Should I sell my house to pay off crerit card debt quicker?

Question

We moved five years ago and have been renting out our old house that is about 8 hours away.

My wife and I decided to sell it to pay off credit card debt so we could start fresh plus it’s been kind of stressful having a rental so far away. It hasn’t been cash flowing because we had a prop mgmt company eating up our profits. After it sat on the market for a longer period (and I started listening to BP) we decided we would rent instead. 3 days after outing it up for lease, we now have a full price offer.

Should I sell the house (we still owe about $99k) and pay off our credit card debt ($35k)? Or rent it out and pay off credit card debt on my own? The CC interest is killing our cash flow. So we are in the process of transferring it to a 0% interest card now. But, I feel like if we can eliminate the CC debt we can save faster. I’m not sure how much benefit the house is going to be as a rental.

We can cash flow $350/month as a rental if we cut out the prop mgmt. I do feel more comfortable cutting them out at this point. They really didn’t do much as it was. It was just a level of comfort that I felt necessary.

JD Martin · Answer

How old is the credit card debt, what is it from, and is it still accumulating? If you've had it for years and are still making more, I *would not* sell to pay it off. You'd just be treating the symptom, not the problem. You'll be back to right where you are in no time, only now you wiped out capital gains in a property that *could* create some income. A double whammy.

If the debt is old, the credit cards are all cut up and in the trash, and you're just buried with a legacy problem, then it sounds like it might make sense to sell and pay it off.

Nathan Gesner · Answer

Sell it. Get rid of your debt first, then invest wisely from a strong, financially strong foundation.

Richard Mancini · Answer

@Nathan G. That was my thinking. “Tear down the debt and fix the foundation”

Richard Mancini · Answer

@Theresa Harris it’s actually closer to 14-15% when you consider they typically take 60% of the first months rent

Rent @ 1400/month =16800/yr

Prop mgmt

60% of 1st mo rent = 840

10% of 11mo rent = 1540

Total 2380

Mortgage @ 1150/mo = 13800/yr

Rent - mortgage - prop mgmt = profit

16800 - 13800 - 2380 = 620

Theresa Harris · Answer

Property management is usually 8-10%.

Austin Elm · Answer

@Richard Mancini that $350/mo. seems really high for a property management fee. Generally property managers will be around 10% or less for their management fee, but am not sure what you are renting the property for.

You also need to think about the tax implications of selling your property, you will be taxed for any capital gains after selling, plus the depreciation recapture. But you may owe a good portion of that back to the government after selling. If you move forward with the sale you could look at using a 1031 exchange for a portion of the sale to defer as much tax as possible to another investment. Consult with CPA on the tax situation.

Have you looked at a possible refinance? If you have PMI and a higher interest rate on your current loan, after a refinance you may be able to recover any cost associated with pulling out the 35K needed to pay of credit cards, and cash flow very similarly to where you are now.

Steve Vaughan · Answer

You had me at stressful and no cash-flow.  Sell it!

Paying down debt is an excellent use of the proceeds but secondary in this discussion to me.  It is incredibly freeing to sell a headache. Double if you have to feed it.

Richard Mancini · Answer

@JD Martin understandable concern. And my wife is now on the same page with me about not using CC. Also, we are not still accumulating cc debt.

I am def leaning towards selling to.

The double wavy has been the thought on my mind. However, I think I have the wife on board with me to make our saving and spending intentional. We are trying to change our relationship with money. This is all just happening at the same time.

Richard Mancini · Answer

@Theresa Harris  taxes were recently reduced and it was making about 100. I guess I exaggerated the not cash flowing statement. The new estimated cash flow also includes a raise in the rent price

Theresa Harris · Answer

You planned to sell it, so stick with your plan.  Long distance management is hard.  If you weren't cash flowing with a PM and could cash flow $350/month self-managing-how much were you paying your PM?  It should never cost that much for a single family home.

The other thing to think about are tax implications.  If you sell your primary home (even it was rented out for a short period of time), there are tax benefits.

Once you get your finances sorted and stop accumulating credit card debt, use the extra money to buy another rental closer to where you live.

Should I sell my house to pay off crerit card debt quicker?

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