Invest in real estate or pay down mortgage?

Question

We have inherited $90,000 and are trying to decide what to do with this money. We owe $140,000 on our home at 4% interest (home is worth approx. $250,000) . My husband, who is 65, is a contractor and has a profitable business and I have a degree in Art, Interior Design. We have thought about flipping houses but we also have thought about paying down our mortgage. Or both. With the current market, we just didn't know if this is a good time to purchase a home to start flipping. And then again, at our age, we need some security by paying down the mortgage. All suggestions would be appreciated!

Suzanne Roberson · Answer

Steve, you bring up important questions. We are not able to retire on the small nest egg we have so we are looking for security in our retirement. We are definitely leaning towards flipping houses as that will provide a much better chance of building a quick nest egg, as well as eventually paying off our primary residence.

Steve K. · Answer

@Suzanne Roberson

Not to pry, but to help: before the $90k inheritance and idea to flip houses, how well do you have your retirement plan covered? From personal finance perspective, if your mortgage is not paid off at age 65, will you be able to retire without this flipping income? Is your desire to make more an urgency to rebuild a retirement nest egg that's short, or could you afford to remain more conservative and still retire? (advice here would vary depending on your answer).

@Austin Fruechting is in favor of flipping....(he's famous on BP....retired at age 32 after 7 yrs RE investing....search for his post elsewhere), and you both have skills to make it work. If you can make $25k flipping, your $90k investment would be earning 28% yield (if it took a year) or 56% (if you could do it twice a year). Many investors would strive for 56% yield, instead of the 4% yield you get by prepaying the mortgage.

Suzanne Roberson · Answer

Vivek, when you say spend time to cover my bases, are you talking about waiting until the market gets better for buying properties?

Suzanne Roberson · Answer

Thank you!

Vivek Khoche · Answer

@Suzanne Roberson - I got into REI exactly in the same situation the difference is the state of current market. Many folks on BP would argue about the timing but I would spend time to cover my bases. Both of you bring unique skills to be successful but your margin of error has to be small.

Good Luck Investing

Vivek

Good Luck Investing

Vivek

Austin Fruechting · Answer

@Suzanne Roberson - Even if you only made $25k per flip on two smaller flips, you have your entire mortgage paid off. But I would keep rolling into more flips to generate more money for retirement. 4% is cheap money on the mortgage. So as long as you're getting 5%+ somewhere else you're ahead.

Suzanne Roberson · Answer

Thank you very much for your advice.

Abel Curiel · Answer

Good afternoon @Suzanne Roberson,

I think if you're looking into SFR to flip, I'd make sure you and your husband aren't buying at the top of the market. If it doesn't look like a good time to buy, I'd wait about 6 months to see if anything happens in the market. If 6 months pass and you're still unsure, continue to hold. REI with 90K sounds better than adding to your equity which you won't touch until you sell or refinance.

Best of luck to you!

-Abel

Invest in real estate or pay down mortgage?

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