When to Pivot: Closing a Business, Reinventing a Career, and Selling Real Estate

Summary

HerMoney with Jean Chatzky Episode: When to Pivot: Closing a Business, Reinventing a Career, and Selling Real Estate Release Date: May 2, 2025

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Introduction

In this insightful episode of HerMoney with Jean Chatzky, host Jean engages with her audience through a live mailbag format, addressing two pressing financial questions from listeners Dawn and Karen. The discussions delve into the complexities of closing a business, reinvesting in a new career path, and making strategic real estate decisions. Jean offers compassionate, practical advice, enriched with expert tips and relevant financial strategies tailored specifically for women navigating unique financial challenges.

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Dawn's Story: Closing Her Business and Navigating Financials

Transcript Highlights: [00:00] – [16:24]

Closing Her Gift Shop

Dawn, a listener from Joshua Tree, California, shares her difficult decision to close her five-year-old gift shop. Facing a 40% decline in sales and unprofitability this year, Dawn recognizes the financial strain of sustaining her business. She states:

"It's been unprofitable this year. It's negative, actually. Net profit this year, sales were down 40%, and I'm not hopeful about improvement in 2025." [03:39]

Jean commends Dawn for her tough decision, emphasizing the emotional and financial challenges of shutting down a business:

"Many people stick with it for far too long. So I give you a lot of credit for deciding that you're going to shut it down." [04:22]

Managing Debts and Liquidating Assets

Dawn outlines her financial obligations, including $2,700 on a business credit card and approximately $3,000 in tax obligations. She discusses her efforts to liquidate business assets through a Destash group and Facebook Marketplace, successfully reducing some of her debts:

"I've been selling down fixtures from Facebook Marketplace, and they're not traditional retail fixtures, which is actually working in my favor." [04:51]

Car Accident and Financial Implications

Adding to her financial juggling, Dawn recounts being rear-ended by an uninsured driver, leading to her car being totaled. She anticipates receiving around $3,200 from the insurance company but faces the immediate need for a new vehicle:

"I need a new car because I'm in a rural area. [...] I just can't go one more day without a car." [08:03]

Retirement Planning and Financial Strategy

At 61, Dawn is contemplating her retirement strategy, including when to start taking Social Security benefits. She currently has a modest 401(k) with $5,000 and savings of $9,000. Dawn is also considering tapping into her pension from a previous bank job, which is placed in an annuity.

Jean advises against withdrawing from her 401(k) or annuity prematurely, highlighting the significant benefits of delaying Social Security:

"For every year that you wait to take Social Security, you get an 8% bump in your benefits." [06:55]

Jean suggests that Dawn should prioritize finding employment to cover immediate needs and preserve her retirement funds for the future:

"Use the money that you're getting [from insurance] to put the down payment on a car and then just get yourself a low payment." [05:38]

Transitioning to Audiobook Narration

Dawn expresses her enthusiasm for returning to audiobook narration, a field she previously engaged in. With a demo recording scheduled and support from a coach, she is optimistic about replacing her income from the gift shop. Additionally, she considers applying for unemployment benefits due to the business closure:

"By the end of next month when this closes down, I will have a demo and start reaching out to publishers." [14:16]

Jean supports this pivot, encouraging Dawn to leverage her savings wisely while pursuing her passion:

"I think gearing the audiobook narration back up again sounds fun and exciting." [16:13]

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Karen's Real Estate Dilemma: To Sell or Rent

Transcript Highlights: [16:24] – [39:20]

Background on Karen's Real Estate Holdings

Karen, a listener from Washington in the Pacific Northwest, presents a multifaceted real estate scenario. She and her husband purchased a second home in Denver during the pandemic, which has since appreciated significantly. Additionally, they own a primary residence in Washington:

• Denver Home

  • Purchase Price: $604,000
  • Current Value: $900,000
  • Mortgage: $255,000 remaining
  • Monthly Payment: $2,015
  • Rent Revenue: $3,340 (netting approximately $1,325 monthly)

• Washington Home

  • Purchase Price: $575,000
  • Current Value: $600,000
  • Mortgage: $2,600 monthly
  • Interest Rate: 3.25% for both homes

Karen provides an overview of their financial landscape:

"Our combined gross income is about $160,000. I am right at about $70,000." [23:56]

The Decision Point: Sell or Continue Renting

Karen and her husband face the decision of whether to sell their Denver property or continue renting it out. The considerations include:

1. Financial Gains vs. Emotional Ties

   • Selling could free up equity (~$300,000) to invest in an $800,000 home in Washington, aligning with their desire for simplicity and enhancing their primary residence.
   • Emotional attachment to the Denver home and fear of missing out on its prime location post-retirement.

