Toby, a 62-year-old self-employed plumber in Phoenix, Arizona, thought owning multiple rental homes would secure his retirement.<\/p>\n
Now he\u2019s approaching retirement with no 401(k) savings, poor health and $79,000 debt and he\u2019s worried about his long-term future.<\/p>\n
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\u2019d recently got an offer from a debt consolidation company and was wondering if he should take it.<\/p>\n
\u201cIs it a bad idea?\u201d he asked.<\/p>\n
Co-hosts Jade Warshaw and Ken Coleman said debt consolidation was definitely a bad idea.<\/p>\n
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.<\/p>\n
\u201cI turned in my retirement when it dropped so much in 2008,\u201d he said. \u201cI 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.\u201d<\/p>\n
When Warshaw and Coleman learned more about his rental properties, they both proposed the same solution.<\/p>\n
\u201cThis is a no-brainer to me,\u201d Warshaw said.<\/p>\n
Toby is one of millions of Americans whose household wealth is tied up in real estate, according to the Pew Research Center (2).<\/p>\n
And while they\u2019re house rich, many are retirement poor, according to the Federal Reserve\u2019s Survey of Consumer Finances (3).<\/p>\n
Toby\u2019s properties are all fully paid off and producing $3,450 a month in gross rental income before expenses:<\/p>\n
A home rented to a family with five children for about $1,100 a month, which he estimates could sell for around $170,000.<\/p>\n
Another rental house that brings in about $1,350 a month that he guesses could also sell for roughly $170,000.<\/p>\n
A small rental unit on his own property, bringing in about $1,000 a month.<\/p>\n
Toby also still runs his own plumbing business and expects to begin collecting about $2,000 per month in Social Security benefits soon.<\/p>\n
Despite these income streams, his $79,000 debt balance and lack of retirement savings concerned the hosts.<\/p>\n
\u201cYou got no retirement,\u201d Coleman told him. \u201cSo, you need to sell at least one of these houses and clear up the debt.\u201d<\/p>\n
Story Continues <\/p>\n
Read More: 5 essential money moves to make once you\u2019ve saved $50,000<\/a><\/p>\n Toby said he can\u2019t sell the rental unit on his property and feels uncomfortable forcing the family with five kids to move.<\/p>\n Coleman acknowledged the concern but said there are responsible ways to handle the situation, including providing tenants with adequate notice before selling.<\/p>\n 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.<\/p>\n \u201c[I] appreciate your heart,\u201d Coleman said, \u201cbut they need to at least be paying market rent.\u201d<\/p>\n That leaves the second property as the most practical option to sell.<\/p>\n \u201cWe\u2019re going to sell house number two,\u201d Warshaw said.<\/p>\n Because it\u2019s fully paid off, its sale would likely generate enough cash to eliminate Toby\u2019s $79,000 debt while leaving a substantial amount remaining.<\/p>\n Warshaw advised Toby to hold back up to six months\u2019 worth of expenses from the proceeds and deposit in a high-yield savings account as an emergency fund.<\/p>\n \u201cThe rest you\u2019re going to plop it in some nice mutual funds,\u201d she said.<\/p>\n While the hosts agreed that selling one home made sense, they advised against selling all of them because the properties provide ongoing income.<\/p>\n 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 \u2014 which could help cover his living expenses in retirement and reduce the risk of further debt.<\/p>\n \u201cYou can\u2019t afford to sell these just yet,\u201d Warshaw said. \u201cSo keeping the rent on them is probably going to be a good move for you.\u201d<\/p>\n Warshaw added that Toby should continue this strategy as long as he is physically able to manage the properties.<\/p>\n If managing them becomes too difficult later, she suggested selling the remaining properties and investing the proceeds with the help of a financial advisor.<\/p>\n The money could be placed in taxable investment accounts. Contributions to a Roth IRA may be limited depending on income and eligibility.<\/p>\n Join 250,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines<\/a>.<\/p>\n The Ramsey Show via YouTube (1<\/a>); Pew Research Center (2<\/a>); Federal Reserve (3<\/a>)<\/p>\n This article provides information only and should not be construed as advice. It is provided without warranty of any kind.<\/p>\n","protected":false},"excerpt":{"rendered":"Toby, a 62-year-old self-employed plumber in Phoenix, Arizona, thought owning multiple rental homes would secure his retirement. Now…\n","protected":false},"author":2,"featured_media":563916,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[28,155,109628,36552,147,530,64371,53087,1666,1048,733,249585,53245],"class_list":{"0":"post-563915","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-dave-ramsey","10":"tag-debt-consolidation","11":"tag-ken-coleman","12":"tag-personal-finance","13":"tag-personalfinance","14":"tag-rental-income","15":"tag-rental-properties","16":"tag-retirement","17":"tag-retirement-savings","18":"tag-social-security","19":"tag-toby","20":"tag-warshaw"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/563915","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=563915"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/563915\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/563916"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=563915"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=563915"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=563915"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}