Ken is sending his financial situation into the GRS ether to see what you have to say. Here's a snapshot of his finances:
I thoroughly enjoyed reading your article “What Next” and the “Ask the Readers: What is the Next Step?” because that is my situation. I have been struggling for the past year to figure out where to focus my attention.
- I am married with no children. My wife and I are 43 and 40 (respectively).
- We own a home (a duplex, with my mother-in-law in one side and us on the other). We have $188,000 with 25 years on a 30-year mortgage. My current estimate is the house is worth about $205,000.
- We own a second duplex. This was our first home bought about eight years ago. We tried to rent it out at first, but we had too many renter issues and gave up being landlords (currently have a relative living on one side who pays $300 rent and takes care of the property and utilities). We owe $142,000 on this property, and current market value is around $100,000. (There have been several units similar to ours sold at $95,000 to $100,000 in the past few years, dramatically bringing the market down. We have been making double payments trying to get the principal down to sell it.)
- We currently have about $50,000 in the bank, which is about six month' worth of expenses.
- We have three cars (one of which my mother-in-law drives) — all three are paid off.
- I have a student loan with a balance of $7,000 at a 2.5 percent rate.
- I max out my 401(k), but my wife's employer does not offer a 401(k) (and we make too much to do tax-free IRA contribution for her or to do a Roth IRA).
- I have recently converted a term life insurance policy to a universal life policy with a paid-in-advance (PIA) rider (so I am paying $500/month premium) and was looking to do the same with my wife.
I have thought about doing a few things financially, but have been a little stuck with what to do.
- Pay off student loan. This is an obvious one. We just finished paying off my wife's 2010 car, which had a higher interest rate (so I will likely do this soon)
- I have also thought about Treasury bond laddering; EE bonds double every 20 years. Since we can't contribute to a 401(k) for my wife, we could buy $15,000 worth of EE bonds each year. In 20 years she will be 63, we could cash in and use $15,000 for living and reinvest the other $15,000, until a time when we will need the whole $30,000 income.
- Set up a universal life policy with PIA rider for her and over pay the premium (this is from the “bank on yourself” method — but we would target to not touch until retirement, then use the money as tax-free income).
- Put more money toward the second house to get rid of it sooner.
Ken has four suggested courses of action for his “next step.” Which path do you think he should take, or do you suggest an alternate route?
Author: Ellen Cannon
Ellen Cannon was the editorial director of the financial services sites at QuinStreet from 2010-2015. She has covered personal finance for magazines and websites for more than 20 years, including five years as managing editor of Bankrate.com. She lives in South Florida with her kitty and sunshine.
Instead of Series EE bonds, you may want to look at some in-state municipal bonds. They would likely have a better yield and be double tax exempt which would allow your money to grow much more quickly.
I suggest that whatever you do, do not buy Universal Life Insurance. Cash Value policies do not typically return that much. You are better off investing your money into the stock market.
If it is your concern about your Life and you want it insured, then go with term insurance. Term Life Insurance offers the highest amount of coverage for the cheapest price. It does not offer a cash value, but that is okay because you can handle the money better than the insurance company by investing it or putting money towards the house or loans that you listed.
First of all, I would have liked a little analysis/opinion from Ellen. You’re the financial professional writer. Also this lacks a lot of details for strangers like us to make decisions for him.
But anyway, on to the writer…
You have $8000 a month in expenses! Is that including your 401k/other savings? My thoughts:
1. Goodbye student loan – you should pay that in one fell swoop. If you don’t qualify for the Roth, you may not qualify for the interest deduction here either, and at a relatively low balance and interest rate, it probably doesn’t amount to much anyway.
2. I don’t know much about life insurance, but I’ve always been particularly leery of it. Spending $1000 a month on life insurance for you and your wife seems excessive to me, but there’s not enough information given. How much is the life insurance for? How much income does it replace? Is your mother-in-law a dependent? Or just a neighbor?
3. I don’t see much purpose in owning two properties if one isn’t making you money, and you’ve lost your desire to landlord. Have you considered a property management company to alleviate some of the landlording headaches? Surely you could increase your rental income this way. I would consider that or selling the second duplex.
