At 57, Keep a 2.9% Mortgage Rental or Sell to Build a Rental Portfolio?

Question

My husband and I are both 57, with a goal of retiring within the next five years. We're seriously considering building a portfolio of long-term rental properties to generate additional retirement income, but we're at a crossroads with our existing second home. We're hoping to gain some perspective from experienced investors who may have faced a similar decision.

A little background:

• We own our primary residence in North Central Pennsylvania free and clear.
• Five years ago, we purchased a second home in North Carolina for two reasons: to enjoy as a family vacation home and as a potential long-term investment.
• We currently owe approximately $200,000 on the NC property, with a mortgage interest rate of just 2.9%.
• The property is located in a desirable HOA community, less than 30 minutes from several beaches surrounding Wilmington, NC.
• Our HOA permits long-term rentals.

We own our primary residence in North Central Pennsylvania free and clear.

Five years ago, we purchased a second home in North Carolina for two reasons: to enjoy as a family vacation home and as a potential long-term investment.

We currently owe approximately $200,000 on the NC property, with a mortgage interest rate of just 2.9%.

The property is located in a desirable HOA community, less than 30 minutes from several beaches surrounding Wilmington, NC.

Our HOA permits long-term rentals.

With an elderly parent now living with us, our opportunities to travel to North Carolina have become increasingly limited. While we've enjoyed having the home, we're beginning to feel that it's time for this investment to start working toward our retirement goals.

The Rental Potential

We've researched comparable long-term rentals within our development and run the numbers. After accounting for the mortgage, property expenses, and setting aside reserves for maintenance, repairs, vacancies, and other anticipated costs, we estimate the property could generate approximately $500–$575 per month in positive cash flow.

One factor that makes us comfortable considering a long-term rental in North Carolina is my previous experience working for a hotel management company. Because of that background, we feel comfortable handling the administrative and management responsibilities ourselves rather than hiring a property management company. We would coordinate with local contractors for maintenance or repairs as needed and personally travel to North Carolina to conduct annual property inspections, with appropriate notice to tenants.

Since we're considering long-term tenants rather than short-term vacation rentals, we believe managing the property from Pennsylvania would be reasonably manageable.

Our Long-Term Retirement Strategy

Our goal is to retire within the next five years, so we've spent considerable time evaluating how this property could contribute to our financial security.

We've developed both five- and ten-year projections that account for rental cash flow, mortgage principal reduction, anticipated maintenance and vacancies, and the continued growth of our liquid savings.

We've also considered the potential benefits of eventually paying off the mortgage entirely, which would significantly increase the property's monthly cash flow.

Our projections suggest that retaining the NC property could provide a reasonable path toward generating additional retirement income while continuing to build equity and maintaining a financial cushion.

However, we're also seriously interested in purchasing additional long-term rental properties closer to our primary residence in North Central Pennsylvania, where we could be more hands-on as we build our portfolio.

We're considering three possible approaches:

Option 1: Keep the NC property.

Retain our 2.9% mortgage, generate modest positive monthly cash flow, benefit from potential appreciation and continued mortgage paydown, and gradually begin acquiring additional rental properties closer to home.

Option 2: Sell the NC property and reinvest immediately.

Use the equity from the sale to purchase one or more long-term rental properties closer to our home in North Central Pennsylvania, potentially increasing our monthly cash flow while allowing us to be more hands-on with our investments.

Option 3: Sell the NC property and temporarily preserve the equity.

Place the net proceeds from the sale into a high-yield savings account for approximately five years, allowing the funds to earn interest while maintaining liquidity and financial flexibility as we approach retirement. At that point, we could reevaluate the real estate market and use those funds to purchase income-producing rental properties closer to home.

Our biggest hesitation about selling is walking away from such a favorable 2.9% mortgage rate on a property in a desirable coastal market. However, we also recognize that a low interest rate alone doesn't necessarily make a property the best investment.

Our Question to the BiggerPockets Community

If you were approximately five years from retirement, which of these three approaches would you lean toward, and why?

Would you preserve a low-interest mortgage on a coastal property generating modest positive cash flow, sell and immediately reinvest in rental properties closer to home, or sell and hold the proceeds in a liquid, interest-bearing account until retirement?

For those who have built rental portfolios later in life, how did you balance cash flow, appreciation, liquidity, and risk as retirement approached?

We're not necessarily looking to maximize the number of properties we own. Our goal is to establish reliable retirement income while protecting the financial security we've already built.

We'd genuinely appreciate hearing from investors who have faced similar decisions, particularly those who have transitioned from owning a second home to building a retirement-focused rental portfolio.

Eric Gerakos · Answer

I would keep the property you have. The idea of building a portfolio or "scaling" is presented to inexperienced investors as the goal of investing. It's not. You may end owning several less desirable and less profitable properties.

Addy Chupa · Answer

Maureen, you've done more homework than most people who post this question, so I'll focus on a few things that could change which option wins.

1. Count the principal paydown, not just the $500–575. If that $200K is on a 30-year loan from five years ago, roughly $450 a month of your payment is going to principal right now, and that share grows every year. Add that to your cash flow and the property is returning noticeably more than the cash flow alone suggests, on debt that costs you 2.9%.

2. Look hard at Option 3 before choosing it. Because this is a second home and not your primary residence, the primary-residence exclusion doesn't apply, so selling now likely means paying capital gains tax on the appreciation before anything goes into savings. Then the interest is taxed every year, and savings rates can drop over five years. You'd be giving up a 2.9% loan on a coastal property in a desirable area to hold cash that earns less after tax.

