Invest or be mortgage free?

Question

Feedback appreciated. I am almost 50. 3 kids all under 8 years old. I'm the sole income in the household. Retired from civil service with pension of 8k monthly. About 500k invested in a 457 from work. Just sold in NY and moved to FLA. Proceeds from NY leave me with 530k sitting in the bank. Here's where I need guidance.

I could pay off the new house and be mortgage free with almost 125k left to invest. My mortgage is in the mid 4% range and is about 1600 a month. I also just paid off my car. Now, I'm slowly finding out that living in or near a big city in FLA is almost as expensive as NY. 8k pension isn't going to stretch too far as time passes. So, at my age, with 3 school aged children, would you pay off the mortgage and invest the rest in a portfolio, real estate, or IRA (125k).. or leave +/-50k in the bank and invest the rest? (480k) Thanks for any advice. Btw.. I was a landlord in NY for 12 years before I had kids. I'd do it again, but I'm not 30 years old anymore.

Dmitriy Fomichenko · Answer

I would not pay off mortgage at 4%. Why if you can invest these funds and get 10%+?

Nathan Gesner · Answer

I would leverage. Put 20% down on a personal residence so you can avoid mortgage insurance. Split the rest up and buy investments. $100,000 on a primary, and $100,000 on four different rentals. The cash flow from four rentals should increase your monthly income 15-20%. Then you could get a simple job that is enjoyable, low stress, keeps you productive and healthy, and pays another $2,000+ a month. A few simple, affordable moves that will increase your monthly income 25% or more, make you a productive member of society, and build real wealth instead of living paycheck-to-paycheck.

If you owned rentals for 12 years and aren't excited to get back into it, you must have done something wrong. I've been investing for six years and I make enough each month that I could be financially independent for the rest of my life and live very comfortably most anywhere in this country. Educate yourself on how to invest wisely, and find a qualified PM to manage it for you so you can reap the benefits while protecting your time and sanity.

Theresa Harris · Answer

The reality is for many long term rentals, that is true. You won't cash flow a lot with a mortgage.  Everyone is different, but over time hopefully your house appreciates and rents go up.  There are also people who keep pulling money out of their rentals, I have to admit, I don't understand that.  yes you can use the money to buy other houses, but if they are all mortgaged to the max, I don't see the advantage.

Eliott Elias · Answer

Why pay off the mortgage, that's cheap money i'd keep it. Leverage your cash and put it in other value add properties

Taylor L. · Answer

I'd be investing and looking for other sources of active income. You still have plenty of life left to live and costly parenting years ahead as well.

Scott Wolf · Answer

@John Peter, one thing not mentioned was being a private lender.  You can get returns of 7%+ on a site like PeerStreet, and up past 10% for loaning it out yourself/investing in a fund.

Steve Vaughan · Answer

I was where you are a couple years ago, my kids are just older and only have net cf as a 'pension'.

My wife was ready to retire so we paid off our house ($125k bal, $1732 pmt) to maximize a big first Heloc while she still had a job.  You may want to do the same if you decide to retire again.  Access to cash.

There are other investments besides real estate. Personally, we end-gamed 90% of our portfolio this year and will slow exit the rest over the next 3 years.  Not chicken little on RE, just much easier money in other assets classes.

Investors at heart, we like to park in 10yr t-notes when the yield is at least 4% and value invest into reits, etfs, stocks etc at historical lows.  Lots of yield (16% is easy these days in beaten down reits) and growth opportunities in paper equities now.

If not an investor at heart, nothing dumb about paying off debt, I just hate to deploy good capital against a low unicorn mortgage 1/2 the inflation rate.

Basit Siddiqi · Answer

From what I can tell, It seems like you are doing well financially.You have a pension paying you $8,000 a month which is $96,000 for the year.You have $530,000 in the bank. I personally would invest maybe $400,000 to go ahead and purchase two multi families(preferably quads) at the $800,000 pricepoint.Sit on the $130,000 as reserves just incase you need to fix up anything in the house.Consider putting some of your future cash-flow into 529 plans for when your children plan to attend college.You should be eligible for social security in 10-15 yearsYou can also start out taking money from your 457 planAll in all, if everything is nice and dandy, you should be able to factor in $15,000 a month in gross revenue from your pension, social security, rental income, 457 account distributions.Best of luck

Greg M. · Answer

First thing I would do is hire an independent financial planner who does not sell investments. Let them run the numbers and see if you can afford to be retired. The harsh reality that may come is that you cannot afford to be retired this young with this little income/assets.

Invest or be mortgage free?

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