2. Capital Gains Tax Implications

   • Potential capital gains if they hold onto the Denver property beyond the primary residence exclusion window.
   • Significant improvements ($100,000) have been made, which can offset some of the capital gains.

3. Tenant Relations and Direct Sales

   • Tenants are interested in purchasing the Denver home, presenting an opportunity to avoid realtor fees.
   • Ensuring the sale price reflects fair market value to maximize financial benefits.

Karen articulates her concerns:

"We're facing a decision point where we might be subject to capital gains taxes and we're trying to decide do we end our Pacific Northwest adventure early and go back home." [20:59]

Jean's Expert Advice

Jean navigates Karen through her options with a focus on maximizing financial benefits while aligning with personal values:

1. Opportunity Cost and Investment Potential

   • Jean highlights the opportunity cost of keeping $300,000 tied in Denver real estate versus investing it elsewhere with potential returns:

     "If you took the money out of the home in Denver and you invested it, you would be making a lot more." [28:37]

2. Market Considerations

   • Current real estate market volatility in Denver suggests potential risks in holding onto the property long-term.

     "There is a chance that you could hold onto this home in Denver and the price of that home could go down." [30:30]

3. Alignment with Lifestyle Goals

   • Emphasizing Karen and her husband's preference for simplicity and reduced responsibilities, Jean leans towards selling the Denver home to enhance their primary residence and align with their lifestyle aspirations.

4. Tax Strategies

   • Leveraging home improvements to offset capital gains and encouraging timely selling to minimize tax liabilities.

     "You definitely want to avoid that if you can." [38:08]

5. Final Recommendations

   • Jean advises a thorough pros and cons analysis, consulting with local realtors to ensure fair market pricing, and considering the long-term benefits of investing freed-up equity.

     "I think what your heart wants to do is to actually sell this place." [31:52] "You definitely want to avoid [capital gains taxes] if you can." [38:08]

Karen responds positively to Jean's guidance, feeling excited about the potential for financial freedom and alignment with her and her husband's values:

"It does. I like that. That makes me really excited." [35:23]

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Conclusion

This episode of HerMoney with Jean Chatzky offers invaluable insights for women facing pivotal financial decisions. Dawn's narrative underscores the importance of recognizing when to pivot from an unprofitable venture while strategically managing debts and planning for retirement. Meanwhile, Karen's real estate dilemma highlights the critical balance between emotional ties and financial pragmatism, emphasizing the significance of opportunity costs and tax implications in property investments.

Jean Chatzky expertly navigates these conversations, providing tailored advice that empowers her listeners to make informed, confident financial decisions. Whether it's closing a business, reinventing a career, or making strategic real estate moves, this episode serves as a comprehensive guide for women striving to build secure and fulfilling financial lives.

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Notable Quotes

• Jean Chatzky:

  • "For every year that you wait to take Social Security, you get an 8% bump in your benefits." [06:55]
  • "I think what your heart wants to do is to actually sell this place." [31:52]
  • "You definitely want to avoid that if you can." [38:08]

• Dawn:

  • "It's been unprofitable this year. It's negative, actually. Net profit this year, sales were down 40%, and I'm not hopeful about improvement in 2025." [03:39]
  • "I need a new car because I'm in a rural area." [08:03]
  • "I will have a demo and start reaching out to publishers." [14:16]

• Karen:

  • "We're facing a decision point where we might be subject to capital gains taxes and we're trying to decide do we end our Pacific Northwest adventure early and go back home." [20:59]
  • "We're comfortable living kind of a more modest lifestyle and really kind of putting our money towards experiences." [23:56]
  • "I think we definitely should pull out a legal pad and do the pros and cons list." [36:09]

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Further Engagement

If you found this episode helpful, consider subscribing to the HerMoney newsletter at HerMoney.com/subscribe for the latest updates on investing, budgeting, and making money. Additionally, explore Jean Chatzky's programs—Finance Fix and Investing Fix—designed to deepen your financial knowledge and boost your financial confidence.

For more episodes and financial advice tailored specifically for women, subscribe to HerMoney on your preferred podcast platform and join the conversation towards building a secure and empowered financial future.

