Advice on Currently Held Properties

3 Replies

Good morning all:)

I am looking for someone who might be able to advise with respect to my current situation. I own two properties that I purchased during the time I was married and received as part of the divorce settlement a number of years ago.

Both have been primary residences at different points. Neither would have typically been considered investment properties as they were purchased as a primary residence at the time. Both are in in demand homes in terms of rentals in excellent locations, with good schools etc. I have rented them both out at different points and can cash flow them. One cash flows for $1000 a month, and the other for over $500. The next time around they will most likely go for more. I can manage them myself.

I am 53, and looking at these properties in terms of long term retirement strategy investments. From a cap rate perspective, they would not ordinarily fit the 1-2% rule. But it has been suggested that given I received them in the divorce, if I consider that if I sold them and had to try and find other properties to invest in, I am already in these properties without having to incur transaction costs or qualifying. Due to the nature of the neighborhoods and level of renters that they attract, I am always at low risk as the people I will get consistently have high credit ratings and good incomes. Both homes are in areas with stable employment for high income earners. Housing is difficult to find as well in both areas.

My question is, though it doesn't fit the typical investment formula, would it still be in my best interest to hold on to these properties long term? I am on my own with having to figure out what is in my best interest. I have built and remodeled houses throughout my life and am good getting renters and maintaining. I have had good loans on both of them, and am in a position to refi them to a 30 year fixed right now. The only reason I wouldn't would be if I was planning on selling them in the next 5-7 years. My other question is whether or not it might be wise to get a 15 year fixed on the one that cash flows $1000 plus if I can still cash flow $500 or more on that property.

And if I didn't live in either, would I be ok if I was to rent something smaller, or would that cancel out the benefits? I am comparing it to investing in an S & P 500 index fund, which scares me a little bit, but seems like it might be easier if I was told that what I am doing does not make sense.

Any thoughts or help would be greatly appreciated:)

Thank you:)

Personally, from everything you said in the post, it looks like you've answered your own question. They're great properties, in great areas, can easily attract great tenants and you get a lot of cash flow from them. Personally I'd hold on to them, long term as part of your retirement strategy. That $1,500 income would be great supplemental income, especially in retirement. Definitely don't sell them to invest in the stock market!

As for refinancing, you'd have to post more detailed information about the properties (current mortgage, rent, etc).

Thank you Drew:)

I appreciate it your time. I keep thinking I'm not a real estate expert, but over time as the mortgage goes down and the rental amount can go up, then I would have even more for my retirement.

The refi would be a 30 year fixed. Rates are going up, so I am looking at 3.9-4.1% most likely if I can lock it now, I am at 3.15 but it's an adjustable, which is up in two years. If I hold it it, makes sense to refinance it. I guess it's just the maintenance I think about, as a town house or condo would seem to be less to have to think about. As a non professional investor, I guess it's better then not:)

Thanks again Drew!

Hello @Gigi Michaels

you mentioned a few things that I would consider.

1. the proeperties are cashflowing big....that's awesome, just make sure you are putting money away for rainy day

2. this sort of goes to my #1 point and is because you 'worry' about maintenance. Most every investment has fees/costs associated with it (its just the mutual funds/401k people do a good job making it seem like they are not much). With that said, don't fear maintenance, it is what it is. If you put away 5-10% of the rent for CapEx (i.e. large maintenance like roof, HVAC, etc), another 5% for maintenance (leaky faucet) and 8-10% for vacancy (although with your area you might see much lower I still like to lock it away) you will have plenty of reserves for that time you need to maintain the property.

3. refi - if you have lots of equity in the place (sounds like you might) and you want to lock in a longer term mortgage (again, sounds like you might due to ARM coming due) then I say go for it. This will yield many benefits. 1. you could pull cash out of the property and invest in more property or that S&P fund. 2. your rate will be fixed

I personally always finance 30 year notes when I can instead of 15 because I figure with a 30 I have the lowest payment and I can ALWAYS pay on a 15 year schedule when times are good and pull back when times aren't (i.e. pay extra principal every month to put yourself on that 15 year schedule when you are rented but then make the minimum payment when its not)

You have lots of options and are definitely looking at it the right way.  If you like the homes and they are producing then keep them, refi them and enjoy.