Learning, Sharing, and Teaching > Real Estate and Landlording

should i buy a third property (to live in) right now?

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hey mary:
I have 2 rental properties both in Canada. They have appreciated (assessment $1.35 with $300K mortgage). But not producing significant income because they're under rent control.

I can't sell property #1 because my sister lives in the downstairs unit, she's disabled and its accessible. And I am reluctant to sell #2 because its always been part of my retirement plan. It would be great for those late years 70-75 when I want something accessible, close to shops, in a town with stable economy & infrastructure, etc. And easy to add a caregiver apartment (its in Victoria BC).

But right now at age 57 I really want to buy something in SoCal. I live in Santa Monica and pay $2400 in rent: also its NOT rent control so can expect an increase at any time.

Also, my job is suddenly precarious. The owner of my small company may retire.

Right now I have about 80K in cash / down payment and was thinking of something in $450=500 range with two bedrooms, one bath, and a garage. I was thinking that I can furnish the house  and rent one room and then gradually renovate the garage or add a shed on a line of credit with a toilet, shower stall and a kitchen sink/fridge.

And then moving into the reno garage -- and renting both bedrooms -- would be my early retirement plan (age 62-70/75 or whenever I get frail). I would have low overhead, a secure home base to store stuff and come home to. And the I could do what I want which is to live in some of my favorite cities abroad for 6 months to a year each time.

So is this a terrible plan? It would allow me to keep my sister in place, my final home (Victoria) in place, and reduce my costs. Also, the next few months may be the only time I can get a mortgage (if my company goes under).

Re living in garage/shed. Yes, I've lived in micro spaces (although it was actually 300sq/ft). The lack of kitchen wasn't an issue (lack of storage for bike, board etc more problematic). I'm thinking serious downsizing and stuffing things in rafters.

Other stuff (in case its relevant): about $450 in IRA/RRSP (the canadian equivalent). and $1000/month (gross) pension from a job that I had a long time ago (was required to start take at 55). My IRA/RRSP average 5% y/0/y for last ten years, I know thats low but not sure I can take more risks if i'm expecting to start drawing down in 5 years. I was not just a timid investor but a TERRIFIED investor and that has meant I left out some real potential gains.

hey mary:
I realize my plan is not even worthy of a few punches. I'm grasping at anything and panic that my job is imploding, I'm 57, and I can't see what I am going to do

Another Reader:
What are you going to find in a decent area down there for that price, especially near Santa Monica?

In your shoes, I would look for another job.  Throw money into your retirement accounts and enjoy your SoCal life in the rental.  In seven or eight years, you may want to downshift and go home.  I'm a bit older than you are and I'm thinking of simplifying things now, so it does happen.

Cwadda:
hey mary!

Relax, take a breather!

The biggest takeaway from your post is that you feel like you need to own a place to live there, is this accurate for me to say?  Owning is not always the superior option to renting, especially in a HCOL area like California.

You have $1m in equity, but what are your rental properties producing for cash returns each year?  If they're break-even or losing money, a large portion of other MMMers will encourage you to sell and put the money into something that has higher returns, without the headaches of landlording.  If you put a million bucks into the stock market and the return is 7% annually, you're looking at $70k/yr. With the 4% rule, would this put you close to FIREing?

My advice would be to sell the rental properties.  You could always rent in your later years, without the hassle of maintaining your house?  Would you be able to get your sister into an even better living situation? There's gotta be other options for her.

Sorry if my response is a bit scattered, but I'll be checking back on this thread for follow up questions/info.

tralfamadorian:

--- Quote from: Cwadda on October 17, 2017, 10:20:59 AM ---...My advice would be to sell the rental properties...

--- End quote ---

+1

If you have two rental properties assessed at $1.3M with $300k mortgages and 8% selling costs, that is $896k before taxes.  If the places that you and your sister want to live are either rent controlled or HCOL, then your funds will go further if you rent instead of holding property.  Combined with your pension income, then you probably would be or close to FIRE. 

If you could give us more information about what an expected tax cost of selling them would be and the current rent the other's half of duplex where your sister lives and the property in Victoria, then we could calculate how much more holding on the rentals are costing in lost income vs. selling. 

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