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Jul 6 2009 12:00AM


I am 53 years old and have a teacher's retirement plan. My husband and I make about $170,000 per year. I have been contributing the maximum amount allowed to my 403(b) and Roth IRA plans. My husband and I would like to purchase several rental properties. We would like to pay them off in 10 years and be able to retire using the rent as payments or sell the properties for income. We have $200,000 to use as down payments on the properties. My husband is very handy and can do all of the repairs. Should I continue to make maximum contributions to my 403(b) plan or should I use the funds to pay off the mortgages, enabling use to retire in 10 years?


According to FPA member, Adam Strouse, CFP®, of Strouse Wealth Advisors, it's better to continue making the maximum contributions to your 403(b) and Roth IRA plans (as well as any contributions to your husband's retirement plans). The reason: "There are tax advantages to your contributions," Strouse said. "The 403(b) will grow tax-deferred and the Roth IRA will grow tax-free. In addition, these contributions will diversify your investment portfolio once you add the rental real estate."

Strouse recommends that you consider purchasing the properties with the cash available and not take out a mortgage to fund the properties. "As your cash grows from the rental income, you can purchase additional properties until you retire, then either sell or live off the rental income," he said. "Your down payment amount should be sufficient to purchase a few rentals (depending on your location) and the burden of a mortgage can seriously hinder cash flow should vacancies rise or repairs are needed.  Banks are also not as willing to lend funds on rental real estate as they were a few years ago, so the cost of borrowing can be, at best, higher and maybe, at worst, not even available."

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