OK – I’ve been lurking on this site for months and I’d like to get some lateral-thinking style financial advice from some of the super smart people out there.
My situation is I divorced about 3 years ago and ended up giving my ex-wife the house. This was in return for a reduced child support / alimony payment of $3K / month (at the time I was earning about $200K / year). I walked off with no assets except some long term pensions back inthe UK that I can’t easily tap. I was only in the US for 6 months when I divorced, so I had no 401K built up.
A year ago I started my own business. I had some cash and was expecting to raise funding in about 4 months. Instead it took 10 months and we eventually raised funding in August. During those 10 months I took no salary and so ended up with about $40K of credit card debts (keeping up with alimony / child support / rent).
I’m now able to take a full salary and with my partner we have a household income of $190K (fully documentable). What’s bugging me is those debts….even with jugguling I end up paying 12-15% interest which is costing me a fortune. I can pay down the debt at $1-2K / month but I’d like to re-structure it some how.
So here’s my question – I don’t own a property, I have a pretty high income by San Diego standards. Is there a way to buy a new house, get enough of a sweetener to pay down most or all of my short term debt and then either live in it or rent it out – the rent covering my mortgage?
I pay about $2500 in rent / month for a very nice place – I wouldn’t want to take on a mortgage much bigger than that, but of course I don’t get any tax break at the moment.
Or do I just wait a while for real desperation to set in amongst some of the builders?
Would I qualify for a mortgage with no money down (as I have no assets except my shares in the new company (valued at maybe $400K based on the funding we just raised, but not easy to turn into cash for another year or two).
Final point – my child support payments last another 4 years after which I effectively get a $3K / month pay rise, so I may be the one case where a low interest teaser loan makes sense.
Whatever rent you get, regardless of what or where you buy (condo – Santee, mansion – La Jolla) will most assuredly NOT cover your mortgage.
I don’t know your financial scenario but with that hefty salary you now earn, reduced child support, etc – it would seem eliminating expenses to increase your debt payment would be the way to go, as opposed to adding another crushing debt onto the credit cards. What else could you trim?
It seems like you could trim that rent. I’ve seen very nice new condos, that don’t sell on Zip Realty, transfer to Craig’s list as rentals. You can get a brand-spanking-new condo on Banker’s Hill for $1600/month – there’s another $1000 to put towards credit card debt each and every month.
There are lots of great offers from credit card companies for lower rates. I had a great experience with Citibank, (but a bad one with Capital One), so I would also recommend finding lower rates.
I think we’re all fairly conservative with our money on this board, and that’s why ‘creative’ financing options aren’t really being suggested. I mean, why take on more debt, to ‘get out of debt’? I think you’d just be digging a bigger hole for yourself.
Plus, your life sounds like it is in transition right now. You just divorced, and you founded a company. That’s a lot of change! Sit tight, live very frugally, simplify, and watch the market keep heading south.
You’ll be glad in 6 months you did not buy. Plus, if you move, you’d have $6K less of debt!
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