Real Estate Q & A: Asset Diversification Key
The Orlando Sentinel contains a helpful real estate Q&A in today’s online edition. Below are several reader questions, and answers provided by area financial experts:
Q: Currently I have 10 investment properties. They are about half-paid for and are valued at about $1.2 million. They are only paying for themselves right now without any real profit. We have no other income and are 55 years old.
We have had to start selling them one at a time to have income to live on. They do appreciate about 4 percent a year. In this housing market, would we be better off selling these now and investing about $500,000, or staying with the units and sell them as we have been doing as they get paid off?
A: I am going to assume you have a Florida mortgage for the properties of $700,000, which is why you would have $500,000 to invest if they were all sold. So the heart of the matter is whether you get a better return than 4 percent, as well as have some monthly income as well from the $500,000 net proceeds if you sell the properties.
One concern is that you have no diversification. It’s all in real estate. Diversification would be appropriate. It is not wise to take an “all or nothing” approach. Don’t sell all the Florida real estate you own and don’t keep all of it, either.
If your growth is 4 percent, that’s okay, since other investments such as CDs or mutual funds would bring you a higher return.
When it’s there, you could take the added growth from the mutual fund out as a once-a-year withdrawal. If you diversify your assets this way, you should be able to increase your income and thus, your capital will last longer into the future, and you will be more diversified.
Florida home mortgage holders should keep this same principle in mind when it comes to paying off a home loan early. If there are other avenues that are available to you that produce higher returns, it’s always important to take that under consideration.
Q: Our assets are held jointly, excluding IRAs. We are beneficiaries in those cases along with contingent beneficiaries. When the first spouse dies, under Florida law, is probate required on our homestead or jointly held assets?
A: When the first spouse dies, probate is not required on your homestead. Your homestead will only be probated upon the passing of the second spouse. Your jointly held assets will be passed down by way of beneficiary and never be subject to probate.
