Debt Free 4 Ever seems to agree to get rid of the rental properties. I don’t agree.
I’d keep the rental properties. The key will be to getting tenants so that they don’t sit empty. That will make a huge difference right there. With them being empty, they are probably losing thousands per month. The mortgage payments keep coming in, but they have nothing to balance it off. I wouldn’t spend time on the $3 unlisted phone number until that taken care of.
Why wouldn’t I sell the properties? In this market it can take some time to sell and even then it will be probably be at a loss. If they can get tenants and tread water (make nearly as much as the mortgage) with that investment for long enough, it will likely pay off.
I’m ashamed at the advisor suggesting treasury bills will do better than real estate. It depends on a lot of factors that we don’t have such as the mortgage interest rate the family is paying. However, it seems that the advisor doesn’t factor leverage into the equation. If they have 20% on two $250,000 properties, that’s $100K invested. If those $500,000 worth of properties grows at 3% that’s $15,000 a year – a 15% return on the original investment. On the other hand, if the
family puts their money into treasuries, that $100,000 may grow at 5-6% (I’m trying to be generous) – yielding $6,000 a year.
I realize that the rental marketing is softening in some areas. Even if that’s the case, is it softening so much that the $1000 a month doesn’t make up for it? It’s worth noting that the 3% is on the conservative side. Long term, I think real estate generally appreciates at 5-6% (I wish I could find the source where I read that, but it doesn’t seem outrageous to me). Granted we’ve had a run up, so for the next few years, maybe 3% is right. However, why not take a long term view of things?
It seems like sometimes the advisers like to throw the baby out with the bath water.