raymond.cortazar[at]gmail.com writes:

- quote -

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

raymond.cortazar[at]gmail.com wrote:

- quote -

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 http://www.joetaxpayer.com/saving.xls 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

- quote -

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).

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