Do You Have A Home for Tomorrow?

Most people I talk to  seem to be afraid of a bubble bursting as it did in 2008. Statistically, that started in 2006, and some of us started to notice that early. I am asked about when prices will start to fall… that answer is when we see over 180 days on the market average for 2 straight months. Right now the average is 56 days on market. So it does not look like things will change anytime soon.

Prices continue to move up at a quick pace indicating that if there is a move planned in the next 2-3 years, you should do it now to take advantage of the prices on the new place. It will not be cheaper in 2 years. .

Now lets talk about retirement housing. For those who do not know I am a Senior Real Estate Specialist (SRES) and can help most folks with the issues they are facing. But read on….

As people near or enter retirement, one of the decisions that typically comes up is whether to sell their “big” home and buy a smaller one. If you know anyone who has been faced with that situation, selling one home and buying a smaller one may not save enough money to make it worthwhile.79996505-250.jpg

There are sales expenses on the property being sold and acquisition costs on the replacement home. Generally speaking, homeowners may not mind a home with less square footage, but they usually don’t want to give up amenities or locations that they’ve become accustomed.

After a little number crunching, the move may not make enough difference in savings and they end up staying in their current home even if it doesn’t fit their needs anymore.

What if while this couple were still in their peak earning years, they acquired a home in an area where they would consider retiring and rent it during the interim. They could put it on a 15-year mortgage and possibly, even accelerate the principal payments to have it paid off by their anticipated move.

In the meantime, they could continue living in the “big” home until it is time to make the transition. Sell the “big” home that may be paid for by then and avoid up to $500,000 of capital gain. Take part of the proceeds and remodel the rental/transitional home and invest the proceeds for retirement income.

Ideally, the former rental would be mortgage free by this point, so the retirees would not have a house payment. Even if at this point, they changed their mind about retiring to this particular home, they still have a property that acted as a hedge against rising prices and have sufficient equity to purchase something else without using the proceeds from the “big” home.

It is difficult to know what the situation will be years from now when a person retires. It is clearly advantageous to have a plan that allows for options and choices.

To find out more about purchasing your retirement home today, give me a call at 480.355.8645, or Email me at Info@LocateArizonaHomes.com

Housing Decision During Retirement

Recently I took a  certification class for the designation of Senior Real Estate Specialist. I found there was  a wealth of information to assist my clients that are reaching retirement age or have parents with limited and/or fixed income.  All of that to say is there is a lot to think through when planning for retirement.  Certainly the below is a unique view of how some approach retirement. The Phoenix metropolitan area is wonderful place to retire with the mild climate and plentiful golf courses, so read on for more enlightening information…

A couple is planning to tour the United States in a travel trailer during their first few years of retirement. They are going to sell their current home now and purchase another home when they finish their travels.

An interesting exercise is to determine the optimum time of selling the home: now or when they’re ready to buy their replacement home.

If they intend on traveling for more than three years, then, it may be a good decision to sell prior to the sojourn to avoid paying taxes on the gain in their home. IRS allows for a temporary rental of a principal residence while still keeping the $250,000/$500,000 capital gains exclusion intact. A homeowner must own and use a home for two out of the previous five years which means that it could be rented for up to three years, but it would need to be sold and closed before that three-year window expires.

If the travel will be less than three years, there is an option of selling now or later. Using the example below, the homeowner sold the home, paid their expenses and invested the proceeds in a three-year certificate of deposit until the replacement home was purchased.

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As an alternative, if the homeowner rented the home, not only would they have income, the home would continue to appreciate and the unpaid balance would go down resulting in larger net proceeds. Based on a 5% appreciation and continued amortization of the mortgage, the net proceeds could easily be $40,000 more.

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Obviously, there are a lot of considerations that affect the decision to sell now or later but in an appreciating real estate environment, being without a home for several years could affect the financial position of the owner in the replacement property.

It is certainly reasonable to look at various alternatives before making a decision. Call me at 480.355.8645 or Email me Info@LocateArizonaHomes.com to help you look at the different possibilities and talk to your tax professional.