Transcript

[Jean Chatzky]

Hey everyone, it's Jean Chatsky. We have had so many new listeners join us lately and I just wanted to take a sec to say welcome. Before we dive into today's episode. Let me just take a moment to reintroduce myself. I am a long time personal finance journalist. You might remember me from my 25 years on the Today show. And I started this podcast back in 2016 with one goal, to help women take control of our money and build the financial lives that we deserve. Whether you are budgeting, investing, negotiating a raise, or just looking to make some smarter financial choices, you're in the right place. And if you're ready to go even deeper, I've got two fantastic programs. Finance Fix is my hands on budgeting course and Investing Fix is the investing club I run with Karen Feinerman from CNBC that's designed, designed just for women. You can find out more about these [e-mail] and investingfix.com and by the way, we spell Fix with two X's. We are so glad you're here. Now let's get into the show. I think that you are just too young to pull the money out of your 401k. To pull the money out of your annuity. We gotta give those sources of real retirement income time to grow. And the same is true of Social Security. As you've heard me say many times, for every year that you wait to take Social Security, you get an 8% bump in your benefits. I mean, that is just an incredible return. Hey everyone, I'm Jean Chatzky. Thanks so much for joining me today on HerMoney. I am so excited to bring you another one of our live mailbags today where you jump on the phone with me and I get to answer all your questions and and your follow up questions. And I am especially excited for today's mailbags because they are two really specific questions about selling assets. First, I'm talking to dawn about selling her gift shop, her business, and the exciting pivot that that brings to her career. And then Karen's going to call in and we're going to talk about whether she should sell her second home in Denver or continuing to rent it out to long term tenants. Before we get into it, if you've got any questions about your money, talk to me. Let's jump on the phone. Reach out to [e-mail] we'll set up a zoom. I love this so much. Here's my conversation with Dawn. Dawn is joining us from Joshua Tree, California. I know You've got some things happening in your life with your business and your retirement, and you've got questions, and I hope I've got answers.

[Dawn]

I hope so, too. Let's start with the first thing that I'm closing my business that I've owned for five years. It's a small gift shop in downtown Joshua Tree, which is a gateway village to the Joshua Tree National Park. Unfortunately, it's been unprofitable this year. It's negative, actually. Net profit this year, sales were down 40%, and I'm not hopeful about improvement in 2025. I've got about 2,700 on the business credit card and roughly three grand if I add up all the tax obligations that I'll have and clearing out some advert. So I put some personal money in in the summer. But if I keep doing that, it's just an expensive hobby and I'm trying to really look at it from a business perspective.

[Jean Chatzky]

Well, first of all, good for you. I think that's really hard to do. Right. When we open a business, we put so much of ourselves into it, no matter what it is. And recognizing that it's more of a hobby than a business, acknowledging that it's more of a hobby than a business and that it's costing us to sustain it is really difficult to do. Many people stick with it for far too long. So I give you a lot of credit for deciding that you're going to shut it down. Are there assets in the business that have value that you're able to sell to other gift shops or things like that?

[Dawn]

Yeah, I mean, I belong to what's called a Destash group in the retail industry. So there's a number of shopkeepers in there, and I've posted a lot of inventory in there, and I've got some of it sitting over here on the side ready to get shipped out. And been selling down fixtures from Facebook Marketplace, and they're not traditional retail fixtures, which is actually working in my favor. They're things from Wayfair and overstock shelving and things like that. And being fairly successful taking care of all that stuff. So I'm working on getting all that stuff out the door.

[Jean Chatzky]

So all in, what's the debt that you expect to owe?

[Dawn]

I'm at 5,700 right now. Of course, I'm going to mark stuff down to make it go and hopefully not have to chip it too much into my personal to close it out.

[Jean Chatzky]

Okay, these are on your personal credit card?

[Dawn]

No, the business is an S Corp here in California.

[Jean Chatzky]

Tell me about how that ties into your questions. What are you wondering?

[Dawn]

Well, over and above that, I've got a car situation and I guess what I'm looking for out of all this is maybe to kind of prioritize and get a sense of with what money I do have available to me what the best way to use that is, if that makes sense.

[Jean Chatzky]

Got it.

