Should I sell my condo and invest the proceeds for my retirement?

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Q. I have my main house and also a condo that I rent. I just about broke the condo’s breakeven point, pocketing maybe $ 2,000 a year after mortgage and expenses, and it has risen in value. I’m trying to decide if I should sell it and invest the proceeds for retirement or if it’s good to keep the property as an investment. What should I consider?

– Owner

A. We are happy to hear that your property has increased in value.

There are a number of factors to consider when deciding whether to continue to own or sell your investment property.

First, it’s important to consider your sources of retirement income and your retirement living expenses, said Melissa Raimundo, Certified Financial Planner at Beacon Trust in Morristown.

She said it’s important to ask yourself whether you will generate income from a pension, Social Security, or elsewhere, or whether your retirement will be funded entirely by investment assets.

“If your investments are to fund your retirement, you need to make sure those investments are liquid and accessible when you need them,” she said.

Real estate is considered an illiquid asset. Therefore, if the investment property is your only investment asset or represents a significant percentage of your investment assets, then you may need to liquidate to fund your living expenses in retirement, Raimundo said.

“If property is only a portion of your investment assets, it will be important to determine the percentage of your total assets that includes real estate to ensure you are properly diversified,” she said. “We view direct investment in real estate like we view any other asset class within a large investment portfolio, and it is essential to ensure that you are diversified.”

Diversification is extremely important for overall risk management in any investment strategy, she said.

Additionally, you’ll want to know how much income is being generated from your total portfolio and whether that income will be enough to fund your expenses or whether you may need to dip into capital over time, she said. According to the general wisdom of financial planning, in order to preserve capital, expenses should not exceed 3% of total investment assets each year, she said.

Raimundo said that one of the advantages of having an investment property is that the income generated from rents can be offset by expenses and depreciation. This can generate a tax-advantaged source of income that is differentiated from the income and appreciation generated by a diversified portfolio of investable assets, she said.

While you may not be generating a significant positive cash flow, the rents paid throughout the year add to your equity in the investment property beyond any increases in property value that are possible over time, she said.

Other factors worth mentioning are the outstanding debt and the interest rate on your mortgage.

“The mortgage interest rate is the cost to you of the investment, but the mortgage interest rate can be included in the aforementioned expenses used to offset rental income,” he said. she declared. “Also, from a tax standpoint, you’ll want to think about the capital gains tax implications if you were to sell the house. “

A final non-financial but equally important factor to consider is your willingness to seek out tenants and manage tenant turnover until retirement, Raimundo said. Often there are costs and challenges associated with this process that retirees are not prepared to take on, she said.

Email your questions to [email protected].

Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Register for NJMoneyHelp.com‘s weekly electronic newsletter.

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