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Life/Money advice for a couple in their late twenties

Okay, some background:

My wife and I are both 28, and we live in a mid-sized city in the Southern US.

She and I have extremely steady jobs, I make a little over 70k, and she makes a little over 50k. We have no children, but are looking to do so within the year.

We own two houses (both on fixed-rate mortgages, no funny-business):

1) An older home within a block of a major university. It has been divided up into 4 apartments, and collects a total of $3,000/month in rent. I pay utilities on the property, which fluctuate between $300 and $900/month. The note is around $1750/month (prop taxes, insurance, etc).

The house is valued at $245k, and we have about $165k left on the loan.

2) A duplex about a mile and a half from the first place. We live in the bottom half, and rent the upstairs to a set of grad students. We collect $900/ month in rent from the upstairs people, and we pay ourselves rent of about $800/ month.

Utilities are divided, so the upstairs tenants pay their own. Our utilities are about $65/month, plus $40 for internet service. The note is around $1450.

The house is valued at $215k, and we have about $175k left on the loan.

3) We also have a home equity loan (taken out against the first place) for about $24k. It is covering a handful of major structural fixes necessary for property #1. Monthly note there is right at $300.

4) We have 4 other outstanding debts.

a) my credit card, which is always around $2k b) her credit card, which is always around $2k c) $3k in furniture loans (we've been married 2 years, and finally bought furniture) d) maybe about $200 in clothing credit cards

5) We both save 10% of our gross income, and put it into our respective 401(k)'s. Mine's worth about 18k, hers is similar (she's been saving for longer).

6) We have around $37k in cash savings, as well.

7) So, in summation, about: $371k in total debt annual gross income: 70k (his) + 50k (hers) + 36k (property #1) + 20k (property #2) = 176k total cash savings: 37k 401(k) values; 36k

Our plan is:

1) get rid of the credit cards first (high interest rates) - paid off by January. 2) pay off the furniture loans (no interest) - paid off sometime between January and March. 3) pay off the home equity loan - ideally, try to get this paid in the next 2 years. 4) pick the house with the lower debt load left, and pay that off 5) pay the other house off

We are thinking that sometime between steps 3 and 4, we're going to buy another house (room for kids and all of that), around 180k, looking to put at least

20% down.

My question is: Is there anything here that sends up red flags? Do we need to be scared about anything, or aggressively pay down any one thing?

Given some of the recent craziness in the US economy, should we be worried about anything?

Thanks Raymond

Reply to
raymond.cortazar
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Look at 4-5-6.

My red flag is you have savings (37k) and consumer debt (7k). Tap into the savings NOW and pay off the debt NOW (the cc's). This will cost you around 7k in savings now. Then from now until December just take the normal CC payment and put it back into savings.

Follow up questions/comments:

1) do you live off the income from the rental unit (not the duplex, but the other one)? Might make sense to use the extra "income" to pay off the second mortgage.

2) You are leveraged. I would not say overleveraged, but with leverage is risk. If you feel you are taking on too much risk, then sell the rental units.

3) 36k in 401k's at age 28 is acceptable. Try moving money around and opening a Roth IRA to supplement this. You can contribute 8k in 2007 (4k for each spouse) and 10k in 2008 (5k for each spouse).
Reply to
jIM

I recall (when I had rentals, and looked to buy more) that the bank would allow 75% of the rent to count as income. It's one thing to pay off a property, but depending on the rates involved, saving that money to put a large down payment on the next property may be the way to go. When you hop from the duplex to a single family house (? I read that right?) you'd then have 6 rental units, ideally, the total costs will be covered by 4, and the rest is gravy, best saved either in retirement accounts or toward the next property. A spreadsheet layout should show you your cash flow, and relative interest rates. Is your goal (after the single house) to continue to pyramid the rentals? If so, the above is my advice. If the six is it, there's nothing wrong with paying down the debt, highest rate first. At some point, consider bumping up the retirement savings. My simple spreadsheet

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shows a target of a bit over one times your income for a couple your age. You are there, counting your real estate equity, this is a positive complement, not a criticism.

JOE

Reply to
joetaxpayer

Yeah. If you have $37K in cash sitting around, why are you carrying $7K in credit card debt? That's just dumb. Pay off the accounts now, close the ones you don't need, and get in the habit of paying off the remaining cards every month.

-Sandra the cynic

Reply to
Sandra Loosemore

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