Q. I am 80 years old, live alone and have two adult children. I own two homes, one here in North Carolina in which I live and another in New York, my former place of residence. At one time, I thought I might move back to N.Y., but N.C. is my home now and I can’t imagine making any kind of move at my age let alone back up north! My home here will be paid in full next June which will eliminate over $1,200 in monthly payments. I have a home equity line on my N.Y. home and the interest only payments are under $400/month. My N.Y. home is rented and I receive around $2,000 a month but after taxes, insurance and other expenses. I don’t have a lot of spendable income. Money is tight; I can’t afford vacations, a new or used car or much of anything else beyond the essentials. After real estate commissions and paying off the home equity line I think I’d clear over $100,000. My adult children think I should keep the N.Y. home as an investment but I think I should sell. They think I should at least wait until my N.C. home is paid for and then see if I really need any more cash flow. If I wait, that will be one more year of living on a shoestring; what do you think is the best solution to my cash flow problem? If I do sell, what should I do with the proceeds?
A. I can provide some general advice but you may want to meet with a tax or financial professional to review your financial situation in a more personal manner before you make such a major decision.
I’m pretty sure that at age 80, I will not want to be a landlord and certainly not a long distance landlord. If the rental income isn’t helping you meet your desired expenses, I’m not sure owning rental property makes any sense. My answer might be different if after taxes and other expenses you were enjoying a positive income stream from the rental, but probably not. If you own the N.Y. home personally, you own property in two states which upon your death will complicate the settlement of your estate. You may want to mention this to your adult children since they will probably be the ones left to handle your affairs once you become incapacitated or deceased. As we get older, the more simplified we can make our financial affairs the easier it is for us to keep track of while we are alive and the easier it is for our heirs when we are gone. A year from now you’ll be 81, the N.Y. house may or may not have appreciated and it may take awhile to sell. I don’t see any need to wait until your N.C. home is paid for to decide to sell the N.Y. home; I’m sure you can imagine what having an extra $1,200/month would be like.
If you do sell, I’d suggest you keep 30 to 50 percent of the proceeds in liquid cash such as a money market, savings or short term CDs. The remaining could be invested in conservative no-load mutual funds. Fund families offering these types of funds include but are not limited to: Vanguard, Fidelity, T. Rowe Price, Janus, and Charles Schwab.
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You also need to be prepared for a possible increase in your Medicare premiums for one year. Depending on your total income in the year you sell, two years after the year in which you sell your Medicare premiums maybe increased. In 2016, if a single filer’s MAGI for 2014 was above $85,000 and for a married filer if MAGI was above $170,000 they will pay a higher premium.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624