Question: “I am 37 years old and together with my partner, we usually had a combined annual income of $10-13K a year. We did not stop living like college students. But thanks to a well-made agreement, I have my house, and it was worth $1.2 million in 2020. My plan was to take that money and a balanced business with a job that I know, but I have money a lot of patience, and I’ve been actively looking after myself since I was 13 and asking for $1,000 plus my parents’ lifetime ROI before tax is 38%.
I was expecting this injection of money that would allow me to wake up, but the bank told me that the division of this house is logging and it will not be possible to buy a house. My only way to get that money will be to sell, so I start checking my position. I have one liquid asset of about $1 million, a 401(k) of about $20,000 (not self-directed), a Roth IRA of about $12,000 (self-directed, out of a $3,000 contribution), about $13,000 in savings and no debt. My credit score is 823, and I’m making $77,000 a year for the first time, but I haven’t completed a year yet. Is this a situation that a counselor can measure, or is it too far out of the ordinary? Would they be able to say more? I am very good at spending money, not spending it on hard work.”
Answer: Your situation is a classic case of unusual wealth that needs some structure – and experts say yes, you probably need an expert to help you. You can find advisors at the CFP Board, NAPFA and with this free app that matches you with trusted advisorsfrom our marketing partner SmartAsset.
“Obviously you’ve made smart, smart decisions and living like a broke college student while building a $1 million fortune is no small feat,” says certified financial planner Melissa Cox at Future-Focused Wealth.
Having trouble with your financial plan or looking for a new one? E-mail questions or concerns to picks@marketwatch.com.
That said, when you approach and look at your position, be aware of areas that may change. “Stop treating this asset like a lost opportunity and start treating it like a foundation for the next chapter. You don’t have to sell it, but you have to stop hoping that it will be your business model,” says Cox. Regular exercise will help you change your thoughts. “It’s a $13,000 savings, but you need real protection,” says Cox.
Now that you’re earning more money, it’s important to make sure your savings, including your Roth, 401(k) and savings account, are in the right place. “Your country may not be affected but it can [it] make money differently? Can you rent a part of it? Do you offer glamping? Are you partnering with a local business for low income? “You don’t have to go into the full Yellowstone, but there may be ways to use it without logging it or selling your soul,” says Cox.
It is not clear if you want to take out a mortgage on the property, which they say is impossible due to current zoning restrictions, or if you would have trouble selling the house as a new buyer will not be able to get a mortgage in the area. Either way, unless you find a buyer who can pay your price directly, you will need to pursue other options such as rezoning.
There is no question that you are in a difficult situation and not knowing what state you live in or how you got the property, it is difficult to give specific advice. “If we feel we need a home loan, then we need to change locations [the] Andrew Postell says: “It would seem to make sense to rezone your property so that the house is on one lot and the property is on a separate lot. This will allow the decision to change the location to be easier as your next step will be to ask for your home to be rezoned to residential. By knowing many areas, they may be able to rezone the house as you have stated that you live in it. This has risks.”
Moving forward with relocating can be a costly and time-consuming process that is not guaranteed to give you the results you want. In addition, converting to a residential property can reduce the value of your home based on its ability to generate income through logging. If you are renamed, you may have the opportunity to update your building code, tools and make other improvements that were not required for logging.
Besides being expensive and time-consuming, Postell says there’s also no guarantee that rezoning will be approved. “I would rely heavily on talking to the county/town you’re in about the possibilities of doing one of these steps. Play fair here. You’re asking them to do a job for you. You need them. Call back, ask where you can read the rules and get back to them to see if this is a possibility.
Depending on what happens in the rezoning, if the house is approved, it will still leave the rest of the property business. “If your house could be re-divided, you can get a housing loan on it and [therefore] you lower the amount you need in the commercial part of the land [that isn’t being rezoned]. There are still some qualifications to get a loan, so make sure you qualify before you start a single mortgage or relocation. Pre-qualification should be free to do and is usually a simple credit check. “It’s almost a no-brainer to qualify and it should tell you what interest rate you qualify for, how much you can get out of the property and what your renovation costs will be,” says Postell.
All this said, you still may not be able to get a home loan. “There is something called the highest and best use of the property. This is the term used in your assessment. It usually falls to the appraiser to find the highest and best use, so if your house was surrounded by many industrial organizations or commercial buildings or logging companies, the best use of that home will be commercial or industrial in nature. It will be a residential area,” says Postell.
Maybe you need a financial advisor
No matter how you choose to proceed, your best bet is to consult with outside counsel, experts say. “Especially someone who offers family office style or financial advisory services, [so] they can bring the prospect to the level of the situation and be the main point of contact. They can help explore alternatives outside of a single trading strategy, such as risk balancing, capitalization and long-term stability,” says consultant Rechelle Kennedy at Breakaway Advising.
The reason he recommends a family style advisor is that they can help connect the dots between a CPA, financial advisor and other professionals to ensure that decisions are consistent from a tax and planning perspective. “Instead of a single view, the advisor helps to create a thoughtful, tax plan that can include other ways to use assets, explore opportunities to build money and maintain flexibility. Equally important, the advisor provides responsibility that can help you stick to the plan instead of making emotional or practical decisions,” Kennedy says.
Working with a fee-only fiduciary, such as a CFP, that charges by the hour will ensure that they help you come up with a plan and strategy, without forcing you to invest your money or sell your home so they can access your property. Hourly planners typically charge between $200 and $500 per hour and can be retained for as few or as many hours as needed. You can find advisors at the CFP Board, NAPFA and with this free app that matches you with trusted advisorsfrom our marketing partner SmartAsset.
Having trouble with your financial plan or looking for a new one? E-mail questions or concerns to picks@marketwatch.com.
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