Q: When my father passed away recently, his home was paid off. Is now a good time to refinance and take equity out of the home? Is there a way to provide an income stream and retirement income?
–R. Johnson, Salem, New Jersey
A: If you’ve inherited your late father’s home and don’t need to share the home with siblings, you can use the asset to establish an income stream and save for retirement. Here’s one way it could be done.
Once the deed to the home is officially transferred to your name (an estate planning attorney can help), this would be an excellent time to take out a home equity loan for a modest amount, say $50,000, on a property appraised at $150,000. A $50,000, 15-year loan at 6% interest produces a monthly payment of $421.93. Using $10,000 to $20,000 of the home equity loan to perform routine maintenance—painting, new carpet, weatherizing—should prepare the home to be rented out for at least twice the loan payment, say $850 a month or more, depending on the average rent for homes in your neighborhood. This will produce an income stream of $428.07 a month.
The balance of the home equity loan ($30,000 to $40,000) should be invested in a Roth IRA account for retirement. A portion of the rental income ($100) could then be added to the IRA each month to continue saving for retirement. The strategy you choose will depend on how close you are to retirement, your personal goals, and your risk tolerance. Consult with a professional financial advisor to create an investment strategy to suit your needs.
Mail your money management questions to Ask B.E., BLACK ENTERPRISE, 130 Fifth Ave., New York, NY 10011, or send an e-mail to scottm@blackenterprise.com.