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Properties for a Comfy Retirement


In 1990, Donna Risvold and her husband divorced and made a deal: He got all of his pension and the car; she got the real estate and the minivan.

But this decade hasn't been kind to real estate--and especially not to her properties, all in Riverside County--and Risvold, now 68, feels she is in financial straits.

"I'm what you call the 'new poor,' " said Risvold, who lives in a two-bedroom home in San Jacinto she bought after the divorce. "I'm cash-poor, and I can't sell my possessions to really get anything that will support me for the next 20 years," she said in explaining why she sought professional advice. To help ease her concerns, she took a part-time teaching job.

Like many people of her generation, Risvold believed buying property would always be a sound investment. In fact, she made a career of real estate, working as an agent for 20 years. And in the 1970s, when she bought two small rental houses in Hemet and inherited a four-unit apartment building in Banning, values were rising and she thought she'd be set for life.

But the downturn in Riverside County's real estate market was particularly brutal, with values plunging as much as 50% through 1996 in some areas.

The equity in Risvold's three rental properties, once much higher, now totals about $139,000. (That's in addition to the $10,000 equity in her San Jacinto home.)

Although Risvold's portfolio is dominated by real estate, she does have other investments: an individual retirement account worth $13,500 invested in a certificate of deposit; a $4,000 bank CD; and stock worth a total of about $10,600 in a mining company and a food-supplement company.

Though counting so heavily on real estate investments for retirement was a mistake, Risvold is not in a hopeless situation, said Elaine Bedel, a fee-only certified financial planner based in Indianapolis who reviewed Risvold's situation. In fact, Bedel thinks Risvold has enough assets to approach her income goal of $20,000 annually if she just rearranges them.

"Putting all your eggs in one basket can be a problem," Bedel said. "Markets change--whether it be the real estate market or bonds or the stock market, which is why we preach diversification to be safe."

In addition to the risks inherent in any investment, real estate requires management and is not liquid, which can be especially problematic when values fall. Unlike with a stock or bond, a piece of real property can be on the market for years before it will sell, even when the asking price is reasonable. In addition, transaction costs for real estate are high--sales usually mean fairly steep commissions, and mortgages carry significant service and other charges.

Bedel suggested that Risvold sell her rental properties now in order to get "off this merry-go-round of dealing with this real estate at your age."

Even if the proceeds are less than the estimated $139,000 in equity in the three properties, Risvold would still come out ahead in the long run, Bedel said, because she would avoid continuing repair bills and other management costs.

Risvold could reach her income goal with a portfolio of bond and bond fund investments that, Bedel told her, will not only be easier to manage but also carry less risk.

Bedel made specific suggestions for a portfolio that could be expected to have an average annual yield of between 6% and 7% and would produce income of about $1,100 a month. That and Risvold's $500 monthly Social Security payments should bring her close to her goal of $20,000 a year.

Although higher potential returns are possible in the stock market, there could also be long periods of low or negative returns.

"I would be very reluctant to put your money in the stock market because this is your nest egg, it's assets that we've got to protect," Bedel told Risvold, and she recommended that Risvold sell her individual stocks.

"The goal is to . . . give you some solid ground financially that will carry you on for the next 20 years," the planner said.

Although Bedel's advice sounded appealing, Risvold was hesitant about selling all her rental properties. She does want to sell the Banning property--it's the most time and trouble--but is thinking she would like to hold on to the two houses until the market rebounds.

Southern California's real estate market is already picking up, said John Karevoll of DataQuick Information Services, a San Diego-based real estate information service. In Riverside County, Karevoll said, home values are expected to rise 4% to 4.5% by the end of the year.

"If she suffered through the market's downfall all those years, she might as well benefit from some of the momentum that's coming with the increase," Karevoll said.

Of course, that's a general prediction about a broad area, not a statement of fact about specific properties.

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