Invest or be mortgage free?

[John Peter]

Feedback appreciated. I am almost 50. 3 kids all under 8 years old. I'm the sole income in the household. Retired from civil service with pension of 8k monthly. About 500k invested in a 457 from work. Just sold in NY and moved to FLA. Proceeds from NY leave me with 530k sitting in the bank. Here's where I need guidance.

I could pay off the new house and be mortgage free with almost 125k left to invest. My mortgage is in the mid 4% range and is about 1600 a month. I also just paid off my car. Now, I'm slowly finding out that living in or near a big city in FLA is almost as expensive as NY. 8k pension isn't going to stretch too far as time passes. So, at my age, with 3 school aged children, would you pay off the mortgage and invest the rest in a portfolio, real estate, or IRA (125k).. or leave +/-50k in the bank and invest the rest? (480k) Thanks for any advice. Btw.. I was a landlord in NY for 12 years before I had kids. I'd do it again, but I'm not 30 years old anymore.

[Taylor L.]

I'd be investing and looking for other sources of active income. You still have plenty of life left to live and costly parenting years ahead as well. 

[Dmitriy Fomichenko]

I would not pay off mortgage at 4%. Why if you can invest these funds and get 10%+?

[Eliott Elias]

Why pay off the mortgage, that's cheap money i'd keep it. Leverage your cash and put it in other value add properties 

[Nathan Gesner]

Quote from @John Peter:

I would leverage. Put 20% down on a personal residence so you can avoid mortgage insurance. Split the rest up and buy investments. $100,000 on a primary, and $100,000 on four different rentals. The cash flow from four rentals should increase your monthly income 15-20%. Then you could get a simple job that is enjoyable, low stress, keeps you productive and healthy, and pays another $2,000+ a month. A few simple, affordable moves that will increase your monthly income 25% or more, make you a productive member of society, and build real wealth instead of living paycheck-to-paycheck.

If you owned rentals for 12 years and aren't excited to get back into it, you must have done something wrong. I've been investing for six years and I make enough each month that I could be financially independent for the rest of my life and live very comfortably most anywhere in this country. Educate yourself on how to invest wisely, and find a qualified PM to manage it for you so you can reap the benefits while protecting your time and sanity.

[Theresa Harris]

I agree with Taylor.  Invest and look for other sources of active income.  I'd start by talking to a bank to see how much they will lend you to buy a rental property.  I'd also look at duplexes or places with a secondary suite. Don't put all of your money in the rental, just 20% down payment.

Depending on your location, what about short term rentals?  You will get a higher rate of return, but it will also take more of your time.  Run the numbers as if it was a long term rental as well in case you want to change it down the road.

[John Peter]

This is why I came here for advice. My accountant in NY said the exact opposite. "At your age, you have 8k a month coming in. and 500k in investments. Do you really want to be a landlord again especially trying to find a deal in an inflated market? You have more than enough to draw from if you need it.. pay off your house, free up some monthly cash to give yourself a cushion, invest the rest of the proceeds from the NY sale and go get a part time job if you're looking to keep busy." I remember him saying.. "if you're lucky, you're gonna make a few hundred bucks on each property after expenses.. you'll need 3 or 4 properties just to covert the same amount of your mortgage, and that's if nothing goes wrong with any of them. But, you can guarantee freeing up $1600 a month if you pay off your house and still have over 100k to invest somewhere.. JOHN, PAY OFF YOUR HOUSE!"

Consulted with an accountant in FLA when I moved. After a half hour of going over 3 years of taxes, she said the same thing almost word for word. I swear.. I was so close I actually asked for a payoff from my mortgage company. 

[Jay Hinrichs]

Quote from @John Peter:

This is why I came here for advice. My accountant in NY said the exact opposite. "At your age, you have 8k a month coming in. and 500k in investments. Do you really want to be a landlord again especially trying to find a deal in an inflated market? You have more than enough to draw from if you need it.. pay off your house, free up some monthly cash to give yourself a cushion, invest the rest of the proceeds from the NY sale and go get a part time job if you're looking to keep busy." I remember him saying.. "if you're lucky, you're gonna make a few hundred bucks on each property after expenses.. you'll need 3 or 4 properties just to covert the same amount of your mortgage, and that's if nothing goes wrong with any of them. But, you can guarantee freeing up $1600 a month if you pay off your house and still have over 100k to invest somewhere.. JOHN, PAY OFF YOUR HOUSE!"

Consulted with an accountant in FLA when I moved. After a half hour of going over 3 years of taxes, she said the same thing almost word for word. I swear.. I was so close I actually asked for a payoff from my mortgage company. 

this is a real estate site every answer your going to get here is like the ones above which is not bad advice at all.. Just depends on what you want to do. there are other investments other than rentals you could certainly go into private lending and that 400k which would be pretty liquid could easily earn you and additional 40k a year and as I said far more liquid than a rental .. but you do not have any write offs.  add that to a Job like was mentioned above and you could bring in an additional 6 k real easy.