[Dawn]

So I was rear ended by an uninsured driver in November. It was drivable and mechanically sound, but it had. It wasn't closing the gate. There were some things that needed to be fixed. So I got through the Christmas season back and forth with all the things to the store and then dropped it off early January. And I just heard this week that they are going to total the vehicle and I'll probably see somewhere around $3,200. I'm in conversations with them about that. So I need a new car because I'm in a rural area. The shop's a half a mile away so I can walk back and forth, which isn't terrible. But when I need to go to the bank or I need to get groceries, I'm leaning on friends and don't want to do that too much. So then I'm looking at putting money out for a car and potentially a car payment. And then there's the retirement side of things. So I'm going to be 61 this year, so I could in a couple years begin taking Social Security early. I do have a 401k which doesn't have a ton in it, but at 59 and a half, I just realized recently that. Oh, that's available if I need it, I think. And then I also have a pension from a previous bank job. It's in an annuity. And I'm wondering about, do I look at maybe taking a lump sum out, dealing with the business, dealing with the car and putting the rest in some investment vehicle for further retirement or. That's kind of where I'm at.

[Jean Chatzky]

Okay, tell me some numbers. What's in your 401k, what is in your. What's in your pension? And how much does it cost you to live on a monthly basis?

[Dawn]

So I'm pretty lean. About $750 a month to.

[Jean Chatzky]

To live?

[Dawn]

Yes. Yeah.

[Jean Chatzky]

Housing, everything, right?

[Dawn]

Yeah.

[Jean Chatzky]

Okay.

[Dawn]

And that's including like car insurance? Not including a car payment. And I did check on the insurance yesterday while I had them on the phone and it looks like depending on what I buy, it's not going to be maybe a hundred dollars more than what I'm already paying on the car insurance, so there's. That's manageable. 401k's got hovering around five grand in it. I have savings of about 9,000 at age 60. If I took the lump sum from the pension, that's $59,800 monthly would be 364. And I looked at some other numbers further down the line age wise and 62. Social Security would be at 15.98amonth. But of course if I wait till 67, which is my full retirement age, it's 2269, which I would rather do.

[Jean Chatzky]

Yeah, absolutely. It's generally better to wait if you can afford it.

[Dawn]

And I've heard that over and over on your podcast, so I'm sure you have.

[Jean Chatzky]

Thank you. What about your prospects for earning money if you shut the store down, what kind of job could you get? And what is that job likely to pay you?

[Dawn]

Yeah, I could pick up something here locally, maybe at another retail place which is probably going to be a minimum wage, which in California right now it may have gone up to 18, I'm not sure, 17 or 18 an hour. But for a long time when I was in la, I also did voiceover work and that's what allowed me to move out to the desert. Eighteen months into living in the desert and being on a contracted voiceover job, they didn't renew my contract. So it's just been I went out and found some random jobs and then this little shop opportunity came up and I started doing that. But what I did last summer was look into kind of going at it with a beginner's mind back into audiobook narration and those things. And I'm recording my demo next week and my website has been up all this time, but I feel a little more held and guided by this program and this coach that I'm working with. So by the end of next month when this closes down, I will have a demo and start reaching out to publishers. And I have referral folks in LA that I can say this is who I'm looking at. Do you have any insight into how I can get in there? And the other thing is, since I was paying myself as an employee from the S Corp, I believe I could apply for unemployment with the store closing down.

[Jean Chatzky]

Yes, I believe that is true as well. You absolutely should do that. But unemployment is not going to pay you what an eighteen dollar an hour job would pay you. Here's how I would go about this. I think that you are just too young to pull the money out of your 401. To pull the money out of your annuity. We gotta give those, those sources of real retirement income time to grow. And the same is true of Social Security. As you've heard me say many times, for every year that you wait to take Social Security, you get an 8% bump in your benefits. I mean, that is just an incredible return. I would get a job and simultaneously I would try to get the audio book narration going. You want to get to the point where the audiobook narration replaces the $18 an hour job if that's something that you really enjoy doing and want to be doing. But an $18 an hour job is really, it's nothing to sneeze at. It will easily cover your cost of living and it should pay for a car which you're going to need in order to get yourself back and forth. And so I would allow myself to use my savings to find a good used car going to get you back and forth to where you need to go. Make sure with your insurer that car is not going to, for some reason bump up your premiums. Double check it before, before you go with it. Use the money that you're getting what you need. Use the money that you get from the insurance company to put the down payment on a car and then just get yourself a low payment. Go to a credit union and talk to them about a low cost auto loan. They're really good for that and I would just move forward that way. But I think as you sort of look to retirement at some point in the future, the nice thing about living so leanly is that when you start drawing on Social Security and when you start pulling from your pensions, that money is going to exceed what it's costing you to live right now. The problem with living so leanly is that as we get older and have more expenses related to healthcare, it's just really hard to sustain. And so I'd like you to save some powder until you truly need it. And I don't think you need it right now. I think retailers are having trouble finding people to work. You're in an area where I'm sure that labor is in demand.

