Toby, a 62-year-old self-employed plumber in Phoenix, Arizona, thought owning multiple rental homes would secure his retirement.

Now he’s approaching retirement with no 401(k) savings, poor health and $79,000 debt and he’s worried about his long-term future.

Toby called into The Ramsey Show (1) for advice on how to improve his situation, telling co-hosts Jade Warshaw and Ken Coleman that he’d recently got an offer from a debt consolidation company and was wondering if he should take it.

“Is it a bad idea?” he asked.

Co-hosts Jade Warshaw and Ken Coleman said debt consolidation was definitely a bad idea.

Toby said his current situation traces back to the 2008 financial crisis. After watching his retirement investments plunge, he pulled out what remained and used it to buy rental properties.

“I turned in my retirement when it dropped so much in 2008,” he said. “I got upset that they took all that money. I lost a lot. So, I took the rest of it, paid the fees and bought these houses.”

When Warshaw and Coleman learned more about his rental properties, they both proposed the same solution.

“This is a no-brainer to me,” Warshaw said.

Toby is one of millions of Americans whose household wealth is tied up in real estate, according to the Pew Research Center (2).

And while they’re house rich, many are retirement poor, according to the Federal Reserve’s Survey of Consumer Finances (3).

Toby’s properties are all fully paid off and producing $3,450 a month in gross rental income before expenses:

A home rented to a family with five children for about $1,100 a month, which he estimates could sell for around $170,000.

Another rental house that brings in about $1,350 a month that he guesses could also sell for roughly $170,000.

A small rental unit on his own property, bringing in about $1,000 a month.

Toby also still runs his own plumbing business and expects to begin collecting about $2,000 per month in Social Security benefits soon.

Despite these income streams, his $79,000 debt balance and lack of retirement savings concerned the hosts.

“You got no retirement,” Coleman told him. “So, you need to sell at least one of these houses and clear up the debt.”

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Toby said he can’t sell the rental unit on his property and feels uncomfortable forcing the family with five kids to move.

Coleman acknowledged the concern but said there are responsible ways to handle the situation, including providing tenants with adequate notice before selling.

Toby also admitted he is charging well below market rent on the property he rents to the family of five, which the co-hosts said should change.

“[I] appreciate your heart,” Coleman said, “but they need to at least be paying market rent.”

That leaves the second property as the most practical option to sell.

“We’re going to sell house number two,” Warshaw said.

Because it’s fully paid off, its sale would likely generate enough cash to eliminate Toby’s $79,000 debt while leaving a substantial amount remaining.

Warshaw advised Toby to hold back up to six months’ worth of expenses from the proceeds and deposit in a high-yield savings account as an emergency fund.

“The rest you’re going to plop it in some nice mutual funds,” she said.

While the hosts agreed that selling one home made sense, they advised against selling all of them because the properties provide ongoing income.

Toby has already applied to start receiving Social Security, with an estimated benefit of about $2,000 per month. Combined with roughly $2,100 in rental income after the potential sale, that would bring his monthly income to about $4,100 — which could help cover his living expenses in retirement and reduce the risk of further debt.

“You can’t afford to sell these just yet,” Warshaw said. “So keeping the rent on them is probably going to be a good move for you.”

Warshaw added that Toby should continue this strategy as long as he is physically able to manage the properties.

If managing them becomes too difficult later, she suggested selling the remaining properties and investing the proceeds with the help of a financial advisor.

The money could be placed in taxable investment accounts. Contributions to a Roth IRA may be limited depending on income and eligibility.

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The Ramsey Show via YouTube (1); Pew Research Center (2); Federal Reserve (3)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.