Golden Trail Advisers LLC
Mike Sedlak, founder and managing member of Golden Trial Advisers, LLC. advises executives, business owners and individuals on their financial planning and investments. Since 1998, Mike has worked on cases with people at all stages of their financial lives, from establishing savings targets and investment portfolios to developing business and estate transfer strategies. Mike is an investment analyst by training. He sets investment policy at Golden Trail Advisers, including holdings acceptable for model portfolios.
Mike has a high level of education and credentials in the financial services industry. He has broad designations such as his MBA from Northwestern's Kellogg Graduate School of Management. Mike has specific designations such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Certified Exit Planning Advisor (CEPA). Mike also has securities licenses through the supervisory level. Mike is a recognized authority on estate planning from a financial planning perspective. He has taught an "Advanced Estate Planning Concepts" course for the Exit Planning Institute, a national organization for advisers.
Mike's depth of financial education and experience enable him to advise clients on a broad range of financial issues. One specialty is the transfer and use of wealth for the next generation. In addition, for clients who own a business, Mike is experienced and credentialed as a CEPA adviser to guide business owners through the transfer process (including estate tax minimization). For business owners, transferring or selling the business can be the most important financial decision in their lives.
Mike has held top leadership positions in volunteer organizations including the YMCA (head of Southwest Adventure Guides) and the Rotary Club of Hinsdale (President, Vice President and Board Member). Mike lives in suburban Chicago with his wife and two children.
MBA, Business, Northwestern University
BS, Business Administration, University of Illinois at Urbana- Champaign
#Life and Long Term C
Regarding your inherited duplex. We just helped a client with a similar analysis for several rental properties in California.
I agree with my fellow financial advisor that you have to look at the cap rate, relative valuations in the area, etc. I would emphasize that you need to figure in the additional costs that are real, but must be estimated.
What are some of these additional costs?
- Vacancy. Right now, neither unit is rented. After you get both units rented, eventually, your tenants will leave and you will have to look for new renters. You might have to run ads, do background checks and incur other costs to get the unit rented again. Depending on the market, you might want to figure a 10% vacancy factor. That means you would get 90% of the amount of the rental income. Maybe in your market, 5% would be a better factor. Whatever the number, you have to plan on some reasonable level of vacancy.
- Property Tax. How much is property tax? This will reduce the amount of cash flow.
- Maintenance. As buildings age, they demand more attention. Also, when units turn over, there is a cost on top of vacancy - painting, cleaning, fixing, etc. to make the property attractive for the next tenant.
- Transportation. If you visit the property twice a month, that is just under 1,000 miles a year. The wear and tear on your vehicle along with gas costs could be in the range of $500.
- Insurance and Risk of Damage. You have to pay for insurance on the property and probably should purchase an umbrella policy in case someone gets hurt and sues the landlord (you). Also, if damage occurs to the building, you would have to pay the deductible.
- Income tax. If you make money, Uncle Sam will need to get paid. That further reduces the amount for you.
As you add in realistic estimates for all of the costs, your return on investment would be less than it first appears.
That said, I would encourage you to go into more depth for your analysis. You can use Excel to set up a net present value analysis. For year 0, you would use the amount of money after all fees and taxes that you would net if you sold today. For each year along the way, you would estimate that year's cash flow. Last, assume you sell in 10 years. How much would you net? Be sure to include property appreciation, back out the transaction costs of selling and determine how much the loan balance would be at that time. Note: you do not have to sell in 10 years, but you would have the option to sell at that time.
One of the variables for your net present value analysis is a hurdle rate. How much should your investment return for it to be a "good" investment? While that is personal, you might want to target at least 6%. Once you set up your NPV analysis, you can do some what -if scenarios. That can help you quantify your risks and see which factors have the most impact on your NPV.
I have owned rental property. And despite the nice financial returns, I sold out because I did not like the fact that buildings require attention - sometimes when you do not have time to deal with the issues.
Good luck with your decision.