[Dawn]

As a shop owner, I can tell you it definitely is.

[Jean Chatzky]

Yeah. And maybe you find some place that you like the people. I mean, hopefully you find some place that you like the people that you like to go where you have a good time while you're there and you continue to feel engaged in your community. But I think it would be irresponsible to start to tap these other sources. I Did have one question about your health insurance. What do you do for health insurance?

[Dawn]

So the income is low enough that I qualify for state sponsored, so I am covered on that for sure.

[Jean Chatzky]

When are you expecting the check for the car?

[Dawn]

Well, I'm negotiating. Well, not negotiating. I'm trying to understand why they're taking out some money for a deductible when I had a uninsured motorist collision deductible waiver. So I'm trying to work that out with them. So probably once that gets settled, I would say probably within a week and a half or two, if you are.

[Jean Chatzky]

Feeling like, oh my gosh, I can't go one more day without a car, you can take the money from your savings and go buy a car. Just keep the down payment under the amount that you know for sure that you're going to get and replenish it if that enables you to get on with your life. I mean, the good news is that you've got a lot of options and I think gearing the audiobook business back up again sounds fun and exciting.

[Dawn]

Yeah, totally. I was on a call with the group yesterday and we were all saying our celebrations at the beginning of the call. While we're celebrating and it's motivating and encouraging. I think losing that contract, my ego took a hit.

[Jean Chatzky]

Been there.

[Dawn]

But I know I still have, you know, with that I have many years ahead of me of work. So.

[Jean Chatzky]

Yeah, yeah, you absolutely do. When we started this podcast, we recorded it out of a studio called CDM in Manhattan that is primarily an audiobook studio and oh, so much fun. I'm a huge audible fan. I listen to more books than I read by a mile. And for me, I would see some of my favorite not only actors come into that studio. John Rubenstein came in one day and Kathryn Urbay came in one day. And the biggest thrill, I have to tell you, I had just listened to a book during the start of COVID called maybe youe Should Talk to Someone. It's a book about. About therapy written by a therapist named Laurie Gottlieb. And the woman who read it is somebody named Brittany Presley. And she was such a good reader that I went down the audible rabbit hole in order to find other books that she had read. So I was in CDM one day and the producer, there are three different studios in cdm. And the producer said, bye, Brittany, see you tomorrow. And I was like, oh my gosh, are you Brittany Presley? And she was, that's awesome. Yeah, it was very exciting for me.

[Dawn]

Well, Elise, Elise, who runs this program that I'm in, she read the Madonna memoir.

[Jean Chatzky]

Oh, wow.

[Dawn]

Yeah. And she announced yesterday on the call that six people from the program have been nominated recently for Audi Awards.

[Jean Chatzky]

That's amazing.

[Dawn]

So that's very encouraging. Yeah. I'm super excited and I'm glad you had that experience. That's cool.

[Karen]

It's very cool.

[Jean Chatzky]

Big audiobook fan. I hope that you have a ton of luck as you get back into it, but I would just, I'd just get a job, get moving, get a car. You're going to be fine.

[Dawn]

Okay. I appreciate Eugene. Thank you so much.

[Jean Chatzky]

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[Karen]

I am currently living in the Pacific Northwest in Washington.

[Jean Chatzky]

Washington. How is it there?

[Karen]

It's gorgeous. Beautiful sunny day today.

[Jean Chatzky]

Lovely. Yeah, it's beautiful and sunny here too. I know that you have essentially a real estate question, but there are many parts to it. So tell me a little bit about you and then let's unpack what's going on in your life.

[Karen]

Great. Thank you so much for taking my question. I'm a longtime fan, longtime listener.

[Jean Chatzky]

Thanks.

