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| Monday, July 28, 2008 |
| Money Makeover: Maria and Felipe Betancourt |
 SanDiego.com's Money Makeover: Couple can beef up retirement savings profiles Maria and Felipe Betancourt who are playing catch-up on retirement savings now that their children are grown. The Eastlake couple, both in their early 50s, experienced a financial shift when Maria earned her college degree and became a speech therapist at age 41.
Since then she has been working for a school district and putting money into her employer-sponsored retirement plan, in which she has saved about $18,000. In addition to almost $50,000 in cash and CDs, Maria will also have a $48,000 annual pension benefit (based on 25 years of service) to look forward to when she retires at age 66.
With about 13 years still to save, and a current combined income of about $93,000, the couple wanted to know if the retirement catch-up they have been doing for the past 10 years is going to support their living expenses in retirement. They also wanted to figure out sooner rather than later what more will they need to do to make their financial situation for the future even more stable. The couple's desire to get into the landlording business has me a bit concerned. They still have a lot of retirement saving to do and starting a new business at this point seems risky.Labels: Money Stories |
| posted by Boston Gal @ 2:19 AM *
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| 7 Comments: |
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My parents also live in the Eastlake area of San Diego (well, to be technical, Chula Vista) and there are foreclosures popping up left and right in that area due to all the speculators that bought homes during the real estate boom using exotic loans and now they're getting bit in the butt. Sad to say, my own parents got carried away and refinanced their older, smaller house to purchase a house in that neighborhood while keeping the old house as a rental property and now the payments are really hurting them. I hope the Bettancourts just sell their home and downsize to the smaller one. I wouldn't chance being a landlord in this market unless my older property was already paid off in full (like you BostonGal!).
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"The Betancourts figure they will be able to rent their house for about $2,500 a month, which would mostly cover their $3,100 mortgage. They have identified a potential renter, pending their loan approval."
What kind of advice are they getting if this is even considered an option? That is a negative $600 cash flow per month, not considering taxes/maintenance/etc.
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I agree with Anonymous 12:22. $600 per month negative cash flow assuming they never have trouble collecting rent, and never have the rental sitting empty for even 1 day.
And I also agree with Anonymous 10:45. With so many houses going through foreclosure, it seems to me that the short-term future of the rental market is uncertain. Will those homes be bought by investors, flooding the rental market, driving rents down? If one is in a position to easily afford a softening rental market, then that is one thing. However, this particular couple are not in such a position.
They don't really have much saved, but no consumer debt (good for them) and her pension are their saving graces.
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Renting at a loss is a good idea IF the house's value goes back up in the coming years. Would you rather lose $50,000 now or $600/month for 2 years?
I would hope that the $2500/month rent is already discounted to reflect falling prices and increased rental competition. On the other hand, people who are renting right now might consider buying as prices fall. I'm curious to see what will happen to rental prices in the coming years.
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There is no way they can save enough in the next 13 years. The market might be flat to down over that entire period of time, without hyper-inflation. They are in big trouble and will most likely end up leaving off Medicare.
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-Renting at a loss is a good idea IF the house's value goes back up in the coming years. Would you rather lose $50,000 now or $600/month for 2 years?-
"If" is the key word in that sentence. The last time the California real estate market had a rapid downturn was 1990. Prices continued to stagnate and decline slowly until 1999, when the market began to heat up. That is 9 years. Hisorically, real estate markets do not turn every 2 years. Can this couple get a guarantee that this downturn will indeed last only 2 years? No, they sure can't.
What if the rental market softens and the shortfall is $800 per month? $1,000 per month? $1,200 per month?
Those are very real possibilities that this couple should weigh carefully.
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This is some serious pie-in-the-sky planning.
First, they shouldn't be in 500K house. On a 100K salary roughly half of their monthly income is going to their mortgage payment. Home prices are FALLING (nationwide down 15%) which means they will sink even further underwater.
But their proposed solution is to double down?!? Outstanding. I am certain all their poor financial decisions are behind them, the kids' futures are secure, and one day they will be millionaires.
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My parents also live in the Eastlake area of San Diego (well, to be technical, Chula Vista) and there are foreclosures popping up left and right in that area due to all the speculators that bought homes during the real estate boom using exotic loans and now they're getting bit in the butt. Sad to say, my own parents got carried away and refinanced their older, smaller house to purchase a house in that neighborhood while keeping the old house as a rental property and now the payments are really hurting them. I hope the Bettancourts just sell their home and downsize to the smaller one. I wouldn't chance being a landlord in this market unless my older property was already paid off in full (like you BostonGal!).