‘A no-brainer’: 62-year-old Arizona plumber has no 401(k), $79K of debt and 3 homes — The Ramsey Show tells him which 1 to sell to save his retirement

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.

A portfolio of houses — but no retirement account

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.”

The best course of action

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.