Anonymous and his partner have a one-bedroom condo that they rent out in Pasadena, CA. The problem? They’re barely breaking even. Should they keep the condo, or sell it and make better use of the profits?
Shanon wants to switch to an ethical bank with values that align with hers. How can she create a framework for making decisions about financial institutions when authentic information is scarce?
Sam wants to know: how much of an emergency fund does a rental property need?
Michael and his wife expect their taxable income to be less than $10,000 this year. Should Michael (age 56) take distributions from his 401k to minimize or eliminate their income tax burden?
Sharon’s husband purchased a property with a below-market loan in 2008. They now have an extra $4,000 per month, and Sharon wants to buy a property as a first-time buyer. They’re torn between keeping the property or selling it. What should they do?
Former financial planner Joe Saul-Sehy joins me to answer more of your questions.
Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode.
Anonymous asks (at 5:08 minutes):
Fifteen years ago, my partner and I bought a one-bedroom apartment in Pasadena, CA. We purchased it for $309,000, and it’s currently worth $440,000. We have $275,000 in equity, and if we sold now, we’d probably profit around $210,000.
We rent it out for $1,750 per month. We receive less than $200 cash flow each month and we also have $300 in principal paydown each month. Overall, we make around $6,000 per year.
Should we keep the condo, or should we sell it and invest the money elsewhere? I think I can get a greater return by investing the $210,000 into an index fund. Alternatively, I could use it to buy a single-family property which has the potential to appreciate more.
Shanon asks (at 24:00 minutes):
How do I create a framework for making decisions about financial institutions?
I’ve had accounts at big banks for over 20 years. Having a national bank was important as I’ve had to move a lot for work.
However, I’ve read news stories that highlight the unethical or illegal activities that big banks conduct in pursuit of profits. From opening accounts without the account holder’s knowledge, to funding oil pipelines and deforestation efforts, to discriminating against historically marginalized communities and people of color.
I want to bank with an institution that aligns with my values, especially when it comes to environmental and social impact. I’m not sure a wholly online bank will work, as I need access to physical branches.
It’s hard to find authentic information about banks. I’ve identified institutions that are Certified B Corps, Community Development Financial Institutions, or are members of the Global Alliance for Banking on Values. This feels like a good start, but what other factors should I consider? Are there other resources I can use in my research? How do you make this decision when it feels like the banking industry has a different goal that ultimately doesn’t align with your values?
Sam asks (at 35:09 minutes):
I’m curious to know: how much of an emergency fund should you have for a rental property? How much should you save on a monthly basis? How do you know when to stop contributing to that fund? Having some type of prudent reserves seems like a great idea, but I don’t know what amount is good to aim for.
Michael asks (at 48:57 minutes):
My wife and I are 56 years old and we live in New York. We have two adult children: our daughter is 26 and fully independent. Our son is 21, just graduated from college, and is living with us. After 30 years of working and saving, I retired on 12/31/2020. I have no plans to return to work.
My wife and I have over $3M in tax-advantaged retirement accounts, a small mortgage on our home at a decent rate and don’t think it’s worth paying off. We’re paying our bills with comfortable post-tax savings, and expect our taxable income to be less than $10,000 this year.
From my understanding, since I’m over age 55, there’s no penalty to take distribution to my 401k. We want to minimize or eliminate our income tax burden this year. Is this a good opportunity and cost strategy given that our earned and investment income will be so low this year, and perhaps next year, too?
Sharon asks (at 55:43 minutes):
My husband purchased his property in 2008 with a below-market type of loan, and the mortgage payment is a comfortable amount.
At this point our cars are paid off, daycare is done, and I have an extra $4,000 per month that can go toward savings.
We’re wondering: do we keep this below-market rate property and save the $4,000 per month so that I can buy a property as a first-time homebuyer? Or do we get rid of the below-market rate property and use the profit as a down payment for a mortgage? The latter means that we’re no longer tied to a below-market type of loan.
What should we consider when making this decision?
Resources Mentioned:
- Certified B Corporation | Website
- Additional Information About B Corps | Website
- Common Equity Tier 1 (CET1) | Investopedia Article
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