[Karen]

And yes, so my husband and I purchased a home in metro Denver right as the pandemic began. We had been in multiple bidding wars. So it was very hard for us to finally get this home. It was actually the week that shutdowns began and I think all other buyers were really scared at what happened. So we felt very lucky to finally win a bid on this home. It's a modest home, but great views, access to trails and we were thinking that this would be our longtime residence. However, my husband's job went remote and we thought this would be our one opportunity to try a new adventure having that at least one secure income. So we became accidental landlords. We hired a management company locally and found great tenants who have now been in the property for three years. And we're facing a decision point where we might be subject to capital gains taxes and we're trying to decide do we end our Pacific Northwest adventure early and go back home. The tenants are interested in buying so we also see an opportunity to sell to them and avoid real estate agent fees. But we also could keep it long term. The tenants have been great, try to keep them in long term. So so many options. And I know you have given advice when you're really emotionally invested to kind of take that pause and reassess.

[Jean Chatzky]

Absolutely. Where you are right now in Washington, do you want to stay? What's your real estate situation there?

[Karen]

Yes, we currently own a home here. You have also given the advice that it's best to rent when you're trying to explore an out of state area. However, with our pet situation, it was really hard for us to find something. We're in a pretty remote rural area, so we also have a lot of landlords who are interested in short term rentals because we do have a big summertime boom with tourism. So again, really hard to find something, find a rental that fits our situation. So we Own. We have. We have a home here that. Both homes are at a 3.25% interest rate.

[Jean Chatzky]

Lucky you. And where do you think you're going to? Do you think you'll continue to live in Washington? For how long? Let's talk about the numbers, and let's start with the Washington home. What did you buy it for? What's it worth? How long do you think you're going to stay?

[Karen]

We bought it for 575,000, and the value has not increased much. So we're right around there. It might have gone up to 600,000. Our mortgage is 2,600 per month, and we like the area. The job that I have now is fully in person, but is pension eligible. So if we look at the bare minimum, if I stay there for five years, my monthly benefit, if I wait to take it in retirement, is just $260 per month. If I stay for 10 years, it goes up to 760 per month and up. And there's a cola with that as well.

[Jean Chatzky]

And do you. I mean, when you look at where you're living right now, are you happy? Do you like it there? I mean, put the. Is this a place that you think that you want to stay? Is this a job that you think that you want to keep?

[Karen]

It could be, but I also think variety is the spice of life. I'm fully comfortable searching for a new job at any point and enjoy that. I think my husband and I, we like to live simply, so we made the decision not to have any children. We're comfortable living kind of a more modest lifestyle and really kind of putting our money towards experiences. So we're not looking to increase our income very much. We're looking at taking on less responsibility, not more. So right now, our combined gross income is about $160,000.

[Jean Chatzky]

Okay. And what percentage of that is yours versus his?

[Karen]

I am right at about 70,000.

[Jean Chatzky]

Okay. What do you do?

[Karen]

I work at our library system. So I work in marketing for nonprofits and was able to take advantage of public student loan forgiveness and have been committed to nonprofit work.

[Jean Chatzky]

Okay, tell me about the Denver house.

[Karen]

The Denver house is also very modest. It is about two bedroom, one bath upstairs, and then there is a potential for a little rental unit downstairs. We put in an egress window. We remodeled the kitchen, took down some walls, so it has a beautiful view. It backs to a mountain and has views of the foothills. So it's a. It's a lovely spot.

[Jean Chatzky]

How much did you pay for it and what is it worth?

[Karen]

At this point, we paid 604,000, and current value estimates are around 900,000 or so. That area had such a huge boom, so we have also a lot of equity in there because we only have 255,000 left on our mortgage.

[Jean Chatzky]

What's the monthly payment and what's the rent including all of the costs of the manager and stuff like that?

[Karen]

Well, let's see. I wrote it down a little bit differently. So our monthly mortgage is 2015, and then we're collecting in rent after the management fees. 3,000, 340.

[Jean Chatzky]

Okay. All right. So you're clearing about. You're clearing about $1,300, basically. That's right. 1325. Okay, that's right. And your question is, do you sell it? Right?

[Karen]

Yeah. Do we sell it and do we take the equity out of there to maybe sell the house in Washington and upgrade to something nicer? Our home here is fine, but when you're coming from a home that has these gorgeous views and access to hiking trails, you just have that desire to move a little closer to that ideal.

[Jean Chatzky]

Absolutely. And you also mentioned the desire to live simple. What does that mean to you? I mean, I think simply. And being a landlord, that doesn't really square.

