• Marketwatch - couple with rental properties has questions

    From a425couple@21:1/5 to All on Tue Dec 5 14:40:50 2023
    XPost: alt.economics, seattle.politics

    from https://www.marketwatch.com/story/we-have-3-million-in-real-estate-which-brings-in-70-000-a-year-could-i-make-the-same-income-investing-in-stocks-and-bonds-03412b30

    We have $3 million in real estate, which brings in $70,000 a year. Could
    I make the same income investing in stocks and bonds?
    Published: Dec. 5, 2023 at 7:25 a.m. ET
    By Alessandra MalitoFollow
    ‘We have about $300,000 in IRA and 401(k) and 403(b) assets’

    “I don’t take any income out of the rentals as my husband’s income is $200,000. With our Social Security and pensions, our basics will be
    met.” GETTY IMAGES

    Dear MarketWatch,

    We have about $3 million in real-estate assets (single-family rentals)
    but owe about $900,000 on the mortgages. I’m 61 and my husband is 56,
    and he doesn’t plan to retire until he’s 67. We have about $300,000 in
    IRA and 401(k) and 403(b) assets. I don’t take any income out of the
    rentals as my husband’s income is $200,000. With our Social Security and pensions, our basics will be met.

    My question is: should I keep the rentals and turn them over to a
    property manager or slowly sell them over the next five to seven years
    because I’m tired of self-managing? The current annual income after
    mortgages and all the expenses — but before income tax — is around
    $70,000. Could I get the same income or drawdown if I sold the rentals
    and invested the money in stocks and bonds?

    Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

    Dear Reader,

    Managing properties can be a hassle. You’ve got to constantly
    communicate with tenants, be at the ready should any problems arise,
    wait out periods of vacancy and you’re the one responsible for the
    costs, be it repairs or upkeep.

    That said, those assets are beneficial for your retirement, whether you
    keep them or sell them off. It will all come down to what you will need
    in retirement, and if your Social Security and pensions will be able to
    hold you over forever.

    I know you mentioned those two sources of income are enough to cover
    your basic needs, but can it manage more than that? As we have all seen, inflation can be significant, and your regular trip to the grocery store
    could easily cost more than you’re used to by the time you and your
    husband reach retirement age — it’s more than a decade away for him, if
    he sticks to his plan. You also need to account for both unexpected and
    regular expenses later on — think healthcare.

    Real estate can be a great investment, and many people favor it. The
    market isn’t quite as volatile as the stock market, so over time you’re very likely to see the value of the home rise (and thus, your net
    worth). But it’s far from a sure thing. Real estate isn’t as liquid as
    cash or cash-equivalents, or even stocks and bonds. And, as you’re experiencing, it can be a lot of work.

    Property management can be helpful, but it will come with a cost. This
    service typically includes a setup fee, which could be anywhere from
    $250 to $500 per unit and could cover an inspection (be sure to ask a
    potential management firm if they include that in this price). The
    management fee itself could be a percentage of the rent or a fixed fee.
    The average cost to manage a single-family home is 10% of the monthly
    rent, according to Roofstock, a company that provides data and services
    for investors interested in single-family homes.

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    Be very clear and focused on the contract with a property manager,
    Roofstock warmed. The language in the document should say “rent
    collected,” not “due” or “scheduled” or “rental value,” so that you’re
    only paying when rent is received (and so you’re not paying the manager
    when the property is vacant, for example). There could also be a leasing
    fee if the property becomes vacant, as well as lease-renewal fees and maintenance charges.

    Selling and investing is certainly an option, but you should consult
    with a qualified, trustworthy financial planner who can run some
    projections for various types of portfolios. Right now, you are used to
    a certain amount of income each year from these rental properties, so of
    course you’d want to maintain or make even more.

    However, the stock market is volatile. It is important that your
    investments are structured in a way that you’ll be able to withdraw a specific amount each month or year as you’ve become accustomed to doing,
    but still have your account growing over time.

