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Chapter 1: How can we handle debts when dissolving a family business?
So the business is a split between my mother-in-law, father-in-law, my sister-in-law and her husband, and my wife and I. It's not exactly one-third all the way around, but it's pretty close.
Okay, so what percentage do you own?
My wife and I own 30% together.
Okay, and what is the nature of the $160,000 in debt? What kind of debt?
So we're going to owe about $21,500 in the next six months of rent to our lease agreement with the landlord. We owe $74,500 approximately through a PPP loan. Thanks, COVID, for making things difficult, of course. And then the last part is about $70,000 that my father-in-law, when we initially purchased the business, he fronted that through his retirement account account.
taking a loan on his IRA or something like that. And even though that part's not, you know, like legally actionable debt, I think it's morally and ethically the right thing to do to pay him back as well.
Right. What percentage of the business does he own?
He and his wife together own 40% with my sister-in-law having the last 30%.
So the 160 of debt, is that 30% of the overall debt or is that, Is there more debt besides that, is what I'm asking, that others are on the hook for?
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Chapter 2: Is our mortgage too high at 50% of our income?
So what do you guys make?
We take home $11,250 after taxes a month.
And do you think your income's going to double in the next year? No. Then don't do this deal. It's really, it's asinine. You are signing up, you're playing, you're signing up for financial suicide.
The truth is, and earlier in the show, we had Brian Buffini on and we were talking about this very thing, okay? Real estate, I get it. It feels very expensive. Sometimes it feels out of touch. Sometimes it feels like it'll never happen. But that's not true. However, your time horizon for when it will happen may be different from what you expect.
And your neighborhood might be different from what you expect.
That's also true. You said it's a very hot neighborhood.
You may not be moving into that neighborhood. You obviously can't afford it.
So what would it look like to look in a different neighborhood or what would it look like to just change your expectation a little bit? Because to put yourself in a situation where you're at 50 percent for you to be trying to convince us that that's a good idea.
It's not sustainable. You know, everything that comes up, because you don't leave enough room in your budget because you're what we call house poor. You're signing up for poverty. And everything that comes up that you guys want to do or need to do that you don't have room for in the budget is going to be new debt.
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Chapter 3: Do we really need a credit card at some point?
Chapter 4: Is it okay to enjoy money while still young?
But I guess we're just in two separate minds about do we take the plunge now or wait a year and then maybe the price goes up even further and then, you know, we're just stuck in the apartment.
Why did you say it would only be that much for the first three or four years?
Depending on how the loan is working out. So we're doing the 2-1 option.
So this is not only 45%, it's an adjustable rate 30-year mortgage.
Right. So if you're taking the average, I guess, from the third year onwards is going to be... You don't have any idea.
Yeah. It's called an adjustable rate mortgage. Yes. It's going to adjust. You don't even know.
28.
What's on fire, dude, that would cause you to be this stupid? Yes.
What Dave said. No, no. The mortgage is going to be $5,200 after the third year for the next 30 years.
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Chapter 5: What should we do if our landlord becomes hostile?
Chapter 6: When is an emergency fund no longer necessary?
That's his percentage, it turns out.
Right, right.
So if he just took his percentage against his retirement and called it, he's out. Right. And I suggested that to him as well as a possible course of action. Well, it's the natural thing to do mathematically.
Yeah. Why would you be on the hook for 100% of the debt if you own 30% of the business?
Yeah, he's on the hook for 40% of the debt, and 40% of the debt is to him. So that's just a wash. I mean, it may be a little bit off. There may be a few thousand dollars. It could be like $5,000 off, but it's pretty close. Okay. Then you've got the PPP and you've got the rent. Have you all tried to negotiate with the landlord at all on the final rent?
Actually, I got notice about an hour ago that he's willing to do a little bit of negotiation, so we might be able to knock that number down significantly. Oh, good. That does change the formula with his father-in-law then. Yeah, yeah. And like I said, the last wrench in the gear here is that my wife has that PPP loan that's almost $75,000. She is the sole guarantor on that. Holy crap. Yeah. Yeah.
Yeah, so she did it in the name of the business, but she only used herself on the math.
Wow.
And you own 30%. Yeah, and that doesn't equal 74. Okay, so yeah, depending on, okay, the total is going to change when the rent changes. So 40% changes, and it's not going to be enough to cover father-in-law. So his is not going to be a wash as the rent goes down. You follow me on the math equation?
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