Ellen–
Maybe you could hire someone with expertise just to do the Friday questions from readers? (My dream would be for Donna Freedman to come back, given that one of her sticking points was coming up with ideas, but alas, probably a pipe dream.)
Donna has a full plate at MSN.com, I believe, since she’s now taken over their Smart Spending blog. We always try to come up with thought-provoking Ask the Readers topics, and will keep trying!
Sure, though Donna did say one of the major burn-out problems was not writing the posts, but coming up with topics. Writing answers to questions is a lot easier than coming up with new posts from scratch.
But it doesn’t have to be Donna. Holly knows her stuff.
Hm, this is a bit depressing… as I think through the current regular GRS staff, only Holly and Robert Brokamp come to mind as people who know a lot about personal finance. Oh, and April, now that she’s back. It’s great that some of the writers are learning about personal finance, but having people who already know what they’re talking about seems kind of important too.
The segment is called “Ask the Readers,” not “Ask Ellen.”
Ditch the life insurance – if anything, get a “normal” term policy. Look for a RE management company to manage your rental. Pay the rental down and keep it (if you are making money through the management company) or sell it (if you are just tired of it).
GRS isn’t what it used to be guys. Your editorial drift has been obvious since JD left.
The pieces are shorter, fluffier and much less of the in depth, personal, and important topics they used to be. Many of the posts just aren’t compelling.
It’s a shame. You’ve lost this reader. I’ve checked in periodically over the last few months and am not seeing much I’m interested in any more.
Hope you all pull it together.
Most sites don’t make much money from their regular readers – it’s usually the search engine traffic visitors that pay the bills.
So the new owners of GRS are probably not too concerned about losing a few regular readers.
I actually think it’s a good thing that people who are not content with this blog choose to leave. Hopefully they will find what they’re looking for somewhere else. During the last 3 years or so, even when JD was here, there were all kinds of complaints about what was written, how it was written and what should have never been written, mostly by people who never wrote an article themselves. I’ve never understood why it’s so hard to accept that people grow and things change.
Use a back door Roth IRA for your wife, since you seem to be interested in saving for her retirement.
You absolutely can do a Roth IRA – get a conventional (non-deductible) one and convert it. I’m not saying a Roth is better than the EE bonds, I just want you to have complete info before you choose one route over another.
I know you don’t want to hear this, but I think you should reconsider renting out the property. Have you considered hiring a property manager to deal with all the headaches? Any income from the property is better than no income.
If you don’t want to do that, I would sell the property now even if I had to dig into the emergency fund. I consider the negative cash flow from the property an emergency.
Two things come to mind. First is to do something about that second duplex as it sounds like you are simply throwing money down the drain as at a lost cause. The property management idea suggested above might be the way to go.
The second is get some retirement money in your wife’s name. It sounds like those savings are all very heavily skewed towards you, but she needs security as well.
I think there’s not enough information here to give an opinion. Some questions I have:
– Are you planning on adding children to your family?
-How much is helping out your family optional to you and your wife? Right now you’ve got two relatives on the payroll.
-How much do you already have saved? How much do you project you’ll need in retirement?
-Is there a particular reason you need to spend so much in life insurance?
-Did the $50k in the bank come through savings or some sort of windfall?
As other commenters have noted, you can absolutely contribute to a Roth IRA, but it will be more complicated if you have any Traditional IRAs. You can read a little more about it here: http://www.bogleheads.org/wiki/Backdoor_Roth_IRA.
It sounds like you’re trying to be proactive about investing for your future, which is a good thing. But I think you need to come up with an overall plan before you commit to bits and pieces like universal life insurance and EE bonds. Start learning about asset allocation and make a plan for yourself, then implement the individual pieces. You can read about asset allocation here: http://www.bogleheads.org/wiki/Asset_Allocation.
As far as specific steps, I would probably recommend putting your money in regular taxable investment accounts before a universal life insurance policy. I’m guessing that you’re looking for tax deferral, but life insurance policies typically have huge fees and if you use efficient mutual funds or ETFs you’re going to be better off with taxable investments in most cases.
