Dear MarketWatch,
My wife and I are 60 and 57, respectively. We have several properties, all without mortgages.
We have real-estate equity of $4 million. Our savings includes stocks, CDs and $3.2 million in cash. Our net worth is about $7 million. I have a small business that will run indefinitely and generate about $150,000 in income annually, hopefully for the next 10 years. We have no debt.
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How do we structure our equity so it works for us with the best return and also keeps us protected from inflation?
Real-estate investments are great, but we also have to work at managing the rentals — and there is some work with maintenance. Should we sell some real estate and put money elsewhere? Or hold on to it because of inflation?
What would you suggest as a long-term strategy for us? I am planning on working until 70 because I want to. I have enough time for trips and leisurely activities, and I am healthy and in good shape. Retirement for me does not look like sitting still anywhere.
Real-Estate Dilemma
Dear Real Estate,
With a net worth as large as yours and so many moving parts — real estate, investable assets, a profitable business, and so on — you should consider a financial planner to help you make sense of your options.
Before I jump into that, I will simply note that you’re asking the right questions. Real estate is often touted as a good inflation-protected investment, and keeping some in your portfolio could make sense for you if you’re able and interested in the upkeep.
There are plenty of reasons to pause before making your decision, and that includes what you mentioned before — maintaining the property and keeping it rented, as well as any other expenses that could come along the way, such as an eventual new roof or boiler, or something else you just never expected.
I can’t tell you for sure if you should keep the properties or sell them, as there is far more that needs to be looked at in your overall financial plan to come to that decision — including your risk tolerance and willingness to manage properties during your retirement — but as you don’t have any mortgages on your properties, you don’t have to rush to a decision.
Residential real-estate isn’t the be-all and end-all answer to inflation and market protection, to be sure. It has proven successful in most bear markets since the 1950s, but did not protect investors in the 2022 bear market nor did it outperform in the bull market since, according to MarketWatch columnist Mark Hulbert.
In his column, he cited an ETF that most closely resembled the residential real-estate market. “This doesn’t mean you should not invest in residential real estate,” he wrote. “But it does mean that your performance may, and probably will, vary dramatically from that of the asset class itself, due to the myriad idiosyncratic factors that impact the price of a particular piece of real estate.”
Good complications
In your particular case, I think it would be worthwhile to consult a financial planner. Advisers may not be for everyone, but when you have such complicated finances (even if they’re not bad complications), a qualified and trustworthy professional with experience in these areas can allow you not only to manage your assets, but possibly even earn more.
For example, they might have ideas for how you can keep that real estate, manage those properties and mitigate losses from lack of rent or maintenance issues. They could also help with taxes and eventual exit planning for your business. And in regards to your retirement, they can help you structure an income strategy that balances the liquid with the illiquid, along with risk and conservation, and all of the other aspects of your life in between.
A lot of business owners tend to think they need to have separate advisers for their personal lives and businesses, but that isn’t necessarily the case, said Paul Brahim, a certified financial planner at Wealth Enhancement Group and president-elect of the Financial Planning Association. “They’re inextricably intertwined,” he said. The right adviser who has experience managing personal and business finances can help you identify what you may not know you need to do, such as how to handle certain investment fees or liability management.
You don’t have to use an adviser of course, but with such a substantial net worth and portfolio, it wouldn’t hurt to at least shop around for one. Look for financial planners who can advise you on your personal finances, including real-estate management, as well as an expert in small businesses. Ask the important questions about how they get paid, if there are any conflicts of interest and what certifications and education they have. But Brahim suggests also asking if they work with professionals like you, what their successes and failures have been in this line of work (and what they’ve learned from those experiences) and who else they and you would work with in managing your affairs.
You can search for advisers online, through search engines such as the Financial Planning Association and NAPFA, but you might also want to check out industry organizations that fit with your business and interests, as well as a network you might already have. This would include not just family and friends, but accountants and lawyers you know through your job. And even if you are getting top-notch recommendations from people you trust, always vet the professional for yourself — you want to be sure you’re not making a mistake hiring someone to help you manage your money.
I’ll end with just one more thought. You said retirement doesn’t look like sitting around for you, and having a qualified and trustworthy planner can help you do just that. You can still be the primary handler of your affairs, but having someone to run ideas off of or ask financial questions about your various endeavors, including your real estate and business, gives you more time to run things the way you want to run them — including your life.
Ultimately, the decision will be yours to decide when to take your proverbial chips off the table.
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