Corey Olds inherited something from his father–a love of real estate. More than a decade ago, with the aid of a first-time homebuyer’s program, Corey was able to obtain 100% financing to purchase his first house. “I didn’t have to come up with very much money at all,” he says. “I think I even got money back at closing for the purchase of a washer/dryer and a refrigerator.”
These days, his finances are far more complex. Corey, 36, and his wife, Chonda, 37, have put together a real estate portfolio that includes nine investment properties in Virginia. The Newport News couple isn’t pocketing a big profit from their properties–at least not yet–but Corey says the big payday will come when they’re sold. “Right now, they are mostly a tax benefit,” he says.
The Olds have a $54,000 home equity line of credit with a zero balance on their primary residence–which has an estimated market value of $350,000. “We use the credit line to finance the purchase of a property, and when some time has gone by we refinance and pay off the credit line. Then we tap it again, and pay it again,” says Corey. It’s a system that seems to be working for them as they’ve been diligent about protecting their credit scores. And so far, the couple hasn’t encountered any landlord nightmares. It helps that the properties are no more than an hour away, and family members help manage the four houses that are in Corey’s hometown of Franklin.
Although his properties are concentrated in one general location, Corey says that he’s consistently been able to find tenants and isn’t overly concerned about a slowdown in the real estate market. At the same time, he recognizes that all of his properties are single-family homes, and says that his next purchase is likely to be a duplex or a 4-unit building. This will lessen the need to rely on one tenant to maintain the mortgage.
Overall it’s a time of important transitions for the family. Corey is settling into a new position as a loan officer with Breakwater Mortgage Corp., and expects to make about $100,000 this year. At the same time, the family is debating what’s
next for Chonda. Should she return to work full time or part time, stay at home, or start a home-based business? “I think it would be hard going back to a 9-to-5,” says Chonda, who had been bringing home an additional $24,000 when she was a social worker. She’s been able to stay at home for the past four years with sons Cameron, 9, and Caleb, 4.In terms of managing their financial life, while Corey has been certain about real estate, he’s been less sure about investing on Wall Street. He has about $97,000 in a 401(k) with a previous employer and he’s taken big losses in an IRA he’s been managing himself. At one point the account grew to $22,000 but has since fallen to $4,700.
With two young children, the Olds are focusing on paying for their sons’ college educations. They haven’t started saving, but will likely sell property to help cover the tuition bills. They also aim to pay off at least four of their mortgages within the next 10 years so they can divert those payments to their childrens’ college funds.
But more immediately, the Olds are on a mission to come up with a better retirement savings strategy, pay off the $13,000 car loan for Corey’s 2001 BMW X5, and pay down a big chunk of the mortgage on their primary residence, which is an interest-only, 30-year adjustable-rate loan currently at 4.875%. The couple chose this mortgage to have smaller monthly payments over the first five years. “The rate changes in two years,” says Corey. “We want to pay as much as we can to reduce our balance so when the rates go up, it won’t be a big shock.”
The Advice
Walt Clark, a registered investment adviser and president and CEO of Clark Capital Financial in Columbia, Maryland, discussed the Olds’ finances with them. Highlights of his plan:
Buy life and disability insurance. Although the Olds have enough life insurance to cover current liabilities, excluding investment properties, Clark estimates that given t
he projected rise in college tuition costs, they would need at least an additional $400,000 in coverage. In addition to life insurance, because Corey is the sole income source, Clark says he should purchase a disability insurance policy to cover their household expenses in case he suffers an injury. For guidance on disability policies, visit the Insurance Information Institute Website, www.iii.org/individuals/disability.Draft a will. Because the Olds have nine properties, it would be prudent to set up a revocable living trust. Under the current tax laws, any asset worth more than $1.5 million is subject to federal tax, which could be as high as 50%. This trust will enable his assets to be transferred to his beneficiaries and avoid probate tax.
Establish a college plan for children. Clark thinks the $2,000 contest winnings should be used to establish a Uniform Gift to Minors Act account. “I would use all proceeds from the contest toward the oldest child’s account, and if they have additional capital, establish an automatic investment account for both children through any mutual fund family,” says Clark. But because UGMA account balances are an asset of the child, as their sons approach college age the Olds should investigate whether the accounts should be transferred to avoid affecting financial aid eligibility.