much sooner. Also, what is your interest rate on your car and school loans? After you pay your credit cards off, I would start putting extra money towards whatever interest rate is higher (your car or school loans)? If both interest rates on each of these I would consider setting aside more money into an emergency fund, try to get at least 6 months worth eventually.

(5) How much equity do each of you have in your current homes?

[Fern]

The others have already commented on the rental idea, so i'm just going to be blunt and comment on your current retirement savings and debt status.

If you make $78K a year, you have no excuse for only contributing 5% to your 401k and having all that credit card debt. If you don't clean that debt up, you're headed for trouble. You're so young; don't saddle yourself with long-term debt if you could pay it off with just a little bit of focus and commitment.

I don't know what your monthly expenses, are, but with that salary i would be contributing the max to your retirement plan and be aggressive about paying down that debt.

[jIM_Ohio]

If you want a single family home consider this:

sell each townhouse/condo. Use the net proceeds to

a) make down payment
b) pay off the debt

the bank may want the debt paid off prior to making down payment- you need to do the due diligence to figure this out.

Rent an apartment in the mean time (should lower the monthly bills and improve cash flow to help pay down the debt).

[Tree0164]

You have gotten good advice here! You are making good money so the credit card debt has to go! Do not roll it over into another home equity loan-in fact I would focus on getting that paid asap.