If you really want some help, considering working with an hourly financial planner who will spend the time to help you make a plan. You probably don’t need someone managing your assets, but it could be helpful just to get some professional advice. You can find hourly financial planners at http://garrettplanningnetwork.com.
Not sure why you want the universal life. I’m not a fan of combination products ie retirement savings/insurance product because they usually have higher fees.
Stick with term insurance and do the investing in a brokerage account.
I don’t really like any of your proposed next steps.
– You state that $50,000 is equivalent to 6 months of living expenses? That implies that your living expenses are $100K per year? Please tell me there is a typo in there somewhere. If not, this needs to be fixed first.
– You have a duplex that is basically a financial hemorrhage. Hire a property manager, throw out your virtually freeloading relative, and get some cash flow.
– Are you pulling in any money from the first duplex unit that you rent to your mother in law?
– Your student loan has a 2.5% interest rate according to you. It is the least of your worries.
– With the “bank on yourself” method, you are paying an insurance company to invest your money and then give you a cut at some point in the far future. Just buy some stocks. If the market scares you just buy an S&P500 index fund.
– Regarding the treasury bonds. Why would you buy an investment that (if I’m reading this right) takes 20 years to double in value?
Agree with the folks above. It sounds like you’ve been talking with someone whose interest is in ripping you off.
1. 100K/year is a lot of spending– I assume some of that is going towards your properties?
2. You need to unload that rental property long before paying off the student loans. Assuming you’re not willing to foreclose or short-sell, direct extra payments to that so you can unload it. (Or, if the numbers work out, hire a property management company. I suspect they may not work out.)
3. Universal Life coverage is a HUGE rip-off. Convert back to term and under no circumstances should you convert your wife’s policy! If a financial adviser recommended that move, you need to fire that financial adviser. You’ve already made enough money for the salesperson, no need to give them any more.
4. Why are you paying for your mother-in-law’s car?
5. Treasury bonds are also a pretty ridiculous thing to be considering in your situation. That’s only a little better than putting your money in a mattress. (You’ll retain the money value but you won’t earn anything.)
6. YES to what everyone is saying about IRAs. The nice folks at Vanguard can help you get set up and they have very low fees. Ask them about target-date funds.
Not enough information.
Do you have other retirement savings?
You pay two full mortgages at what rate? Does your $50,000 safety net include those?
I know of no one who uses whole life as a savings vehicle.
If you make enough to not contribute to an Ira – you are making a good amount. That is not surprising for your ages. Where is your money going? Have you done a budget?
You are financing about $350,000 in housing? What is that doing for you? Do you feel that your real estate is in an area that will turn around? As an investment you either need to get used to land lording or move to purchasing in an area (good schools, upwardly mobile people) that will appreciate in the time you are owning.
Oh Ken where to begin.
1. Get a good term life insurance policy for you and your wife. Once thats complete ditch your whole life policy.
2. Now with that freed up money (~$900 month) open up two traditional IRA’s (one for you, one for your wife) and open two roth IRA’s. Put $900 (split) in the traditional IRA’s each month. In novemember d0 a recharacterization on the traditionals transfering them to the Roth’s (backdoor roth). Invest in good growth stock mutual funds in the roth’s only.
3. Take $7000 and pay off the stinking student loan!
4. Rent that duplex! Read as much as you can about picking good tenants. It may be hard but its worth it.
$7000 student loan @ 2.5% is about $15 in interest a month. Not a big deal.
I always thought that if you can invest and make more than your current student loan interest, then do that, and pay off more slowly. If you are paying more in interest than you can feasibly make (say 6 or 7%) then pay them off as soon as possible.
Holy crap…are you me? We are in almost exactly the same situation, except our we are carrying less debt and are in a stable financial market.
But same thing…supporting my mother in a second house, paying all her bills except food/groceries/incidental fun stuff; gave her our paid off car and bought a second car for ourselves; carrying two mortgages, etc.
However, we busted our asses paying off a home equity loan and the car loan in 3 years, so now we have no debt except the mortgages.
