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Author: HappyFool45150 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308885  
Subject: Re: Ideas on getting out of debt Date: 7/4/2007 6:12 PM
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Wow, interesting post. You have significant debt as well as significant negative cash flow on these dwellings, -500 if I add (or subtract as it is) correctly. Was not sure of the $$ mentioned below your principal residence. Income from the property where you live? My initial thoughts are....

a) Does your combined income (congrats) cover this negative cash flow on real estate?

b) You don't mention taxes. I'll assume you are an honest taxpayer and claim the rental income. As a benefit of that, you can also claim expenses against the rental properties, depreciation and taxes being big ones. Naturally all of that requires rigorous attention to financial details. I'm not a tax specialist and only mention the tax effects because they may be beneficial to you. Seek the advice of a qualified professional.

c) I agree with you, I see a danger with Rental 2 mortgage. You are already negative on cash flow with this one with what I deem a rather high rate of interest. With a looming reset to payments with principal, looks ugly to me. Sell it ASAP. Remember, cash flow now and tomorrow.

d) Do you have a maintenance fund for these properties? With those rentals, I'm sure you have experienced the "toilet clogged" call. If not, lucky you but it WILL happen. A roof leak, clogged gutters or pick your poison.....

e) You don't mention any other financial information which makes it difficult to answer your question "Ideas on getting out of debt". From what you've posted, I see cash going out for properties that don't carry themselves. Selling the properties would be the easiest way out of debt but then again, that might not be in line with your plan.

f) Paying extra principal on the mortgages today at a 0% rate does nothing for cash flow except to obligate you to pay something off in the next 12 months as opposed to the tail end of the mortgages. You are already negative cash flow. Why accelerate that? Unless the point of doing so is to lessen the pain of when the Rental 2 payment resets to include principal.

g) Your temperanment for being a landlord. All those toilets to fix, etc. so on and so forth.

I realize that those comments and questions do not answer the question of getting out of debt. Looking at the numbers, I'd suggest refinancing at a lower rate of interest where possible. You make no mention of your "credit power" or refinancing to help the cash flow problem other than to use 0% checks payable in 12 months to reduce payments that reduce your pay-off date. This raises red flags for me. As I see it, cash flow is your most pressing issue and without understanding your other income (re: jobs) and outgo, it is difficult to make specific suggestions.

Sorry to have added more questions than answers, but providing food for thought.

Dave

Who started out sending $100 extra to principal on primary residence mortgage. The self imposed extra principal payment was $142 last month and will increase by $2 per month until payoff. Turns that 30 year note into a 15 year note, YAY me! Your Mileage May Vary.
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