Deciding whether to sell your house at this relatively high price level is certainly worth evaluating. I think it is more about what you would do next than the financial calculations of selling this house.
The finances would be straightforward. Assuming $15,000 of closing costs and moving costs, your numbers should work out and it should be a good financial decision. With equity of $72,000 and $15,000 of assumed closing costs, you could pay off $47,000 of your student loans and $10,000 of your HERO loan, leaving you with only $33,000 of student loans.
The more important consideration is what you would do next for housing.
- If you like your house and want to stay there and would eventually buy another similar house, it does not make sense to sell this house and then get another one like it. You would be out the selling and moving costs.
- If you want to change houses anyway, you would need a down payment and the likely source of your down payment would be the equity in your current house. So, you would not be able to use the money to pay off your student loans. This becomes a housing choice, rather than a financial decision.
- If you want to downsize for now and rent a place that gives you better month-to-month cash flow, it would make sense to sell the house. You could pay off the student loans in less time and start saving money to buy a house after the student loans are paid off.
Other considerations? If you did sell your current house and prices continued to increase – and if interest rates continued to increase – you could end up paying more money for your next house. This could leave you in a worse financial position than you would be in if you were to stay. Or, prices could fall in which case, you would have locked in your gains if you had sold.
Finally, starting a new mortgage sounds fine, but when you get to the time when your current mortgage would have been paid off, you might still have years left to pay if you change houses. That could take away from your other financial goals.
Good luck with your decision. Hope this helps.
The only way I would recommend this is if your interest rate on the savings were HIGHER than the interest on the HELOC. Since you have saved the cash, you should use the cash to pay for your new, covered porch.
The way to evaluate this is how much you would make (or how much it would cost you) for the money. The cost of borrowing money through a HELOC for 3.49% and investing the proceeds into a high yield savings account would be $700 (3.49% - 2.5% = ~1% of $70,000 = $700).
Further, the interest of 2.5% would be taxable. Your HELOC interest may or may not be tax deductible. That should be factored in. Assuming your HELOC interest is not tax deductible, your total cost of interest and taxes could be about $1,000.
The biggest problem is that there would be no benefit to borrowing money and then investing it because you still would have to use the money you have saved to build your porch. The HELOC money would be tied up in the savings account (or one-year CD).
The good news is that you have gotten people thinking about being outside on a nice day. Enjoy your new porch.
The total amount to contribute to your retirement plans depends on your long term savings goal. However, it never hurts to over-fund when money is available.
You also should take into account the tax impact of your new per diem position. This job may have pushed you into a higher tax bracket. Consider switching the 6% contribution from the Roth 403(b) to the traditional (pre-tax) 403(b). The tax savings might leave you dollars ahead in the future.
Maybe the best of both worlds, and depending on income, you and/or your spouse might want to invest in a Roth IRA if additional funds are available. You would have until mid-April to see if you want to set up a Roth.
When you buy a long-term growth stock, you should have in mind at least a 5 year holding period, and probably more like a 10 year period. So, a review of price change in a year is not the right metric to help your decision making. More important than the price of the shares are the fundamentals of the company. Markets (and the price of any stock) can be extremely fickle in the short term and I would consider one year "short term."
Which fundamentals should you track for a growth company? Growth in sales. Top line growth is essential to maintaining growth in the value of the stock. Growth in profits. If sales are growing, but profits are dipping, share price may begin to suffer. You need growth in both sales and profits in order to continue growing EPS, which is a key ingredient to the long run value of a stock.
Another fundamental to track is the PE ratio. There are many flavors of this measure, but the most important is the forward PE. This takes into account expected growth in earnings as determined by analysts who follow a stock. If forward PE gets too high, the stock price may be in excess of fundamental value. That leaves a stock vulnerable to a pullback.
Debt levels are another important measure. Tesla has grown its sales rapidly, for example, but has accumulated high levels of debt. The company is on record as saying they were only "single-digit weeks" away from bankruptcy. (We do not own shares of Tesla in our portfolio.)
Buying and selling stocks at the right price is tricky business. Good luck with your portfolio.