Sometimes moving forward in life requires you to move. And if you own property, moving may mean putting a home on the market. Alicia D. Bennett, who had worked as a paralegal for nine years with the U.S. Department of Agriculture Office of the General Counsel, left her hometown of Denver to pursue a new career in Twin Falls, Idaho, a city with more than 71,000 residents, of which just 0.2% are black. She relocated there last September to accept a job as a public affairs officer with the USDA Forest Service.
“This was an opportunity I couldn’t pass up,” says Bennett of her position with the Sawtooth National Forest. “The scope of the work will give me the skills I need to work anywhere in the country, in another forest or another agency.” Her salary increased from $67,655 to more than $71,000.
The promise of advancement came at a price, however. Bennett, 45, left behind two homes: her primary residence in Denver and a rental property in Longmont, Colorado. In light of the current real estate market woes, her timing couldn’t have been worse. Although the number of homes for sale in Denver declined by more than 3% last year, Bennett had difficulty selling her three-bedroom, two-bath home. She had decided
against renting it because she was unsure about having two rental properties. She purchased the house in 2002 for $176,600 and made some $14,000 worth of improvements. The offers were so unattractive that she let her new employer’s relocation company buy it for roughly $179,000, resulting in a loss of more than $11,000 on the sale.The three-bedroom, one-bath home in Longmont that Bennett purchased in 1992 for $79,000 was bringing in steady rent that covered the mortgage. Then, just weeks after Bennett moved to Idaho, her tenant of five years, who was on a month-to-month lease, opted not to renew. The tenant, who did not provide a forwarding address, left the property in shambles. Unfortunately, the $1,050 security deposit didn’t cover the $2,000 in damages, and Bennett says she hasn’t had time to pursue legal action.
All this means that cash flow is a concern for Bennett. She hasn’t been able to fill the vacancy, so she doesn’t have income to offset the $900 monthly mortgage payments. It’s been tough because her rent in Twin Falls is $700, plus utilities. And she had to repair the Longmont property with money earmarked to pay down almost $12,000 in credit card debt–which is spread across six cards. Furthermore, after refinancing twice to pay
down debt and refinancing a third time in 2001 to lower her interest rate from 8% to 6.4%, the balance on her mortgage ballooned to $118,000. Bennett doesn’t want this to affect her financial progress. She has nearly $157,000 in a Thrift Savings Plan, $60,000 in an emergency savings account, about $4,300 in IRAs, and a folk art collection worth about $18,000 that includes an 1870s needlework tapestry and an antique African dance skirt.Bennett says she was so eager to accept her new job that she didn’t think through the implications of moving, such as how expensive it would be for her to visit her family during the holidays.
Being away from family has been tough for Bennett, and she hasn’t followed a budget since the move. “Since I’ve been here, I’ve bought more cards and gifts for people than I did the last three years I was in Denver,” she says. But she knows that she must get back on track. “As long as I get back to my discipline, I’ll be fine. I have to live like I have less room for error at this stage of my life.”
The Advice
Danny Freeman, a certified financial planner with Darda Wealth Management in Winston-Salem, North Carolina, talked with Bennett about her finances. Here’s what he had to say.
Sell the Longmont property. Although Bennett believes the property is a viable long-term investment, Freeman says the numbers aren’t impressive enough to keep it. Being an absentee landlord presents additional challenges, such as hiring a management firm to maintain the property.
Furthermore, the current state of the economy makes establishing a price for rent a bit tricky. Bennett had been getting $1,050 a month in rent, but has lowered it to $995 to attract a new tenant. Getting even that amount could be tough since area median rents are now around $700. “With a price that much higher than the average, it’s not likely that a tenant would stay long,” says Freeman. Generally, for properties valued at more than $100,000, the monthly rent should be .75% to .90% of the market value. Last June, Bennett’s property was valued at $180,200, down from $193,000 three years earlier. So the rent should be at least $1,352. Clearly, she can’t get that. He advises her to get out now, while she can still capture some gains. Freeman advised against purchasing a home in Idaho since Bennett is not planning to stay long.
Get more aggressive with her emergency fund. Having $60,000 to fall back on is a comfortable cushion. However,
there are some decisions Bennett needs to make. As an alternative to putting everything into her money market account, which currently yields about 4%, Freeman suggests she allocate her money as follows: 40% cash, 35% bonds, and 25% income-oriented equities.This mix should allow her to earn more, experience minimal fluctuations in principal, and seize the opportunity for some capital gains. For the equity portion of the account, he recommends
two exchange-traded funds from WisdomTree: the LargeCap Dividend Fund (DLN) and the MidCap Dividend Fund (DON). Both are low-cost funds that currently yield about 3% and 4%, respectively.
Fine-tune retirement funds. Bennett is heavily weighted (nearly 60%) in large-cap and cash equivalents in her investments for retirement. Ideally, Freeman says, she should have a moderate to moderately aggressive asset mix, with 5% to 15% of her investments in cash and fixed-income investments, and 85% to 95% in equities. Although the mix will provide for growth, it will be a bit more volatile. Freeman recommends that she review her holdings at least twice a year and rebalance as needed. Since the IRAs are her smallest investment–$4,300–Freeman suggests she put her $2,000 contest winnings into one of those accounts.
Financial Snapshot: Alicia Bennett
Twin Falls, ID
|
Household Income |
|
| Gross Income | $71,800 |
|
ASSETS |
|
| Market Value of Home | $180,200 |
| Thrift Savings Plan | 157,000 |
| Emergency fund | 60,000 |
| Folk art collection | 18,000 |
| 1996 Nissan Pathfinder | 2,580* |
| IRA accounts | 4,300 |
| Total | 422,080 |
|
LIABILITIES |
|
| Mortagage | 118,000 |
| Credit cards | 12,200 |
| Total | $130,200 |
| NET WORTH | $291,880 |
*ACCORDING TO KELLEY BLUE BOOK