Single, self employed, 45k in debt, 375k in equity. what’s my move?

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mc203
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Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by mc203 » Sat Dec 08, 2018 8:52 am

Apologies for the long post. Im looking for some wisdom and perspective, maybe from some of the older folks on these boards :sharebeer

background: I’m a single dude, 39, no plans for kids. I have a home that’s made a lot of equity in the past 7 years - 450k total; but i pulled out approx 75k in a refi to pay debts, improve the home and start a business. so now i’m at about 375k equity, 35k in business assets, $45k short term debt (mostly CCs).

For income, i’m self employed and currently facing a very real cash crunch with super limited options; but simultaneously, i’m looking at the current speculation of the market, (housing return cooling off and looming market adjustment); and i’m starting to get a bit unsure about my position and keeping the home.

So my question is: if I sold right now would that be a bonehead crazy move, adding insult to injury? or do you think it’s viable?

By my math if I sell for $375k profit, i can pay down all my debt ($45k), and walk away with approx $300k after taxes. That frees up about $1100 in CC debt a month, and the rest would go to low risk investing, retirement and a savings acct. And of course i’d have to go back to renting. I’m currently about $1500 short on my bills per month and living a pretty frugal life, missing out on a lot while I pursue a high risk, high reward career (music industry).

Also, unfortunately a HELOC or another refi is out of the question b/c my income on paper isn’t high enough, and i’m at 56%+ on CC usage (approx 30k at 0% APR till next fall). I also have a roommate/renter that is off the books to complicate things further.

Clearly the major issue here is i need to make more money; but simultaneously i’m wondering about the overall cash out factor in this market and if its time for me to make moves. I’m seeing an opportunity to make my equity liquid, put it somewhere less risky, and wait to see if the other shoe drops, so to speak. I know it’s speculation based but i also bought my place in 2011 for $240k. Currently it’s valued at $700k+ and it boggles my mind to think it will continue to grow at that rate - quite frankly it feels impossible that it will go higher than that. But again, i’m biased and need cash flow, so it’s particularly difficult to look at this objectively.

TL;DR - I bought my house low, is it time to sell high? Is it a total bonehead move to give up an asset like this?

Alternately, if I play the long game and keep the house, is there any other way to make this work that I’m not thinking of? Is consolidation a better move for my debt?

chevca
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by chevca » Sat Dec 08, 2018 10:22 am

Well, being $1500/month short on the bills simply says you can't afford your current lifestyle. How did you afford this before the career change? Can you go back to what you're doing then? Do you love the house and want to keep it? Or, could you sell it and not think twice about it?

You would get the capital gains exclusion by selling your primary house, so no taxes on that. There are probably some state taxes you would owe by selling though. That may depend state to state though?

I'd say it's down to... do you want to be a homeowner, or do you want to give it all you can to the music career? Doesn't sound like you can do both right now... or, hope to hit it big in the music world soon.

nyclon
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by nyclon » Sat Dec 08, 2018 10:37 am

It doesn't seem like you need the home. If you rent, you may be able to reduce your housing cost while maintaining the flexibility to move if you need to.

Regarding the price of the home: a bird in hand is.... If you're happy with the gain, and it makes you feel better, yes, sell and lock in the gains.

Spirit Rider
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by Spirit Rider » Sat Dec 08, 2018 10:50 am

As a single person only the first $250K of capital gains is exempt from taxes. That would be $700K if you get that - transaction costs, lets say $650K net - ($240K + improvements (let's say $35K) = $375K capital gains - $250K = $125K taxable capital gains you will pay taxes on.

Also, while you are blaming this all on an income shortfall, I wonder if you don't also fundamentally have a spending problem. If true, having a few hundred $K of cash is not going to help that problem.

Grogs
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by Grogs » Sat Dec 08, 2018 10:51 am

Sounds reasonable to me. If your income is, say, 50% of what it used to be, you need to adjust your lifestyle to match. Selling a home with payments that are larger than you can afford is a good start. Your credit cards are still at 0% now, but you don't want to be subjected to the thumbscrews of paying 10-20% on it once that teaser rate expires. Don't forget in your calculations that you'll probably have to pay 7-10% of the sales prices in closing costs. As for the roommate, I would notify him/her as soon as you've made the decision to give them plenty of time to find a new place.

delamer
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by delamer » Sat Dec 08, 2018 10:57 am

If the music career is your priority then it makes sense to have your assets in a very safe, very liquid form. You are taking lots of risks in the income side. Don’t do it on the asset side too.

So yes, sell the house and put your money in some CDs and a high yield savings account.

Now if you asked me whether it makes sense at 39 to be on the path that you are on, then we’d have a different discussion. But you didn’t and so we won’t. :?

Good luck.

chevca
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by chevca » Sat Dec 08, 2018 11:13 am

Spirit Rider wrote:
Sat Dec 08, 2018 10:50 am
As a single person only the first $250K of capital gains is exempt from taxes. That would be $700K if you get that - transaction costs, lets say $650K net - ($240K + improvements (let's say $35K) = $375K capital gains - $250K = $125K taxable capital gains you will pay taxes on.
Whoops, my mistake earlier. I totally forgot it's $250k for single folks. I was thinking $500k.

btenny
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by btenny » Sat Dec 08, 2018 11:17 am

Yes you need to sell the house and fast. Then pay off the taxes (do this right away) and your CCs. If the economy gets bad you could be in real trouble with little income and no firm job and house payment and CC payments. You could lose the house to foreclosure and much or most of your equity......