    Whatever you decide, now would be a good time to boost those other
    assets. Try to dedicate more to your IRAs — and if you haven’t already,
    a separate, liquid account for an emergency savings fund. If you kept
    the real estate, it would not be quite as easy to tap into that asset
    should an emergency arise. Yes, loans are an option, but that could take
    more time than you have for an unexpected, looming expense.

    Write out all of your cash inflows and outflows, target how much extra
    money you have to play with after paying for all of the necessities, and carefully earmark the excess. If your mortgage rates aren’t
    astronomical, it’s OK to keep them while you stash more money in
    retirement and emergency accounts. And if the mortgage rates are on the
    high side and you think it’s worth it to pay off as fast as you can,
    split what excess you have so that you’re bulking up your retirement and emergency accounts.

    You have a while to go, so now is the time to do as much preparation as
    you can for the future.

    Readers: Do you have suggestions for this reader? Add them in the
    comments below.

    Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

    Read full story
    Inflation is falling but interest rates will be higher for longer. Way
    Read full story
    How to (legally) avoid taxes when selling a house

    Alessandra Malito
    Alessandra Malito is a retirement reporter based in New York. She is
    also a Chartered Financial Consultant. You can follow her on Twitter @malito_ali

    Conversation8 Comments
    88 Viewing

    Joe Weingarten
    5 hours ago

    Sell. Avoid all the hassles, etc. 2.1 million at 5% is $105,000 so you
    would be ahead to the tune of $35,000 a year. So even if your taxes
    reduce your net asset to $1.5 million you are still making $75,000 a
    year. So unless your property has oil under it. A wise move would be to

    Hazards Canyon --
    4 hours ago

    So many responses only reference 5% based on a principal amount equals
    an income more than the $70,000. What they are totally forgetting is
    their is growth on the principal. As rental incomes increase each year,
    the total rent increases and ultimately the value of the homes will
    increase. Sure there are ebs in real estate but with the housing
    shortage nationwide, 2008 is not happening anytime soon.

    Kevin McCarthy
    5 hours ago

    You're getting a terrible return on the assessed (I'm assuming) value of
    your holdings.

    Bonds, stocks and CDs don't make demands, call you in the middle of the
    night, or need maintenance. But of course there are tax issues in
    selling your properties, so you may have committed yourself to dealing w...dealing with the previous.

    Dale Binkley
    9 hours ago

    $2 million of real estate value (net of outstanding mortgages) would
    yield $80k at 4% or $100k at 5% in bonds or CDs. All you have to do is
    decide if you are satisfied with a stable value investment (held to
    maturity) with predictable income (and no stress) or continue being a
    landlord with potenital for increasing income and asset value (with the
    stress of being a landlord).

    Mark Glazer
    4 hours ago

    Sell and be done with debt forever

    Interview financial managers. Take your time.

    At 8% - 10% annual return, you could pull out DOUBLE of your intended
    target and end up with a nice inheritance for your family members,
    charities, etc.


    Terrance Smith
    8 hours ago

    Your real estate is a terrible investment. $70k on $3mm is less than a
    savings account. I hope your math is wrong.

    RRoger R
    5 hours ago

    Net of mortgages, she really only has $2.1mm invested, giving her a
    yield of 3.33% ($70K / $2.1mm). That is, as you say, less than a
    savings account.

    But there is more to it than that:

    The mortgage balances are being paid down, probably by $30-40K per year.

    The properties are appreciating. Even if they just go up 3%, that is
    another $90K per year.

    Assuming the property values have doubled since they bought them, they
    would have a depreciation deduction of about $45K per year. Assuming a
    30% marginal tax rate (state + fed) that would save them an additional
    $13,500 per year in taxes.

    Rents are going to going to grow with inflation. Assuming the mortgages
    are fixed rate, the gap between the income and expenses will expand over
    time, and the cash flow will grow.


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