Dear MarketWatch,
My wife and I are 60 and 57 years old respectively. We own several properties, all without mortgages.
We have $4 million in real estate equity. Our savings include stocks, CDs, and $3.2 million in cash. Our net worth is about $7 million. I have a small business that will run indefinitely and hopefully bring in about $150,000 annually for the next 10 years. We have no debt.
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How do we structure our equity so that it gives us the best return while protecting us from inflation?
Property investing is great, but we also have to manage the rents – and there’s a lot of maintenance work. Should we sell properties and invest the money elsewhere? Or hold on to them because of inflation?
What would you suggest as a long-term strategy? I plan to work until I’m 70 because I want to. I have enough time for trips and leisure activities and I’m healthy and fit. For me, retirement doesn’t mean sitting still somewhere.
Real estate dilemma
Related: I’m 57 and single. I have $630,000 saved for retirement. Should I pay off my 3.75% mortgage before I retire?
Dear real estate agents,
With a net worth as large as yours and so many moving parts – real estate, investable assets, a profitable business, etc. – you may want to consider a financial planner to help you evaluate your options.
Before I get into that, I just want to note that you’re asking the right questions. Real estate is often touted as a good, inflation-protected investment, and it might make sense for you to keep some in your portfolio if you’re able and interested in maintaining it.
There are many reasons to hesitate to make the decision, including what you mentioned earlier: maintaining the property and keeping it rented, and all the other costs that may arise over time, such as a new roof or heating system or something else you just didn’t anticipate.
I can’t tell you for sure whether you should keep the properties or sell them, as your overall financial planning needs to take many other aspects into account to reach that decision – including your risk tolerance and your willingness to manage properties during your retirement. However, since your properties are not mortgaged, you don’t need to make a hasty decision.
Residential real estate is certainly not the ultimate answer to inflation and market protection. It has proven successful in most bear markets since the 1950s, but it has not protected investors in the 2022 bear market and has not outperformed in the bull market since then, according to MarketWatch columnist Mark Hulbert.
In his column, he cited an ETF that most closely tracked the residential real estate market. “That doesn’t mean you shouldn’t invest in residential real estate,” he wrote. “But it does mean that your performance can, and probably will, differ dramatically from that of the asset class itself due to the myriad idiosyncratic factors that affect the price of a particular property.”
Good complications
In your particular case, I think it would be worth consulting a financial planner. Advisors may not be for everyone, but if you have such complicated finances (even if they are not bad complications), a qualified and trusted professional with experience in these areas can not only help you manage your wealth, but potentially even earn more.
They may have ideas about how to keep those properties, manage them, and mitigate losses from rent defaults or maintenance issues. They could also help you with taxes and eventual exit planning for your business. And as for your retirement, they can help you structure an income strategy that balances the liquid with the illiquid, along with risk and preservation and all the other aspects of your life in between.
Many business owners tend to think they need separate advisors for their personal life and their business, but that’s not necessarily the case, says Paul Brahim, a certified financial planner with Wealth Enhancement Group and president-elect of the Financial Planning Association. “They’re 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, like how to handle certain investment fees or liability management.
Of course, you don’t have to use an advisor, but with such sizable assets and portfolio, it can’t hurt to at least look into 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, whether there are any conflicts 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 the field (and what they’ve learned from those experiences), and who else they and you would work with to manage your affairs.
You can search for advisors online through search engines like the Financial Planning Association and NAPFA. But you can also check industry organizations that fit your business and interests, as well as a network you may already have. This includes not just family and friends, but also accountants and lawyers you know through your job. And even if you get top-notch recommendations from people you trust, always vet the professional yourself—you want to be sure you’re not making a mistake when hiring someone to help you manage your money.
Finally, one final thought. You said that retirement isn’t about just sitting around, but having a qualified and trusted planner can help you do that. While you can still manage your own affairs, having someone to talk to about ideas or ask financial questions about your various ventures, including your real estate and business, will give you more time to manage things the way you want them – including your life.
Ultimately, the decision is yours as to when to take your proverbial chips off the table.