[Karen]

That's right. Yeah. I feel like we. We definite stumbled into becoming landlords, and for us, really not buying much living with what we have, reusing, repurposing, buying secondhand things. So we try to do that quite a bit.

[Jean Chatzky]

All right, so if you could write this script, what does it look like in your mind? What would you like to get rid of? What would you like to do, and what are you afraid of letting go of by selling this house?

[Karen]

I think I'll start there. Our fear of letting go of this house is kind of coming to the end of our exciting time in Washington and wanting to move back to be closer to friends and thinking of that home as a potential retirement home where the primary is on the first floor. We could potentially rent out the unit below if we ever needed to. We're within walking distance to a college campus, so potentially using that as a. As an income property in our basement. So our fear, I think, is not being able to get back into that beautiful location when we retire if we ever want to. And I just don't know if having that equity tied up in the Denver home would prevent us from living our best life in Washington while we're here.

[Jean Chatzky]

Boy, it is a tough one. Look, you're making some money on the home in Denver, but if you took the money out of the home in Denver and you invested it, you would be making a lot more. Right. If I just did some back of the envelope calculations, if you cleared 600,000 on the house in Denver, how much do you think it would take to add to the money that you've got into your current house and buy something where you'd actually be happy living?

[Karen]

Yes, I think that in looking at our current market, we are looking at about an $800,000 home in our area to get kind of into that house that we could envision ourself being in more long term.

[Jean Chatzky]

Okay. All right, so let's say you take 300,000 off the top because your current house is worth five to six, right? You add that to your current house, you leave your mortgage where it is, or you decide to borrow a little more, depending on how the numbers are working at that period of time, that gives you $300,000. You invest that for a long term return. Let's see what that looks like. Let's say we invest it at 8% over the long term. That's going to give you again 20 to $25,000 a year in gains on average over a portfolio that rides the ups and downs of the market and just does its work for you over time because you've clearly got considerable years for retirement. That's valuable. The real estate market in Denver, just like everywhere else where prices have really run up in the last few years, is right now the subject of a lot of debate. There was a story in the Wall Street Journal that you should go back and read about two companies in the business of investing solely in residential real estate. They buy homes. Sometimes they hold them for a while, sometimes they fix them up, they sell homes, but they're not in the commercial real estate business, just in the residential real estate business. And the net asset value of their portfolio compared to their stock price is very uneven. The stock price of this company is being discounted by about 20 to 30%, which means that people are looking at these properties and they're thinking, oh, homes in the US at least, where these companies own homes, but they own them all over the country are overvalued. There's a chance that you could hold onto this home in Denver and the price of that home could go down. There's also a chance anytime you own real estate that the roof could go, that it could spring a leak, that you could have hassles that you are not excited about. And given what I hear you saying to me about the not wanting to be a Landlord living simply part of the equation. I think what your heart wants to do is to actually sell this place. Even if you think that you might at some point be sad that you let it go. Am I reading you correctly?

[Karen]

Yes, I think you probably are. I think that looking forward and, you know, maybe feeling sad at that point rather than feeling sad about it right now is accurate.

[Jean Chatzky]

No, I think it's. Look, I think it's a really, really difficult thing to do. I am a big real estate porn person, right. I spend an awful lot of time on Zillow, an awful lot of [e-mail] I look at places where I might have had an opportunity to buy a property, and I'm sad that I didn't pull the trigger because, oh my gosh, it would be worth so much money and I could have fixed it up so nicely. There is usually something else to rent or to buy. It may take a while, as it did the first time that you found this home of yours in Denver. But you have to ask yourself about the opportunity cost of the money. How are you guys situated for retirement? You mentioned your pension, which even if you stay with the company for 10 more years is not going to cover a huge amount of your monthly net. What else are you doing to set yourselves up for a comfortable retirement?

[Karen]

Right. We have right now about 200 in traditional IRAs and 150 in Roth and then small brokerage at about 10k and an HSA at about 10k. We have about 100,000 in our money market kind of waiting to make that next move. And then I have an inherited traditional IRA that is over $200,000 that was inherited before the Secure Act. My plan was to kind of leave that inherited IRA alone unless I needed it for something major to let it continue to grow.

[Jean Chatzky]

Tax Deferred. What about 401k money? Do you or your husband have that?

[Karen]

Yes, we both have with our current companies, about 100,000 each.