3. Renting it first keeps Option 2 open for later. A home used personally doesn't automatically qualify for a 1031 exchange, but if you rent it at market rent for about two years and keep your own use very limited, it can generally be treated as an investment property. At that point you could sell and exchange into rentals in Pennsylvania and defer the gain, instead of paying tax now and buying with less. Confirm the details with a CPA before you list or rent, because the timing rules matter.

4. Stress test the cash flow for the Wilmington area. Price a landlord policy (not a second-home policy) with wind and hurricane coverage and assume renewals keep rising. Also include 8–10% for management even though you'll self-manage. With an elderly parent at home, there may be a year when you can't travel, and the numbers should still work if you hand it to a manager.

5. Have one local person lined up before the first tenant moves in. Long-distance self-management usually works when someone nearby can do a walk-through, let in a contractor, or check on a storm. Your hotel background will help with the paperwork and tenants; the local person covers what you can't do from Pennsylvania.

If the property still cash flows after the real insurance quote and a management line, I'd lean toward Option 1: keep it, rent it, and buy closer to home with savings. Revisit a sale or exchange in two or three years, when the move can be done on better tax terms.

Jules Aton · Answer

I would take the 2.9% mortgage to my grave. It is important to have an investment plan with clear asset allocation. At 5 years from retirement consider your strategy to address SORR early on as well as ensuring your money is invested aggressively enough to last your lifetime. Since you have RE and one paid off house your cash type bucket is probably overfilled. If so I would not put my money in low return HYSA, CD, T-bill etc.

Adam Summerer · Answer

If you lean toward keeping the NC place, the paid-off PA house is probably your best funding source. A HELOC or cash-out on it could cover down payments on the next couple rentals without touching the 2.9% loan, and some investor lenders will even let you use equity in another property toward the down payment. If you do turn NC into a long term rental, switch to a landlord insurance policy and let your lender know since it was financed as a second home.

Dave Foster · Answer

@Maureen Floerchinger, you have to start by wrestling with the question of the emotional attachment to the beach house. Are you ready to make decisions simply based on investment potential? Or does that house have a place in your future? I think the recommendations from folks will be vastly different based on the answer to those questions.

I’d be inclined to keep the NC property and rent it, especially with the updated estimate showing roughly $600 more per month than originally projected. The 2.9% mortgage is difficult to replace. And the property will provide cash flow, principal paydown, and potential appreciation while preserving the option to enjoy it personally.

Simply paying off the loan to hold that as a rental isn't going to help much. The loan is the most valuable thing in your scenario with that house (apart from emotional attachment)

If you decide the NC property no longer fits your retirement plan, then don't just sell it. Do a 1031 exchange into one or more Pennsylvania rental properties. That may allow you to defer recognition of the gain rather than selling outright and paying the tax before reinvesting. Let the deciding factor be what aligns with your retirement goals.

Travis Timmons · Answer

Life doesn't exist on a spreadsheet and investments are meant to serve you/make your life better. It's okay to do what makes your life better and gives you peace of mind even if it is not the mathematically best decision.

My wife and I have this saying when it comes to personal finance - "We won the war; what was it all for?" You worked hard, saved, made responsible decisions to earn the right to do what you want in retirement. We've paid off some properties when it probably makes more sense to keep the debt and let that money continue to compound in index funds, but you know what feels amazing? - not having that mortgage payment.

Deborah Wodell · Answer

I’d be hesitant to give up that 2.9% mortgage without comparing the numbers carefully. If the property consistently cash flows and has adequate reserves, keeping it could provide a solid foundation for retirement. However, liquidity becomes especially important as retirement approaches. I’d compare the net proceeds from selling against the income and equity gained by holding, then make sure any new purchases still leave enough cash for unexpected expenses

Marcus Auerbach · Answer

It makes no sense to pay off debt with an interest rate below inflation. Let inflation eat it up.

At 57 stability matters; there is a learning curve to landlording; it can go bad quickly and you end up with a nasty eviction and a trashed house. We've all been there, but when you have a portfolio it's one of many units, you can compensate for it. If you have only one it's tough.

Jimmy Samaha · Answer

Glad the numbers came in even better, an extra $600 a month changes the picture a lot.

On your question I'd keep the money liquid. Your mortgage is costing you 2.9%. If your savings is paying 4% or more, even after tax on the interest you're still about even or a little ahead. And once the NC house is a rental, the mortgage interest gets written off against the rental income, so the real cost of that loan drops even lower.

The bigger reason is the first year of being a landlord. You'll have turnover costs, maybe a water heater or an HVAC repair, maybe a month or two empty. Extra principal you already sent can't be pulled back out, but cash in savings can cover all of that. Paying ahead also doesn't lower your monthly payment, so it doesn't help cash flow at all until the loan is fully gone.

What I'd do is let that money pile up in savings. If in 3 or 4 years you're close to retiring and want the house free and clear, you can write one check and pay it off then. You'd end up in the same place, you just keep the cushion until you actually need to decide.

Matthew Morrow · Answer

@Maureen Floerchinger with retirement five years out, I'd start with what the rentals have to do for you, not how many of them there are. A 2.9% mortgage is hard to replace. Whatever you buy next will probably carry a much higher rate, so the new properties have to cash flow on today's financing to beat what you'd give up. More doors also means more tenant calls, turnovers, and capex, and that's real work at any age. Unit count isn't the scoreboard. Cash flow and how sustainable it is matter a lot more. I'd run both scenarios side by side, and have a CPA look at what selling means on the tax side before deciding. Hope that helps.

At 57, Keep a 2.9% Mortgage Rental or Sell to Build a Rental Portfolio?

At 57, Keep a 2.9% Mortgage Rental or Sell to Build a Rental Portfolio?

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