I also think you may have a spending problem. When you changed careers you did not reduce your spending to match the new income and life style. So now things are falling apart. So you either reduce your spending or go back to your old career....

Good Luck

mbasherp
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by mbasherp » Sat Dec 08, 2018 11:35 am

It doesn't sound like a bad move. But you seem to show a high risk of having spending issues. Make sure you actually have things under control. An equity bailout is not something you can count on many times in life.

I'd like to correct your assessment of the music industry: It is not high risk, high reward. It is high risk. It is very rare for even "successful" folks to receive a high reward. I'm not putting it down; it is my business and I don't regret that. But if you aren't realistic about this aspect, it will run you over. Have a financial plan that does not revolve around receiving a high reward.

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F150HD
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by F150HD » Sat Dec 08, 2018 11:58 am

I’m currently about $1500 short on my bills per month and living a pretty frugal life, missing out on a lot while I pursue a high risk, high reward career (music industry).
Sounds like eventually you'll be back right where you are now even if you sell the home.

Have a few friends in well established bands, and they all work full time jobs and gig on the side.

Time for a real job.

Good luck OP.

mbasherp
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by mbasherp » Sat Dec 08, 2018 12:57 pm

F150HD wrote:
Sat Dec 08, 2018 11:58 am

Have a few friends in well established bands, and they all work full time jobs and gig on the side.

Time for a real job.
I shared my own take on the topic above, but I do feel that this is a bit harsh without knowing more. I’ve never held a “real job” in my life, yet I assure you my job in music is quite real. It can be done. Just keep financial expectations somewhat realistic.

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F150HD
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by F150HD » Sat Dec 08, 2018 1:56 pm

mbasherp wrote:
Sat Dec 08, 2018 12:57 pm
I shared my own take on the topic above, but I do feel that this is a bit harsh without knowing more. I’ve never held a “real job” in my life, yet I assure you my job in music is quite real. It can be done. Just keep financial expectations somewhat realistic.
when someone is running a $1500 deficit each month.....

Guess this had me thinking about a few friends who have been in very well established local bands going on 20+ years (in/near a major city) and each still works a full time job. The job supports the lifestyle and if one 'breaks it big', great, else fall back on the job to pay for house/children/healthcare/retirement etc.

I do wish them success in their endeavor. Thanks.

MP173
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by MP173 » Sat Dec 08, 2018 2:44 pm

What exactly do you do in the "music industry"?

Ed

Funancials
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by Funancials » Sat Dec 08, 2018 2:49 pm

Wealthy people collect assets, broke people collect liabilities.

My fear is that an unsustainable lifestyle (consistently spending more than you make) will cause you to blow through your sudden windfall quickly...and you’ll only be left with liabilities.

I would challenge you to keep the house, balance your budget and then knock out the debt.

mc203
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by mc203 » Sat Dec 08, 2018 6:38 pm

Great responses. Everything you guys said is what is spinning around in my head. It’s a constant debate. But agreed, If i’m going to make the move, spring 2019 looks like the time to strike.

To answer questions, I do audio post production (soundtracks, scoring etc). It’s my own company/freelance, and projects I thought would come out two years ago are just hitting Prime, Netflix Vudu etc... as of last month. I also drive Uber from time to time to bring in some extra money. It’s not ideal but I do it. I could potentially do it more, but the more you drive the less you make hourly, so there’s a trade off.

Re spending: I definitely don’t live lavishly but trips to visit family back east and balance transfers to bridge the gap on unstable income have taken their toll. I live in Los Angeles. It’s expensive here. When i made the move from my previous salary (80k) i absolutely started going out less. Rn i’m cumulatively at about (40k). I’m lucky if I grab a drink with friends once a month now tbh. All of my money is going to CCs.

I guess what i’m saying is, what do you think is a better endgame strategy considering my situation and the market? If i take 150k and put it towards a retirement geared investment, would that REALLY be enough at 40 y/o? And if so is that a better move than 25 more years of mortgage payments, potential equity gains, rental income, housing upkeep etc..?

And If i were to go at the debt, vs running from it, does that even make sense vs the potential gains of making moves right now, and putting my equity somewhere more stable?

And of course, giving up the dream and going back to corporate life after all this would suck. :/ . Also, If I go AT the debt and keep the house, what would be my best strategy? Corporate job + consolidation?

“Wealthy people collect assets, broke people collect liabilities.”
i really like this thank you :happy

awval999
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by awval999 » Sat Dec 08, 2018 6:44 pm

I actually think this is an easy question.

Sell the house. Take the equity. Pay off debt. Give yourself a $25k emergency fund. Remainder goes in a taxable fund for retirement. Never touch it.

Rent an apartment. Live paycheck to paycheck, but no debt. Continue your path and live your dream, you have one life. If you hit it big, then everything is good. And if you don't you can go back to the corporate world, and you still have your ~$300k in retirement.

JGoneRiding
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Re: Single, self employed, 45k in debt, 375k in equity. what’s my move?

Post by JGoneRiding » Sat Dec 08, 2018 8:38 pm

Yes if you take 150k and see it as retirement only money for 25 yr from now and invest it as money that you don't need for 30 years this is a Good move. It's unlikely you will get another chance. But you also have to figure out living on 40k. My husband is 38 and has yet to clear 40k. You live a real quiet life in a small place with a roommate

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