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We have just received an unexpected debt repayment of $15,000. So, what should we do with it? Here's what we are trying to sort out:
We are in the landlord business and one of our buildings has 3 occupied units and an empty unit waiting to be remodeled. The cost of remodeling is somewhere between $12,000 and $15,000. It would be a 3 bedroom unit and those are short in this particular area. Our 3 bedrooms rent for about $750 per month and it has always been easy to find tenants for them.
In some ways it seems like a no-brainer to use the $15,000 to remodel the unit, then use the rent to pay off the credit cards. But we're hesitant. Another option would be to pay down the a portion of the debt and borrow it back again to do the remodeling. This is when my IQ starts to plummet.
Stop mixing up your personal finances with your business finances.
On a personal level we should have as little debt as we can possibly manage; ideally zero.
On a business level... almost any debt (paid by the operation) can be welcome.
I would pay off debt first and never again have a CC balance. Then, get a line of credit on the property you own which is, for mine, at 3 1/4% interest, and use that to remodel the unit which is a tax write off and an income generator.
In general, the $750/month income (rent) is a better use of the money (I am assuming there are no additional costs of renting that unit over and above what you already pay, such as taxes, etc)
What I would do is the remodel and get that unit on the rental market within 30 days. Take the entire $750/month and add it to the $200 payment to the $10,000 @19% card. That will get that paid off in a bit more than a year. Then work to pay off your other credit card.
For the math of this question, take your yearly income of $9,000 ($750*12) and divide it by the cost to get that income, $15,000.......9000/15000 = 60% return
That is better than that awful 19% CC.
If you can find a way to refinance that 19% card, I would do that also. But, still, your best bet is getting that rental unit on the market.
In general, the $750/month income (rent) is a better use of the money (I am assuming there are no additional costs of renting that unit over and above what you already pay, such as taxes, etc)
What I would do is the remodel and get that unit on the rental market within 30 days. Take the entire $750/month and add it to the $200 payment to the $10,000 @19% card. That will get that paid off in a bit more than a year. Then work to pay off your other credit card.
For the math of this question, take your yearly income of $9,000 ($750*12) and divide it by the cost to get that income, $15,000.......9000/15000 = 60% return
That is better than that awful 19% CC.
If you can find a way to refinance that 19% card, I would do that also. But, still, your best bet is getting that rental unit on the market.
I agree. Also, look at it this way, if you do the remodel, the unit pays for the remodel, then continues to pay off the debt for you, if you can keep it rented. Not so, if it's still empty.
Thanks so much for all the helpful responses! It's slightly more complicated because we can't take equity out of the properties. We're not residents of the US, and were only able to buy these the two buildings because the previous owner is the one holding the mortgage.
The good news is that we don't have to incur any other costs after the remodeling is done. The taxes will stay the same.
Location: 23.7 million to 162 million miles North of Venus
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Quote:
Originally Posted by Donn2390
I would pay off debt first and never again have a CC balance. Then, get a line of credit on the property you own which is, for mine, at 3 1/4% interest, and use that to remodel the unit which is a tax write off and an income generator.
Sounds like a solid plan.
(edit, never mind ... you posted that last bit while I was typing this up)
I have to ask, the interest rate on card #1 is 5% ... is that the regular interest rate or is it a low interest promo rate, such as a balance transfer rate?
Vectoris,
Get that rental unit RENTED.
TIME IS MONET MAN.
This time next month, if you did it, you will be collecting
750.00 to HELP pay down the credit card debt.
You are getting zero now, right? You are paying
the cc debt now?
Next month you can add another 750.00 to that high interest
10k credit card. It'll be paid off in no time
Every single month you aren't collecting rents, is a negative.
Get out of negative, and collect the money ASAP.
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Sounds like a solid plan.
