home equity - Posted by Bert G

Posted by Bill K. (AZ) on April 29, 1999 at 14:37:46:


I met you on the shuttle on the way to the convention in Dallas. It was a pleasure talking with you.

I’m not sure that I understand your problem. You have a 4-plex that is paying for itself. So, let’s take that out of the equation. You were living comfortably on $14,000/yr before the flood. The rental of farmland is paying you that amount. So, let’s take the farmland out of the equation.

The flood caused you to incur an additional $37K in debt secured by your home and the 4-plex. You don’t say when the SBA disaster loan must be repaid, but at 4% interest, I’m assuming this additional debt is costing you $200/mo or $2,400/yr. In addition, if you want to pay off your credit cards in a few years, you need to make payments of about $600/mo or $7,200/yr. So, you need an additional $800/mo or $9,600/yr to cover all of these costs.

You don’t say whether or not your mutual funds are in an IRA or not, but if they’re NOT, they are generating about $9,000/yr that you can access. That will just about cover the additional costs you are concerned with. So, I don’t see a dire need to get a J.O.B.

Depending on your tax situation, you may benefit from a home equity loan as the interest payments are tax deductible whereas the credit card interest payments are not. Hence, the government will help you make some portion of the payments.

I hope this helps.

Keep your chin up, and keep looking for properties on YOUR terms. I wish you well.

Bill K. (AZ)

home equity - Posted by Bert G

Posted by Bert G on April 29, 1999 at 13:41:50:

This isn’t specifically about REI, but since you’re all so knowledgeable, perhaps you could advise me.

Lately I’ve been getting calls from a couple finance companies pitching home equity debt consolidation loans. I’ve been politely saying no thanks and hanging up. Then yesterday I sat down and totaled up my debts, and got a major twitch.

Between repairing flood damage to my home & 4-plex, generally prettying things up, and buying REI courses I somehow managed to run up credit card debts of over $17,000. I also owe about $37K in low intrest (4%) SBA disaster loans, and $68K on the original mortgage for the 4-plex (15 yr VRM currenlty 9.12%). My house (FMV aout $60K) is paid off, except I had to use it and the 4-plex together as a blanket mortgage for the SBA loans. I also own farmland worth about $200K that I ain’t gonna sell no matter what. And I do have mutual funds worth about $60K that over the past 5 years have been earning about 15%.

The 4-plex at this time is just about breaking even. That means my sole source of personal income is rent from the farm. I’m living on $14,000 a year, which was plenty before the “little water probelm”.

If you were in my shoes, how would you get out of this? Besides getting a shudder JOB? Would a consolidatoin loan be a good idea, or should I cash in some stock to pay off the cards?

And yes, I’ve been looking at houses.

Bert G