I need some advice about our retirement!

**chatterweb** · 12-14-2006, 02:33 AM

My Dh works very hard 6 days a week. I am the one who is the Accountant so to speak.

We pay two mortgages on 2 homes and one is a primary and the other a rental.
On the rental, it is in AZ, and we pay $1466 per month for everything.

Our primary is around $1900 per month and that does not include principal, meaning that we have not been paying towards the owning of our home.

So, we we have to live somewher, and we pay less owning here than renting.
Cost of living is very cheap in AZ...
My plan is to keep our interest only mortgage going here until the next upcycle to sell...maybe 10 years...
Meanwhile keep the AZ home rented for now.
So, when we get closer to reire, sell the primary and rent if need be, until we retire...
And after retiring, move into the AZ homee to retire in.

If my projections are correct, we could possibly sell our CA home and have 500K free and clear after the close of escrow...

Not bad and tax free...

Any advice is appreciated!

So, young still, and will take any advice on this matter!
BTW, we have 4 additional ira's etc we contribute too as well...

**staceyy** · 12-14-2006, 03:20 PM

At what age are you planning to retire? I think you're saying you will keep your interest free California home and will net $500,000 in 10 years, am I correct? Then you will rent until you retire and then you will move into the Arizona home?

**Telephus44** · 12-14-2006, 04:44 PM

Just to be clear -

You're currently living in the primary in CA, with an interest only mortgage.
You're planning on selling your primary on the next uptick, and you think it might be in 10 years or so...
You're thinking you could make up to $500,000 profit on selling your primary residence.
...and you're planning on moving to your secondary residence in AZ after selling your primary residence.

I'm not a big fan of real estate personally (I'm too chicken to go with the risks that come with real estate), but it does sound like a good plan. You'll get the $500,000 profit without having to pay taxes on it. The only iffy part is depending on when the next "upcycle" in the market is, and how much profit you can really expect to get when you sell. I don't know the particulars, but it sounds like you've done your research.

The only thing I would wonder - the interest only loan - doesn't that have to be paid off in a lump sum at some point?? Or reset to start including the principle? I'm not really familiar with these kinds of loans, but I'd hate to be forced to sell the house just because of the financing.

**staceyy** · 12-15-2006, 02:00 PM

You of course have to plan with some projections but be as conservative as you can, as life tends to throw us a few twists and curves. The real estate market goes up and down and real estate does not appreciate the same each year. Sometimes it does not appreciate at all but depreciates. California is typically a hot market but not always. Your property may not appreciate enough in 10 years to give you $500,000 in equityb. Also keep in mind that 20 or 30 years from now your Arizona property may no longer appeal to you especially if it has been abused by renters. Also neighborhoods tend to change over time. Its wonderful that you are planning so far ahead, and planners tend to go much further in life than non-planners . I would just be much more conservative in my estimates.

**pinetree** · 12-15-2006, 03:57 PM

OK I have written 3 big posts here & lost both
Will try again later..

**pinetree** · 12-15-2006, 05:30 PM

OK, here we go again, sorry this is so long,

chatterweb, if I was you, I would do something else. here's why.

I had the same idea as you. In 1992 I got a work. comp. lump sum, my banker suggested to invest in rentals. It would also be a good for my retirement. NOT.

I had 2 rentals working on my 3rd when Murphy moved in,,
First, found out that you cannot keep your eye on the rental unless you are closeby. The 1st one was in a college town, 50+ miles away, found we had to get a property manager. ( they can also spend alot of money fast, instead of repairing a stove, some will buy a new one,,& guess who pays for it.)
Next, the property manager calls every other day, because of this or that, we had it in our contract, that we would do repairs, Holy cow, we had to run over there to replace a lightbulb!
Payments were $383 a month. It rented for $1450.00. ( today it rents for $600.00, the new owners payments are $1200.00 ..they can't give it away, the housing market is gone )
We kept it up so we didn"t have trouble renting it.. which takes money!! That means replacing carpet, etc. Then one day the main sewer line backed up,, which we found out too late, that the City will NOT pay for. So we had to hire a company to come in and Haz. the house. The sewer made it unlivable, long story short. The entire basement walls, washer,dryer,anything that was soaked or it touched had to be removed, then spayed down with anti bacterial stuff. PLus ALL of their stuff down there was ruined, there was 3 bedrooms = family room - laundry ...Ending up costing $12,000.00. We put a 2nd on the other rental to cover this. then sold the house, and had to pay 33% capital gains tax. So WOW theres a couple dollars for my retirement!

Now the other rental is within eyesight. I can't even keep up with it. Iv'e had 2 people move out in the middle of the night and leave their entire belongings!!! ( which costs money to move out!)