We also have about 6-9 month emergency fund and are maxing a 401k.
In your situation, I would NOT prioritize that student loan. Do something about the cash sink second property ASAP. Sell it at a loss, or get some renters back in. Trust me when I say that I would be an unhappy landlord, but we would definitely move my mom back into our house and rent that second house if we got into a cash flow emergency.
I am extremely leery of whole/universal life insurance. Why did you go with that? It’s almost never a better idea than term insurance, unless you are carrying one of those super-rare policies from back in the 80s, where you could pay a big premium up front for a guaranteed rate of return…but this sounds like a more typical policy.
When you have resolved the black hole that is the second property, then I’d look at your priorities again. If your mortgage rate is below 5%, and the real estate market is flat or falling, then I would personally first invest for your wife’s retirement, and second pay off the student loan (the interest rate is low, but you could pay it off relatively fast and free up cash for other stuff).
I’m with the IRA recharacterization/backdoor Roth folks. It’s a small piece of the pie, but considering how much you are putting into the insurance account just to get at tax free income later, it’s probably worth siphoning money to max out the Roth.
Well, I guess this is where my Dave Ramsey knowledge can be put to the test. Right now, I am trying to follow what he suggests for my own finances and it has worked out good so far. I have a long way to go…but after listening to his radio show daily for the past 6 months, I have a feeling this is what he would say if you called him:
1) Immediately pay off the student loan from the emergency fund….there is no need to make payments if you can afford to pay it off.
2) Assuming that is your only debt besides the two homes, then build up your emergency fund again until it is fully funded for 3-6 months.
3) Cut back or stop retirement temporarily until you can throw as much money at the 2nd house as possible to be able to sell it. Once it is sold, then you can go back to maxing out retirement.
4)DEFINITELY switch back to a term insurance policy.
Since you make too much money for the IRA, it sounds like your income is over 6 figures, you should be able to make more progress than you are on the 2nd house if you are budgeting properly every month.
I guess this is why I have my doubts about Dave Ramsey… the ONLY step of these I agree with is #4.
Maybe his advice is appropriate for people in an earlier stage of personal finance, but here I don’t think it’s helpful at all. Just my opinion, I guess.
Ely,
Regarding #1, why on earth would you keep paying interest on a $7,000 loan when you have $50,000 in the bank? I can’t think of a single good reason to not pay it off today.
I wouldn’t say don’t do it, I just don’t think it’s that important. Tiny student loan interest on a tiny loan pales in comparison to the other disasters this couple is facing. That $50k might make a bigger difference somewhere else.
My impression of Ramsey is exactly that…great for people who are just starting out (and I think his debt snowball concept works wonderfully for most people). However, I think that people need to be a lot more careful of his advice after the first couple of ‘steps’.
The Universal Life sounds like a bad idea. I prefer term life and have never heard an argument strong enough to persuade me otherwise.
I am not a huge fan of Series EE bonds. The rate of return isn’t great. Why not just use a regular brokerage account and invest in mutual funds? That’s probably what I would do. I’m pretty sure you can still use an IRA. I believe someone else posted a link explaining how to do the Roth conversion if you’re over the income limit.
Regarding the property, since you appear to be stuck with it, I would focus on renting it out. A property management company could help if you don’t want to deal with tenants. I understand you’ve had some bad experiences, but there are plenty of decent people who are renters, so if you ask for references and do your homework, you should be able to make it work–or just get a property management company to handle it.
Once you get those things under control, pay off the student loan. The interest isn’t high, but at this stage of your life, I would pay it off and refocus on saving for retirement–through your 401(k), an IRA, taxable investment accounts, whatever you need to reach your goal. Good luck!
Just a note on Back Door Roth,
depending on the amount you may have in a traditional IRA already, you can seriously get taxed almost on the full amount of your contribution when you convert. If say you have 95k in reg ira say from a 401k rollover and you have 5k that you did a non-ded ira so you could convert to roth. The taxable portion of the back door is based on all you total iras amount, so you would have to pay taxes on 95% of the back door if I understand the rules correctly.