[Jean Chatzky]

Okay, so you have about four times, if you count the money in the inherited IRA, four times your current salary, four and a half times your current salary sucked away for retirement. How old are you?

[Karen]

I'm 46.

[Jean Chatzky]

Okay, so you know my benchmarks, right? In, in your 30s, you want to have one times your current income put away for retirement by your 40s, three times, by your 50s, six times, by your 60s, eight times, and by the time you actually retire, 10 times. This is going to put you a lot closer to the next benchmark. The sale of this home will put you a lot closer to the next benchmark. It's not a must because you are tracking right. You're right in range with what you have now. But should you decide that you want to embark work on another adventure right now, you probably don't have the wherewithal to do it. But if you were to sell the place and put the money away, you just buy yourselves a little additional freedom. And to me, that sounds. That sounds like it jives with your personality.

[Karen]

It does. I like that. That makes me really excited.

[Jean Chatzky]

What does your husband think?

[Karen]

He is happy anywhere.

[Jean Chatzky]

That is a very, very nice way to go through life. What does he think about this particular decision? Does he think he'll have a huge degree of FOMO about the Denver house?

[Karen]

A little bit. I think we're both on track with that. But for me, I've lived in Colorado for about 20 years, but it's his hometown, so he's been in that same community since birth. And granted, most of our family has moved away out of Colorado at this point to their retirement homes in warmer weather. So really some good close friendships there, but no family.

[Jean Chatzky]

Look, I would sit on it for a little while longer. I think that you definitely should pull out a legal pad and do the pros and cons list. But that what we've been talking through gives you a greater sense of the pros and cons. And if you line them up, you should be able to get to a decision.

[Karen]

Great. Thank you.

[Jean Chatzky]

Sure. Anything left on the on the table.

[Karen]

I'm curious with our tenants interested in purchasing, I do feel for them, as we all know, that folks are really trying to get into the real estate market and own their own home. So it's enticing to us to give them the opportunity to do that. But we also don't want to leave money on the table for ourselves. Is there any smart way to go about considering whether to sell to them using maybe a real estate attorney or what would your advice be there?

[Jean Chatzky]

I'd actually consult with a couple of realtors. Find the realtors who do the most business in your area and go through the process with them of letting them see the home, asking them what they would price it at. In order to give you a fair market value for this property, you should not undercut yourselves. You should get the money out of the house that the house is worth. If your current tenants want to pay, that Fantastic. Saves you 4, 5, 6% on a real estate transaction. But just because they're living there doesn't mean that you have to lose money on the deal.

[Karen]

Great.

[Jean Chatzky]

Yeah. And that may sound hard hearted, but, you know, I think. How many times do you get a chance to sell a house?

[Karen]

I do have another question about capital gains, because we're right kind of at that limit. I'm assuming it benefits us if we're going to make this decision, to make it right away.

[Jean Chatzky]

Yeah. So when you say you're at that limit, if you stay out of the house for longer, it's no longer considered your primary residence and you lose the ability to exempt $500,000 in capital gains taxes. Yeah, yeah. You want to make this decision sooner rather than later, unless you have enough in improvements to write off against the entire gain. So when you improved the home, I assume you saved all of your receipts.

[Karen]

Yes, I luckily was smart about that.

[Jean Chatzky]

Okay, so how much did that cost you?

[Karen]

We have just around 100,000 in improvements.

[Jean Chatzky]

Yeah. So then you're still looking at a $200,000 gain if you wait beyond the window, which is $40,000. That is real money at capital, you know, at a 20% capital gains rate. So you, you definitely want to avoid that if you can.

[Karen]

Great. Thank you so much, Jean.

[Jean Chatzky]

You are very welcome. Thank you for listening. Thanks for being a part of our community and thanks for talking real estate. I love the topic, as you know.

[Karen]

Yes, thank you.

[Jean Chatzky]

If you love this episode, please give us a five star review. On Apple Podcasts, we always value your feedback. And if you want to keep the financial conversations going, join me for a deeper dive. HerMoney has two incredible programs. Finance Fix, which is designed to give you the ultimate money makeover, and Investing Fix, which is our investing club for women that meets bi weekly on Zoom. With both programs, we are leveling the playing fields for women's financial confidence and power. I would love to see you there. Her Money is produced by Hayley Pascalides. Our music is provided by Video Helper and our show comes to you through Megaphone. Thanks for joining us and we'll talk soon.