Managing rentals from afar proves difficult

Dear Bruce: We are in our early 50s. We vacation two weeks a year in central Florida. We really enjoy ourselves there and would like to retire there when the time comes. During our recent Florida escape, we saw a couple of houses that we thought were really nice. We could afford to purchase one now. My husband says that it would be a headache trying to manage it from afar, but I have talked to some of my neighbors and they have management companies that handle their property. This way, we could be paying on the house now and have it almost paid for by the time retirement time comes. What do you think? – N.R., Milwaukee, Wis.

Dear N.R.: Long-term real estate deals are, at best, difficult. It is true that people often buy a home, use it themselves for a couple of weeks a year, and then rent it out through an agency. Most of the agencies charge at least 15 percent of the gross for handling these transactions – sometimes even more. Where the expenses get particularly odious is when little things have to be done that an on-site landlord would take care of. You have to go out and hire a plumber for $150 where it might only cost you a few cents at the local supply store to fix yourself. It is my contention that you would be far better off to buy a rental property in Milwaukee, if you want to go into the rental business, and when the time comes, sell it and purchase your home in Florida. Believe me, there will be lots of property for sale when the time comes. There always is.

Dear Bruce: My husband and I are considering an interest-only refinance loan on our home. We owe $119,000 on our mortgage and another $23,000 on a home equity loan. We are considering combining them since the value of our home has escalated and it is now worth about $230,000. I understand we can do this for five or 10 years and lower our payments quite a bit. We are 58 and 53 years old, respectively. We will never pay off our home. We don’t have the income to make extra payments, either. We don’t think we should get out of the real estate market and rent. We are living in southern Oregon where real estate prices have increased a lot. We would like to free up some money each month so we can do some other things like take a vacation. Is this a smart thing to do? – C.W., Oregon

Dear C.W.: You have not included your other assets and liabilities, but you are very surely dissipating what equity you have in your home, and all of this equity seems to be based upon appreciation rather than paying down the principal. While I appreciate the need for vacations, I don’t believe that mortgaging your home and betting on appreciation is the way to go. Without a hard look at all of your assets, income and liability, it’s very difficult to advise you in this matter. The troubling thing here is that you are using up your equity and will need a place to live upon retirement, which will be upon you more quickly than you realize. If you’re going to take a vacation, it would seem to me that you will have to get a handle on other expenses and reduce those proportionately.

Dear Bruce: I’m 22 and graduating from college. I have no debt. I have a job offer in the range of $32,000. Do you think it would be wise for me to buy a house of my own? – G.M., via e-mail

Dear G.M.: Not in my opinion. You have started with your life, you have a job offer, but it may be that you’ll find that this is not what you wish to do. It also is very possible that you will be searching for other positions and will find one out of the area. Why have the problem of selling a home? If you rent an apartment, then the most demanding job that you will have is negotiating out of your lease, not selling a home. You have plenty of time to think about homeownership. At 22, I would start out a business life with as little distraction as possible – and trust me on this one – a house can be a major distraction.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.