After reading some of the other comments, I think you should make a decision on the extra property.
Either sell it and use your emergency cash to fund the difference or rent it out properly.
Pick one or other and move on.
It sounds like your primary job generates enough income that renting the second duplex is not worth the effort so sell it and pay off the difference. Your family member is covering the cost of interset but overall it continues to be a distraction with no tangible economic benefit. Hire a great real estate agent and work with them to maximize marketability and sell.
You’ve essentially already decided to pay the student loan soon. In the scope of your finances both the amount and interest are negligible, but again, your time and focus are assets so eliminate this distraction also.
I’ll reiterate what has already been said – ditch the Universal Life coverage. Have you considered an annuity instead? I would also look in to laddered muni-bonds.
If you don’t qualify for a ROTH IRA, why are you not looking at a traditional IRA? Also it wouldn’t hurt to put money into a regular investment account…use low cost mutual funds (Vanguard has some good ones).
You are wasting your money on Universal Life Insurance, stick with a level term policy. Seriously.
Does the $300/mo you are charging your relative for rent on the other duplex even begin to cover your mortgage payment? What is the going rate on rents in the area? Rent that puppy out for the going rate even if you need to look into having a company manage the rental for you (well, only if that makes sense financially)
1. Sell you 2010 car because it’s going down in value like a rock.
2. Short sell your underwater first home. Don’t fall love with the anchor.
3. Pay off your student loan today.
4. Cancel your whole life insurance policy and go back to term immediatey at any cost.
5. Buy disability insurance.
6. Congratulations on having an emergency fund
Your wife can likely do a non-deductible IRA and then convert it to a Roth IRA. I would do that before bonds.
And I don’t understand why you would let a duplex sit around unoccupied but I didn’t read the article as to why you gave up being a landlord. Even if you have to rent it out for undermarket to get good tenants you are way better off than letting it sit idle.
Sounds like you’re not in a bad place financially which is a blessing. Recommend:
1. Hiring a property management company to find tenants that will pay much more than $300/month, provide a deposit, and ensure you receive your check each month. This is a great option if you are thin on time, and since you seem to be above the Roth IRA limits for ordinary income it is likely you and your wife’s professional duties are demanding.
2. Have your family move out of your rental unit. Doing business with family can end poorly…I have experience in this area with rental housing.
3. Use the increase in rent to pay off your rental housing note or student loan…either way you should be able to increase your cash flow on the rental unit.
Good luck with the next season in your life!
Great job! Consider evaluating your options based on the return you’ll get on your cash flow. After you pay all your bills, how much cash do you have left? Don’t include the doubling up of payments on the duplex. I call this your positive cash flow. What’s the interest rate that you are paying on each of your mortgages? For you duplex, what’s the market rental rate in your area? You may be too deeply discounting the value of having a family member be your eyes and ears. Have you considered using a property manager? If you did, how did you go about selecting that particular property manager? In many parts of the country, real estate prices have begun to surge. Similarly, rental markets are strong too.
Wow, so hard to know where to begin. First, WHY did you “convert” a term life insurance policy? I smell a rat here. Universal Life Insurance earns much higher commissions for the seller, but not necessarily more of anything cost effective for the buyer.
Next, renting to a relative for less than market value has negative tax consequences. The IRS will come looking for you on this one. Get a management company and get that sucker rented asap. Paying down the mortgage so you can sell it is unbelievably boneheaded in your circumstances. The market is improving. Save your cash and let the market and a property manager do the work for you for a couple of years.
The Roth issue has been covered by others, but why are you so afraid of equities? The key to successful investing is a diversified portfolio. Lots of eggs in lots of baskets. The EE bonds are to put it bluntly, stupid.
Finally, at 2.5%, the student loan is the least of your worries. You will lose a lot more by giving away rent and buying expensive life insurance than you will if you wait until the very last day to pay off the student loan.
Sorry, if I sound a tiny bit harsh, but I hang out at Mr. Money Mustache these days, where the editorial quality just gets better and better. Whining is discouraged and calling a spade a spade the order of the day. Hang out there a while and you’ll have the correct answers to these questions and so much more. Best of luck to you.
