Dear MarketWatch,
My wife and I are 60 and 57 years old respectively. We have several properties, all without mortgages.
We have $4 million in real estate assets. Our savings include stocks, CDs and $3.2 million in cash. Our net worth is approximately $7 million. I have a small business that will continue to operate indefinitely and generate approximately $150,000 in revenue annually, hopefully for the next ten years. We have no debts.
Most read from MarketWatch
How do we structure our equity so that it works for us, delivers the best returns and protects us against inflation?
Real estate investment is great, but we also need to work on managing rental prices – and there is some work with maintenance. Should we sell some real estate and put the money elsewhere? Or hold because of inflation?
What would you propose to us as a long-term strategy? I plan to continue working until I’m 70 because I want to. I have enough time for outings and relaxing activities, and I am healthy and in good shape. Retirement doesn’t seem like sitting still to me.
Real estate dilemma
Related: I am 57 and single. I have $630,000 in retirement savings. Do I have to pay my 3.75% mortgage before retirement?
Dear real estate,
With a net worth as large as yours and so many moving parts – real estate, investable assets, a profitable business, and so on – you should consider a financial planner to help you understand your options.
Before I get into that, let me just say that you’re asking the right questions. Real estate is often touted as a good inflation-protected investment, and it may make sense to keep some of it in your portfolio if you are able to do so and are interested in maintaining it.
There are plenty of reasons to pause before making a decision, and that includes what you mentioned earlier: maintaining the property and keeping it rented, as well as any other costs that may arise along the way, such as a possible new roof or a new boiler. or something else you just never expected.
I can’t tell you for sure whether you should keep or sell the properties because there is much more that needs to be looked at in your overall financial plan to make that decision – including your risk tolerance and your willingness to manage properties during your pension – but as you don’t have any mortgages on your properties, there’s no need to rush into a decision.
To be sure, residential real estate is not the ultimate answer to inflation and market protection. According to MarketWatch columnist Mark Hulbert, it has proven successful in most bear markets since the 1950s, but has not protected investors in the 2022 bear market or outperformed in the bull market since.
In his column he mentioned an ETF that most resembled the housing market. “This doesn’t mean you shouldn’t invest in residential real estate,” he wrote. “But it does mean that your performance can and likely will differ dramatically from that of the asset class itself, due to the myriad idiosyncratic factors that influence the price of a given piece of real estate.”
Good complications
In your specific case, I think it’s worth consulting a financial planner. Advisors may not be for everyone, but if you have such complicated finances (even if they don’t). bad complications), a qualified and reliable professional with experience in these areas can allow you to not only manage your wealth, but potentially even earn more.
For example, they may have ideas about how to preserve that property, manage it, and limit losses due to lack of rent or maintenance issues. They can also help with taxes and any exit planning for your business. And regarding your retirement, they can help you structure an income strategy that balances the liquid with the illiquid, along with risk and conservation, and all other aspects of your life in between.
Many business owners tend to think they need separate advisors for their personal lives and businesses, but that’s not necessarily the case, says Paul Brahim, a certified financial planner with Wealth Enhancement Group and president-elect of Financial Planning. Association. “They are inextricably linked,” he says. The right advisor who has experience managing personal and business finances can help you identify things you may not know you need to do, such as how to handle certain investment costs or liability management.
Of course, you don’t need to hire an advisor, but with such a substantial asset and portfolio, it wouldn’t hurt to at least get one. Look for financial planners who can advise you on your personal finances, including property management, as well as a small business expert. Ask the important questions about how they get paid, if there is a conflict of interest, and what certifications and training they have. But Brahim suggests also asking if they work with professionals like you, what their successes and failures have been in this field (and what they’ve learned from those experiences), and who else they and you would work with in managing your business.
You can search for advisors online through search engines such as the Financial Planning Association and NAPFA, but you may also want to check out industry associations that match your business and interests, as well as a network you may already have. This includes not only family and friends, but also accountants and lawyers you know through your work. And even if you get excellent recommendations from people you trust, you should always consult the professional yourself. You want to make sure you don’t make a mistake by hiring someone to help you manage your money.
I’ll end with one more thought. You mentioned that retirement doesn’t look like you’re stuck in front of you, and having a qualified and reliable planner can help you get there. You can still be the primary handler of your affairs, but having someone to whom you can discuss ideas or ask financial questions about your various activities, including your real estate and your business, will give you more time to run the business the way you want. including your life.
Ultimately, it’s up to you to decide when to take your proverbial chips off the table.
