Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Thank you for reading. Have a good day.
Last edited by apigee.jiang on Sat Nov 21, 2020 5:26 pm, edited 4 times in total.
apigee.jiang wrote: ↑Fri Nov 20, 2020 10:43 pm Family of 3 living in a LCOL area
Age / Annual Income
Hubby: 56/100K (planning on to retire in 4 years)
Me: 45/ 97K they have to lay me off for me to leave my job
1 kid: 11
Real Estate Income: 53K+/-
Total of annual income: 240K+/-
Monthly expense including tax: 10K+/-
401Ks: 2 M (Hubby:1.3M and mine :700 K)
Total: 2.3 M
Real estate: 2 M
Primary mortgage: 240K - primary residence equity is zero.
Other Real Estate mortgages: 800K
Total Real Estate Mortgages:1040K
Total Net Equity: 960K +/-
Total Net worth : 3.3 M +/-
For those readers are part time real estate investors: How Much Debt Is Too Much?
Can we afford a 750K house? If yes, should we? LCOL area median housing price is 250K.
I would separate out the your primary mortgage from your investment mortgages. Your primary residence has utility value unless you decide to sell. You either rent or have a mortgage instead (until repaid).
Moving on to your investment debt (different from a home loan as someone else pays it down) you have 800K debt to 1760k gross equity. That is 45% (loan to value) You have a real estate income of 53K (I assume that is a net number), which is a 5.5% return on net Equity and a 3 % return on gross equity. These are OK numbers in my experience.
If you have low void periods (periods of no occupancy) then you are in good shape. There is no magic ceiling / threshold to debt on investment real estate, if you have low void periods & the debts are covered, you are in good shape. You need an emergency fund to cover void periods / repairs. A debt to equity below 50% is considered safe... You also need to be able to SWAN though & only you can answer that qu!
You have 150K Cash and a 240k home loan with zero equity. That is 390K. If you want to buy a new home costing 750, then you need an additional 360K debt (assuming you use the 150K cash as a part payment). That means you would have a 600K mortgage, unless you sell some equities / real estate to lower the borrowing necessary. If your husband is planning to retire in 4 years, it is not clear what his withdrawal rate would be (and whether the RE income would be part of his income), however, without his 100K income post retirement it would be hard to service a 600K loan on your 97K salary (with 10K per month expenses). Therefore you probably need to look at a lower home loan, maybe by selling an investment property.
To answer your qu - it depends on your husbands withdrawal rate in retirement & whether the real estate income is needed for his / your retirement. All things being equal I would not recommend taking on 390k additional debt so close to your husbands retirement. If you can afford to lower the debt necessary by selling equity or an investment property (whilst preserving your withdrawal rate / retirement funding needs), you may make it work. Personally I am debt free and I sleep very well because of it!
Thank you so much for your detailed reply! I think I will focus on increasing the income.