Originally published April 11, 2011, but it’s a good one so here it is again.
I went to a Linked-in event today. Naturally, I was sitting next to someone I’d never met. At the end of the talk, I turned to her and struck up a conversation. She’s hoping to move here soon because most of her family is here in Greensboro but first she needs to sell her home in South Carolina and find a job. Then, she asked me what I do.
I love that part. I’m passionate about what I do. There aren’t many professions where you can help so many people with something as important as the security of a home or peace of mind for retirement.
So, the finding her a job part, I couldn’t help. Finding somewhere for her to live, not so sure. Selling her home in South Carolina, forget about it. But, I always believe there’s something I can do for people so I kept probing.
We began talking about the difficulties of selling in this market and I mentioned that she may want to rent out her house for a while. She wasn’t too excited. Finally, I found the right question: how old is your mortgage? “13 years”, she replied, “I’m 13 years into a 15 year mortgage.” I almost jumped over the table.
YOU CANNOT SELL THAT HOUSE! Poor woman. No doubt she wanted to be rescued from the crazy lady. But, seriously??? Imagine what a free-and-clear property could do for your retirement, not to mention your current income!
Here’s what I learned. She’s listed the property for $170,000 and it’s 2400 sq.ft. I didn’t ask how much her monthly payments are but I did ask what she can rent it for. She had no idea. Ugh. I told her, without knowing the area, she can probably get $1400 per month. Now, just a guess on my part but, if her mortgage is 13 years old, she’s probably only paying about $500 per month. That would mean, with a tenant, an immediate cash flow to her of $900 per month, probably enough to cover her rent payment if she moved today. She said the only calls she’s received have been from people wanting to rent. Please read my article Rent Prices are on the Rise. We are entering Landlord Heaven.
So, that’s $900 per month cash flow to her now. Plus, she’ll get a deposit which will pay for her move. Plus, in 24 months, the property will be free-and-clear and her cash flow will jump to $1400 per month (or whatever she can rent it for – possibly more). AND, by the time she’s ready to retire, she could be getting $2400 per month cash flow and the property should be worth closer to $340,000. HOW IS SHE EVER GOING TO SAVE THAT MUCH MONEY FROM A W-2 JOB???
And, there are HUGE tax benefits when she has an investment property. Depreciation, maintenance, travel to check on it, on and on. This is a gushing oil well and all she understands, at this time, is the retail real estate market where she will: sell below value in a depressed market, pay real estate commission and closing costs, pay all the repairs found through inspection (it costs about 20% of your selling price to sell a home) and then have to pay fees again when she buys.
Please, please, please don’t sell this property.
I hope I got to her in time. My blood pressure is still up about this one.
I just made this woman $250,000 in a 15 minute conversation… I hope she heard me.