Do these negative tax consequences still apply if the family member is performing a service? It seems to me they get cheap rent in return for labor of looking after the property. A lot of people seem to be missing that; this relative isn’t just a freeloader. Necessarily.
Dunno, that’s why I gladly pay for the services of an experienced CPA.
Otherwise, a good place to start would be irs.gov.
If the relative is performing “services” such as mowing the lawn or shoveling snow, I doubt that would pass the IRS smell test.
Here is what I would do if I was in your situation.
1. Pay off student loan ASAP.
2. Cash out your life insurance and buy term for less than $100 a month for both your wife and you.
3. Don’t do the treasury bond idea. Doubling every 20 years averages out to less than 4% a year, which is terrible compared to the stock market. Also, there isn’t a ton of risk in the stock market if you’re in it for 20 years.
4. Put all extra money towards that 2nd house (maybe even use $25k from emergency fund) and sell that thing as soon as you owe less than it’s worth.
Those steps should put you in a good spot in a pretty quick amount of time.
The reality is…if you don’t partake in compounding interest on your own behalf, you end up paying it to others. If you continue to be a debtor, you will never receive any credits. Before you leap, tread. Your 4 options are all wrong (sorry), as others have already pointed out. I wish you the best of luck–it is obvious that your dedication to family is a measuring stick of your human depth and good character. But, it’s time to put yourself first and mend this, for you.
how can anyone ask for general financial advice but not mention their expenses and income? Location is also helpful.
but based on the “too much income for tax-free IRA” comment, it seems like you and your wife make a combined 173,000/year or more? Or maybe I misread that.
With an income like that, and low housing expenses, you should be able to put a lot of money toward debt reduction and/or savings each month. If not, cut your expenses! If you aren’t tracking them now, I’d start tracking.
Kudos for housing your mother in law. Are you otherwise supporting her? I’m sure that increases expenses but is the right thing to do, good job.
Something that I’d like to point out is that there may not be too much point having more than $2.25 million in tax advantaged retirement as the politicians are now talking about taking it. It’s sounds like you’re high income. I suspect if you continue to max out your own 401k, you will be somewhere between 2 and 3 million on your own. It may well be best to put other retirement savings in non-tax advantaged brokerage accounts.
It could be all up for grabs it doesn’t matter where you put it legally that is, because if the sh$t hits the fan, they’ll take it. Just like in Cyprus.
I would suggest in a more Mr Money Mustache vain to do.
1.Hire a property manager and rent out both units of your duplex.(ask family member to vacate or pay market rent) Stop making double payments on the mortgage. Instead bank the extra payment and pay off your student loan debt and just replace those funds.
2.Sell one of your 3 cars and work it out between the three of you on who needs a car for what. If your motherinlaw is retired it should be no problem. If it is her car and she paid for it then you only have 2 cars.
3.Reduce your spending by 25-50 per cent by looking at all of your expenses and cut them down.
4. Buy a BIKE. Buy a BIKE .
5.Read jlcollinsnh blog on how to invest your money with vanguard. %50 VTSAX %25 in Vanguard REIT index %25 in Vanguard Bond fund.
It will give you protection in deflation or inflation and give you some growth.Plus the expenses are low.
6. Be happy MMM didnt publish your dilemma because he would of not been so nice about it.Although he isnt mean but could be construed that way if you are overly sensitive.
7.And to all the complainers about the fluff or not as good as the old blog…This blog has a great purpose…To inform people who are clueless about finances because their parents didnt teach them about it! Blogs are meant to provoke thought not a rulebook on how to live your financial and personal lives. You have Religion to do that if you desire that.
Peace
Howie
Oh Howie,
Did you really just call MMM vain? Say it isn’t so!
Diane
I hope I didnt offend you. I love reading the hottest blogger on the internet. I meant in his mindset thats all. I think I found about MMM blog from this blog a long time ago. Not 100 % sure though.
I will say the quality and versatility of the different bloggers is quite refreshing. I read Your Money or Your Life many many moons ago and that book hit a chord with me.
