After our only son left for college, our marriage was quickly becoming dullsville. When "What's for dinner, honey?" and "What's on TV tonight?" became the highlights of our evening conversation, I knew I had to come up with a plan. When my 85-year old father died unexpectedly, a small inheritance presented the bittersweet and unlikely solution.
Instead of just adding the money to our investment portfolio, my husband asked, "Why don't we look at buying some real estate?" Bingo! "What a great idea!" I said.
Step one: Consult an expert
We set up an appointment with the realtor who sold us our Miami home 20 years ago; we had gotten to know her well and kept in touch. This was about a year before the real estate bubble burst, and prices in our town were sky-high. Our realtor discouraged us against investing there but suggested that we look at other locations with greater appreciation potential - perhaps somewhere we might consider for retirement.
At ages 56 and 60, respectively, my husband and I were still both working full time in demanding jobs and hadn't given much thought to retirement locations. Deciding on what kind of property we might want to buy involved so many decisions: Where should we buy? How much should we spend? Do we want to rent out the property now and live there later? Will it appreciate more than the investments in our stock portfolio? What if we make a mistake? Suddenly, we had many things to discuss and consider over dinner.
Step two: Use the Internet
We sat side-by-side at the computer as we embarked on our project. First, we searched for good retirement locations at www.findyourspot.com, a site that lets you enter your retirement lifestyle goals and then suggests locations that match your criteria. We narrowed the list down to five locations.
Then, we looked at www.realtor.com to get an idea of home prices in the five target cities to see if our venture would be feasible. We also looked at www.rent.com to determine the general home rental rates in each city. Then, we searched for "mortgage rate calculators" to estimate our monthly payments vs. the rental rates. In this manner, we arrived at the down payment we would need to "break even." We deposited this amount in a money market account that we opened with our investment company so we could keep the funds liquid and make a little interest while we were searching.
Our target locations included the Carolinas, Georgia, and north Florida; we were soon overwhelmed by the range of possibilities, but we sure had a lot to talk about every day, as we exchanged opinions and concerns and discussed next steps.
Step three: Take the plunge
On a visit to our son at the University of Central Florida in Orlando, we realized that we really liked the surrounding area - and that having a home there would be a good reason to visit more often. We called our trusted realtor, who quickly set us up with an Orlando realtor, and off we went to look at houses. On our third trip to Orlando, we finally found the perfect house. Before making a final decision we consulted with a local property management company to estimate this home's rental potential, and we liked what we heard. Then, we went through the nail-biting process: home inspection, financing terms and approval, appraisal, and the closing; we held our breath at each step, hoping there would be no surprises. Except for some unexpected closing costs on the financing (lesson learned), it was smooth sailing. We were able to rent the home shortly after the purchase, and although the mortgage payment is a little higher than the rental income, the tax advantages are great, and the home has appreciated $30,000 in one year. We did it!
Step four: Broaden your horizons
How hooked are we on this new interest? We actually traveled to the Carolinas to see lots of those places that looked interesting on the Internet. Although we have not bought anything there yet, it was a great scouting vacation. I have gotten a real estate license and am embarking on a career change; my husband plans to follow soon, and our goal is to have our own business. What better way to find the real estate jewels out there? Plus, we can ease into retirement and work independently without worrying about age discrimination. This form of investing has not only reinvigorated our marriage and deepened our pockets; it has opened a whole new horizon for our future together.
You can do it!
Real estate investing can be a great shared activity, but it's also a business venture. If you want to try it out, use money that you can afford to "play" with, not funds that you might need to cover expenses in the near future. As the housing market is slowing down, and interest rates remain low, now is the perfect time to consider real estate as a viable investment. If you are one of those lucky people who have "handyman" talents, a fixer- upper can give you significant gains. Here are more pointers.
- Make it fun. Whether you do it with your partner or as a solo act, this can be a great endeavor to make a fantasy into a reality. However, be aware that this is a balancing act between emotional and financial decision-making. Focus on what's in it for you. The dream is what makes it fun, whether you hope to escape from cold winters in the future, finally own that oft-coveted house in the country, or secure a carefree financial future.
- Consider many markets. Even if you do not plan to relocate in your retirement, use the Internet to look at locations with positive economic trending for relocation and real estate appreciation potential. Various publications issue annual "best places to live" and "best places to retire" lists that include profiles of the locations -- which typically experience substantial growth after appearing on a list. We especially like the lists published annually by Money Magazine, available at www.money.com. Click on the "LISTS" button for "Best Places to Live" and "Best Places to Retire."
- Work with realty experts. If you don't already have one, find a good realtor who works for a nationwide company. He or she can refer you to other realtors within the company's network. Then, make scouting trips to see homes with that local realtor. Lots of houses look great on a Web site, but the neighbor's yard may be a junk heap or a jungle. Remember: As a buyer, you won't have to pay real estate commissions.
- Find the best rental potential. Once you pick a city or town, a local realtor or property management company can help you determine what sections have the best rental potential. Properties near universities, corporate parks, and hospitals will attract faculty members, interns, or relocating executives who need immediate -- and often short term -- housing.
- Consult a financial planner. Make sure that a real estate investment is right for you and that it will expand your portfolio without creating a short-term or long-term financial burden.
- Consult with your tax advisor. Investment property gives you some tax advantages, allowing tax deductions, against income, for financing expenses (interest and related closing costs), operating expenses and depreciation. Caution: When you sell an income-producing property, you must pay capital gains taxes for that year on your profits.
- Do your homework. Before you actually buy, read as much as you can about real estate investing. If you have the time, attend a real estate course, even if you don't want a license. As I realized after taking a course, we made some expensive mistakes our first time around. Now, I've learned ways to save money on financing and closing costs that I'll apply to our next investment.
