November 1, 2015
A financial pro offers advice to a couple with a home and two rental properties
Before they met, when Lisa and Mike Pisano were in their early 20s and each of them living at their parents’ homes, it sometimes felt like they’d never be able to leave.
They wanted to live in their own apartments, but both were weighed down by student loans. “Even though we didn’t know each other then, we were both in similar situations,” says Ms. Pisano, who is 36 years old. Mr. Pisano, 38, estimates the couple had a combined student-debt load of about $100,000.
At the time, Ms. Pisano was working as a publicist in the fashion industry. She later started her own public-relations and marketing business. Mr. Pisano started his career as an accountant. He now works as a management consultant.
Ms. Pisano lived with her parents for about six years after graduating from college; Mr. Pisano lived with his for about seven years. While it was sometimes frustrating not to be out on their own, both say those years changed the course of their financial lives. Not only were they able to pay off their student debt, they also were able to save enough to buy a condominium in New Jersey right before they got married eight years ago.
“Even though I was paying off debt, I was always trying to save, even if it was a small amount,” Mr. Pisano says. He also has always made a point of socking away at least 6% of his paycheck into his 401(k) account, where he invests in stock and bond mutual funds. And he looks for ways to save – using airline points he has racked up to help pay for vacations, for example.
Ms. Pisano says she’s more of a spender but has learned over the years from her more frugal husband. She now minimizes her trips to the mall.
The couple’s financial discipline enabled them to buy a new home when they were expecting their son Rocco five years ago. They decided to hold on to their condo, which was worth less than they owed on their mortgage. The condo’s value has “slowly come back” and they’re now renting it out for income, Ms. Pisano says.
Careful financial management has also enabled Ms. Pisano to invest in her own business, Groupe a la Mode. Ms. Pisano launched the public-relations and marketing company along with her blog, Mom a la Mode, in 2012 after leaving a corporate job.
She has since rolled over her 401(k) from her former employer into an individual retirement account where she invests in stock and bond mutual funds. The couple also has a separate brokerage account they use to save for retirement.
Earlier this year, the Pisanos decided to buy a small house on the New Jersey shore, which they also rent out. “It’s an investment property,” Ms. Pisano says.
The couple would like to save more for Rocco’s college education. It can be difficult, though, with three mortgages and a car loan.
“I wish we were saving more. Still, we’d probably have near zero saved if we hadn’t lived at home with our parents all those years,” Mr. Pisano says.
Advice from a Pro: “Kudos to the Pisanos for being free of school-loan debt,” says Jorie Johnson, a fee-only financial adviser in Brielle, N.J. The couple made the right decision by eliminating those loans as soon as possible, she says.
The Pisanos should only hold on to their condo and shore house if those rental properties are producing positive cash flow, or at least aren’t costing the couple more than they’re collecting in rent, Ms. Johnson says.
Even if the properties are generating positive cash flow, the Pisanos need an exit strategy, figuring out when they plan to sell them, Ms. Johnson says. Meanwhile, the properties should be held in an LLC structure to help protect the Pisanos’ other assets, and the insurance on each property should be reviewed to make sure the amounts are adequate, she says.
Mr. Pisano should strive to increase his 401(k) contribution from 6% of his salary to 10%, although achieving this goal slowly is fine, Ms. Johnson says. She suggests he increase his contribution by one percentage point a year. Depending on Ms. Pisano’s business structure, she may be able to start an individual 401(k) and realize significant tax savings in funding it, Ms. Johnson says.
With multiple properties and a child, it’s important that both spouses have adequate life insurance, Ms. Johnson says. Thirty-year term life insurance is most likely the best value for them, she says.
Ms. Dagher is a Wall Street Journal reporter in New York. She can be reached at email@example.com.