One other point for the family . In terms of life insurance , term insurance for 20 years will give him the best low cost coverage for him and his wife.The only person to disagree would be the insurance salesperson who sold him the policy!!!!
Peace
Howie
Oh Howie, you missed my point completely! You didn’t offend me, you made an error that was actually fairly humorous. You used “vain” for “vein”, thereby inadvertently appearing to accuse MMM of vanity. One of the great thing about MMM is the quality of his writing. Content, grammar and punctuation are all top-notch.
Sorry to be harsh here, but the main thing you need to do is get your spending in order and fast!!!. If you make enough to not be qualified for a ROTH and yet still have this much debt sitting around you definitly have serious cash flow issues.
Forget about the best way to invest and figure out how to live on less. This is the #1 best thing you can do, and everything else will fall into place. And yes – either sell the other duplex or hand it over to a rental manager to at least get something out of it.
Calculate these three ratios to help you see the issues:
Debt/Networth
Networth/Annual_Income
Networth/Annual_AfterTaxExpenses
You ultimately need a 33+ on the Networth/Annual_Expenses and hopefully a 0 on the Debt/Networth to be set forever financially.
I have less income than you, live in a higher cost of living area (based on your home prices), but am doing better becuase my expenses are much lower.
I am 29 and my numbers are 0,5,19
My first plan of action would be to get a property manager. They will charge you 10% of rents collected. You will see an immediate gain and won’t have to worry about the property.
I make over 24% cash on cash return on my rental properties. My plan Of action is getting as much cheap set as possible to buy as much high returning assets as I can(rental properties).
I would not pay down student loans because your interest is so low. Unless there is no other option to make more than 2.5%.
I have a ton more info on rentals on my blog if interested.
I have not read views from others, so this is just my own 2 cents for you.
1. Pay off loans first (period).
2. Put more money into the home (first or second). This is a critical second step.
3. ULIP (Univ Life Insur Policies) are big investment+insurance gimmicks that do NOT make sense, sine the costs are high, cannot withdraw for a while, and you can replicate the same with Buying Term and Investing the Difference. It is for people who cannot save money, and not for good savers like you. In my opinion, Annuity fits in the same bucket for good investors, and not a good vehicle, since it can be done by yourself. Venguard funds or Low Cost ETFs are great options for investing in the long term and using DCA approach.
4. All savings options comes after that, and most important option that you have not considered is Kids Education Fund, Your Own Retirement Fund (more money options) or Funds for your Big 5 and 10 year goals.
Been through all of this before, and have done too much analysis on it. Maybe I was wrong, but I am very analytical and don’t leave any rocks unturned usually, although I am still human.
Hope this helps.
Kenny
Seemingly reasonable goals
1. One House with a minimal term mortgage
2. No other outstanding debt
3. Appropriate life insurance
4. Appropriate Retirement savings
To address, categorize the key issues –
1. Two Homes is untenable
You are underwater on the second duplex and getting essentially nothing for rent. A property manager is one reasonable option, but I would consider selling the house you are in since it wouldn’t leave you further in debt and move back into the old one. At even close to what your are probably paying on both properties, you could probably have it paid off in 10 years (53 with no mortage!)
2. Outstanding Student Loans
Pay them off as quickly as possible, but if the house situation has to resolve itself first, take care of that. You could consider upping the rent on the other place to $500 (which is still dirt cheap) and using the extra to pay off the loan faster.
3. Life Insurance isn’t appropriate
Always utilize term life insurance. Universal policies are essentially a rip off.
4. Retirement savings may not be enough.
Look into your IRA or other retirement advantaged options, there is most likely something that you can do. If you think you make too much money for a Roth or other type of IRA then you need a financial professional.
At the end, you have one house that you can afford being paid off quickly with no other debt, appropriate life insurance and retirement savings. What a great feeling!
I personally would try to pay off that second duplex to get rid of it. That seems like it would free up major cashflow, since you aren’t able to effectively rent it out. Perhaps by the time you have it paid off to the point to try and sell it, it will be worth a bit more too.