This week I met Sam who has been an astute real estate investor over the last 7 years. He's been strategic about his real estate purchases, focusing on good locations and positive cash flow.
Although he's retired, Sam still has a significant mortgage of $250,000 on his primary residence and carries a secured-line-of credit (SLOC) of $70,000. Don't be surprised at this debt level, because more and more baby boomers are not paying-off their mortgages before they retire. In this case, Sam went through a divorce almost 10 years ago where his assets where divided, which is the main reason he still carries a mortgage.
The great thing about Sam's situation is that he has a stable teacher's pension and he's done a good job at managing his real estate investments. He has enough equity in his real estate investments to pay-off his secured line-of-credit. This SLOC could be an issue in the future, given that rates on SLOC's show a 10-year historic average rate of about 6%.
Sam's meeting with his accountant this week to determine how to minimize the tax implications of this restructuring. But I'm a big believer of using the equity in your real estate to help your personal finances, while still maintaining a positive cash flow on the properties.
Here's a good link from a recent story in the Financial Post on how to manage SLOC debt.
1 comment:
Your are so right Sandra! Many of us boomers are carrying debt into retirement. An important distinction is good debt vs bad debt. Not all debt is bad. Positive cash flow can make the difference and so can deductible interest. It is important that debt is structured properly and I know you advise your clients on all of this! Debt planning is a key part of everyone's financial and retirement plan.
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