Getting Ready for Retirement

Hi all!

My mom is downsizing to a smaller house but wishes to buy an investment property and a primary residence with the proceeds. How should she do this the best way?

She is set to get $110k in cash from her current home, and the investment house is $70k (income potential of $700/month) and the primary residence is $141K. What is the best way to divide the money between the properties for the best interest and tax savings?

My initial though was to pay 100% cash for the investment property and the remaining down on the primary residence. This gives us the best interest rate around 6.125% on all borrowed money but limits the ability to claim the interest rate as an operating expense on the rental.

The other option is to put 20% to 40% on the investment property and borrow the rest as an mortgage on an investment property, which would be around 7.5%. We would be able to claim interest as an operating expense which could lower the taxes on the income generated from the investment.

Thoughts? Thanks!

I'd keep some of the money for a rainy day fund for both the investment property and the primary residence. Then you can divide the money between the primary residence and investment property 75%/25%. You'll get a tax write off for both of the properties since you can write off interest and taxes on the personal home and can expense the interest and taxes on the rental.

You need to be careful on the rental property since when you are retired and receiving social security and other forms of fixed income you can affect those by having too high an income.

I learned that the hard way.

If using an investment property- it is best done either fully paid off or leveraged as much as possible.

If 20% is put on the investment property (14k) and the balance is used to either pay the primary residence off in full and then invest the rest, I think that would be best use.

Assuming
a) $700/month covers the mortgage on the remaining 80% of property
b) the person handling the investment propery knows how to recoup the value of the house as depreciation on a tax return
c) the person handling the investment property knows the details of tax returns and rental implications (to get max tax benefit)

if any of a-b-c are not true, don't buy the rental in the first place.