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Ask Dave

Which Way to Prepare for Retirement?

Rich is thinking toward retirement and he has an idea about his house that he wants to run by Dave.

QUESTION: Rich in New York owns two homes. One is paid off, and they owe $250,000 on the second. He wants to know if they should rent or sell the paid-off home to get rid of the mortgage in preparation for retirement. Dave tries to determine if it would be a good rental.

Dave's ANSWER: I would either sell the weekend house or I would pay off your main house. If you are unwilling to pay off your main house because that takes your cash too low to suit you, that means you're not wealthy enough to have a weekend house. I would write a check today and pay that house off. You have the cash to do that.

You have a great income and you have the cash, and I’d choose to be debt-free. And when you get ready to retire, you’re going to move to the weekend house and decide if you want to keep it as a rental property or not. Ask yourself if it’s a good rental or would you be better off to sell that house and buy a couple of rentals that are smaller properties and thus better rentals than larger properties, typically.

High-end luxury homes are not always your best rentals. You can look at that, but you don’t have to make that decision now. In the meantime, though, I would pay it off.