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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
comments8
‘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

P
Read full story
Inflation is falling but interest rates will be higher for longer. Way
longer.
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
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COMMUNITY GUIDELINES • FAQS



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
sell.



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.

Enjoy.

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.


R

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