Hi MMM team,
I’m looking for your thoughts on my asset allocation, specifically a rental house that is fully paid off in Seattle.
I am 42, recently divorced and either FIRE or between jobs—not totally sure yet. I’ve had a bit of a rough time so just sorting myself out. I quit my well-paying job that I found dreadful and am taking the summer off, kinda, and working a little bit of consulting (20-60 hours per month) for some cash flow. I’m not working enough to save money but I’m not having to dip into savings for all this summer free time—which is great.
When married, we bought the house for $250,000 in 2003 and lived in it for 10 years. In 2013, we moved and rented out the house. I received the house as part of our divorce asset distribution, and instead of refinancing it, I just paid it off completely using other assets. Here are the data points about the house:
Gross Rental Income: $2,200/mo; $26,400/yr
Taxes, Insurance, Utilities, Maintenance: $6,400/yr
Net Rental Income: $20,000/yr
House Value: $615,000 as per appraisal for divorce.
I live in a small rented apartment and pay $1,450/mo.
As a % of my total assets, the house is a lot. Here’s the breakdown.
58% Seattle Rental House
31% 401K
11% Cash/Checking, Peer Street, Individual Stocks, HSA, ESPP, and a 2005 Toyota Matrix.
My question is how best to think of this house. It’s nice to have the rental income but am I maximizing my return here or do I have too much sunk in one illiquid asset? Would it be better to sell the house and buy another property (potentially multi-family) in a lower cost market? Or sell the house and put the money in a variety of other assets (some to a stock account, some to peer street, or other)? How do I think about (do the math/calculate ROI) on the return I’m getting on the house vs other opportunities (stocks ~7%, peer street ~7%).
I might also mention that house values in Seattle are crazy bananas. Zillow forecasts 8.8% growth per year for my house. Can I think about the house like it’s a dividend paying stock portfolio that appreciates 8% per year and pays out $20,000 in dividends?
Thanks so much for your thoughts and feedback!