I rented it to a friend,, that decided he didn't need to pay.
Have one that we had to evict that wouldn't pay, it cost us over $4500.00 for court,, I have to pay the lawyer!! Plus if the renters miss or stop payments we have to pay to get their checks garnished. ( I am not a hard nosed landlord, she was 8 months behind on rent, murphy moved in & we tried to help)
The rent can be great one year and nothing the next,, last year it was empty for 10 months.. we had to make payments, electric etc, Last year it rented for $950. This year its $800.00. Payments are $700, so if things don't change here next year, going to have to get rid of it.
It takes alot of money to keep them going. You MUST have a EF to back you up.
I wish now I would have put it in a mutal fund, or paid my house off. because now I don't have anything to retire with.
Ten years is along time, & I agree that you probably won't want that house then. Especially after what you have seen the renters do to it.

The other thing is is why are you paying interest only? DO you ever get equity in the house?

I Cannot refinance here at all the banks say a rental is too much risk, or want a really high interest rate. I have learned that you really can't count on a rental.

Have you read Dave Ramseys book? He has articles on rentals.

I"m not saying this is going to happen to you, but there are so many things that can happen,, I have quite a few friends that have all sold theirs,,
Don't be afraid to get rid of it, if its too much..
I just get tired of messing with it. A second home would be different.
I hope this maked sense.. Read all you can & find out how you feel about it.

What really ticks me off is the rental comes first. It has new carpet, I don't, its got a new furnace I don't.. Thats really starting to eat at me.
But its things you have to do to keep it rented. The last thing you want going around is that your'e a slumlord. I hope I helped alittle, just don't want someone else to make the same mistake I did.

**chatterweb** · 12-20-2006, 01:55 AM

Well, thanks for all the advice!

Rentals are a PIA, but at least we bought ours brand new construction.
So, everything (except the appliances) are under a 10 year warranty.
We may ditch the PM and go it alone someday. I have alot of motivation to make it work, as well as a flexible career. The home is a 5 hour dirve or 40 minutes by plane.

I am still leaning toward not paying the principal on our primary home...No Baloon payment either...

We bought a home for 399K, when all homes were selling at 425-450K. I found the home before it was officially listed, and we made an offer for 399K. It was a divorce (distorted) sale.
So we put down 100K, and paid 2K down and now owe 297K which is pretty cheap, but another IO loan can help us utilize our money.
We have 190K equity now and will never touch it.
Either we will sell the AZ home in 20 years and pay this home down or vice versa.
We would get more bang for our buck in AZ, but, I kinda refuse to live there in the hot months...So, if we sold this home and grossed 500K tax free, alot would go into different types of cd's and a small amount would buy us a boat and small rv for travel.

Retirement planning is so bizarre when I am only 35!

I still have to figure this whole retirement thing out!

But, I know I am not owning more homes unless they are gifted to me, and I am now taking a closer look at the age I will retire. Maybe closer to 58...
As well as looking into getting a higher paying job, but I thought mine paid pretty good at $15.77 per hour...Hubby make 22.00 an hour and thinks I should make more money.
Living in CA is really expensive!! I do not recommend it!
Anyways, thanks for all the advice, and I will just try to live day to day for a while. All this planning is very tiresome!!!

**nwmissourigal** · 12-22-2006, 05:25 PM

I really don't have any advise, but I am always interested in what other people in different parts of the country pay for property. Housing has gotten so expensive, but I am glad we live here in the Midwest. We a downpayment, but only borrowed 35 grand on our house, barn, and 10 acres. I just can't believe how expensive some houses are. I have never had a rental house, but had friends that do and they are trying to unload them. They say they can't keep up with them...Blessings...Kathy

**chatterweb** · 12-23-2006, 12:49 AM

I really don't have any advise, but I am always interested in what other people in different parts of the country pay for property. Housing has gotten so expensive, but I am glad we live here in the Midwest. We a downpayment, but only borrowed 35 grand on our house, barn, and 10 acres. I just can't believe how expensive some houses are. I have never had a rental house, but had friends that do and they are trying to unload them. They say they can't keep up with them...Blessings...Kathy

The rental is both good and bad.
It is good because it is new and under warranty. It is a corner lot and has views. I like the location NOW, not sure in 20 years though...
It is bad because we live out of state and it does not cash flow yet. But, we may get close to 10K back in taxes this year since we sunk alot of money into the property as far as expenses and interest.
As far as us living in CA. I really hate the cost of living and the crowedness of it.. However, we get paid pretty well.
My thing is to keep lights off or low, no heater or a/c. We have a fireplace. Cars cost alot! New ones we pay DMV fees and older we have to pay smog fees!
Gas is alot too.
Still in limbo about where to retire, if I /we live that long LOL!