It is amazing on BP when the threads on how much do you need to live comfortably and that ranges from 4k a month to 10k and up with 10K being the most common answer.. but your living reality if you have a family and kiddos etc 8k does not go far and is not living the highlife for sure.

[Theresa Harris]

Quote from @John Peter:

This is why I came here for advice. My accountant in NY said the exact opposite. "At your age, you have 8k a month coming in. and 500k in investments. Do you really want to be a landlord again especially trying to find a deal in an inflated market? You have more than enough to draw from if you need it.. pay off your house, free up some monthly cash to give yourself a cushion, invest the rest of the proceeds from the NY sale and go get a part time job if you're looking to keep busy." I remember him saying.. "if you're lucky, you're gonna make a few hundred bucks on each property after expenses.. you'll need 3 or 4 properties just to covert the same amount of your mortgage, and that's if nothing goes wrong with any of them. But, you can guarantee freeing up $1600 a month if you pay off your house and still have over 100k to invest somewhere.. JOHN, PAY OFF YOUR HOUSE!"

Consulted with an accountant in FLA when I moved. After a half hour of going over 3 years of taxes, she said the same thing almost word for word. I swear.. I was so close I actually asked for a payoff from my mortgage company. 

 The reality is for many long term rentals, that is true. You won't cash flow a lot with a mortgage.  Everyone is different, but over time hopefully your house appreciates and rents go up.  There are also people who keep pulling money out of their rentals, I have to admit, I don't understand that.  yes you can use the money to buy other houses, but if they are all mortgaged to the max, I don't see the advantage.

[Brian Bohrer]

It is all going to hinge on your risk tolerance.  If you want to go hard in the paint and buy multiple properties after you have paid the current mortgage to 20% in order to drop the insurance, you definitely can but could add a lot of unneeded stress as well.  Paying off the mortgage does not seem like the answer either, since with inflation those payments are going to get cheaper and cheaper down the line.  Whereas your rentals will be riding the inflation wave and should help keep your income up in the future.  

If it was me, I would do what I am comfortable with.  If you don't want to manage 5 rentals that you put $100k down for each, then buy 2 or 3 and sleep better at night knowing if the worst came to fruition that you would have enough equity to come back out in good shape.  It's all about being able to sleep at night!  Good Luck @John Peter I wish you the best on your adventure!

[Luis Maqueira]

I could pay off the new house and be mortgage free with almost 125k left to invest. My mortgage is in the mid 4% range and is about 1600 a month.

No don't pay off a 4% loan is free money  inflation is double that...

" would you pay off the mortgage and invest the rest in a portfolio, real estate, or IRA (125k).. or leave +/-50k in the bank and invest the rest? (480k) Thanks for any advice. Btw.. I was a landlord in NY for 12 years before I had kids. I'd do it again, but I'm not 30 years old anymore."

Join local groups that think alike,  family-oriented - need income - cashflow -  you were a landlord you know the drill. But tell me a job that gives you tax benefits, appreciation on asset, cash flow  and  value principal paid by your tenats every month...  

Rental market looks great for 3 years, you can't go wrong.  We like multifamily units rather than 3 houses ...

Good luck

  and keep telling us the outcome we all can learn.

[Greg M.]

First thing I would do is hire an independent financial planner who does not sell investments. Let them run the numbers and see if you can afford to be retired. The harsh reality that may come is that you cannot afford to be retired this young with this little income/assets. 

[Basit Siddiqi]

From what I can tell, It seems like you are doing well financially.

You have a pension paying you $8,000 a month which is $96,000 for the year.
You have $530,000 in the bank. I personally would invest maybe $400,000 to go ahead and purchase two multi families(preferably quads) at the $800,000 pricepoint.

Sit on the $130,000 as reserves just incase you need to fix up anything in the house.

Consider putting some of your future cash-flow into 529 plans for when your children plan to attend college.

You should be eligible for social security in 10-15 years
You can also start out taking money from your 457 plan

All in all, if everything is nice and dandy, you should be able to factor in $15,000 a month in gross revenue from your pension, social security, rental income, 457 account distributions.

Best of luck

[Steve Vaughan]

I was where you are a couple years ago, my kids are just older and only have net cf as a 'pension'.

My wife was ready to retire so we paid off our house ($125k bal, $1732 pmt) to maximize a big first Heloc while she still had a job.  You may want to do the same if you decide to retire again.  Access to cash. 

There are other investments besides real estate. Personally, we end-gamed 90% of our portfolio this year and will slow exit the rest over the next 3 years.  Not chicken little on RE, just much easier money in other assets classes. 

Investors at heart, we like to park in 10yr t-notes when the yield is at least 4% and value invest into reits, etfs, stocks etc at historical lows.  Lots of yield (16% is easy these days in beaten down reits) and growth opportunities in paper equities now.   

If not an investor at heart, nothing dumb about paying off debt, I just hate to deploy good capital against a low unicorn mortgage 1/2 the inflation rate. 

[Scott Wolf]

@John Peter, one thing not mentioned was being a private lender.  You can get returns of 7%+ on a site like PeerStreet, and up past 10% for loaning it out yourself/investing in a fund.