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Old 10-14-2009, 06:25 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,647 posts, read 40,010,157 times
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This is a relevant article to have a civil discussion around. (I have no axe to grind, but this is an important 'retirement' discussion).
I do lots of volunteer placement work with seniors. It is not at all uncommon for seniors to have a good chunk of their equity tied up in their home / farm / ranch / commercial real estate / income real estate.

Currently the housing downturn has a significant ripple affect.
  • Seniors can't move to higher levels of care (this is very dangerous for some who have urgent health needs and live in 'the boonies')
  • Care centers and Independent living establishments are losing residents and going broke + needed 'entry-level jobs' are lost. (by not getting replacements residents and by folks having to move out because their investments and equities have diminished)
  • Replacement single family residences are not being freed up in areas that have a housing shortage (such as where I live.. restricted / no building allowed, but economy is growing and folks have to commute into area). Replacement housing is very significant source of 'controlled' growth / anti sprawl.
  • There are many of 'pre-sold' senior projects that are facing serious financial difficulties due to inability to transfer construction lending to residential. This is hurting the senior Co-ops that I recommend (if you live where there is one, MSP...) (These are largely beneficial due to predominantly limited equity finance model)

Today I spent 4 hrs with a couple (age 85 and 87) who have a beautiful view acreage with an airstrip / hanger / shop. They can no longer drive 40 miles (one way) for medical needs and shoveling snow / carrying firewood / going without power / chaining up to get out of the driveway, and mowing a couple acres; have lost the glamor it had 20 yrs ago. The county ambulance is 60 minutes away in GOOD Weather, and their care needs have escalated. I suggested they sell 3 yrs ago, but they thought they could hold on, and didn't want to give-up their 'handmade, sweat-equity, dream paradise'. We have tried to sell their home for over a yr. They can't really face another winter here, BUT... their assets are 100% in this property. They have savings for less than one month's care at an assisted living home.

Right or wrong this is the case of MANY seniors. (hint: keep contingency plans documented and well thought out and ready to implement!!). I have worked with many rural seniors, and they feel safest about keeping their equity in property (right or wrong...not for me to say). This is not very liquid!!! They can't do a reverse mortgage, as they are for RESIDENTS, not absentees. (tho there is a new 11 month absentee provision, they are still WAY expensive and restrictive)

This is a catch-22 as I see many promoting 'Pay-off-the-mortgage', and then ??? your home becomes your vault, which has now become a vault with a missing key to many seniors. I too, consider a house a liability as well as a potential asset, but don't count your chickens before they are hatched!

Right or wrong...I have carried a small mortgage while enjoying access to cheap cash from the bank's low rates on my mortgage. I have always used that loan for other real estate investments, and I consider my history of primary home ownership to have been very prudent and effective. (I have owned ~ 10 homes, as well as ~20 investment props). I tell my kids to 'run-the-numbers' BEFORE they buy a home. I will own homes in the future, as I feel the tax rules currently offer it as a great way to get tax-free income (on POTENTIAL gain). Tax-Free income will be VERY important in the future. (in fact I will be buying a few future residences when things get worse... just keep TOTAL gain to $250k single or $500k married every 2 yrs to enjoy tax free income). You need to move 40 miles or have twins (multiple births) , to do more often than every 24 months.

Different strokes for different folks.

Please post your ideas, and don't be stifled by those who 'post to boast'.
Life is short, choose your battles wisely, and if you aren't speaking to edify another, then 'nip-it'.
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Old 10-14-2009, 06:32 PM
 
Location: Sierra Vista, AZ
16,133 posts, read 20,836,456 times
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Quote:
Originally Posted by TuborgP View Post
house-of-tomorrow.html: Personal Finance News from Yahoo! Finance

Great article on a topic not discussed much. What to do with the equity in your home while in retirement. Often becomes a part of thread discussion especially about leaving wealth to your children etc etc. Now a good article with good food for thought.

A brief part of for your reading:
The equity in your home represents a big part of your wealth. If you're married, your non-financial assets -- mostly the equity in your house -- represent about 70% of your total assets, according to a 2009 Society of Actuaries report "Segmenting the Middle Market: Retirement Risks and Solutions."

What's more, the report noted the median value of financial assets is less than 1.5 times median income -- $75,000 -- for the majority of middle-class households and that the median value of financial assets is just three times median income -- $132,000 -- for the vast majority of affluent households. Read that report at this Web site.
Wow that's exactly the kind of thinking that got us to where we are. Capture the equity and do what with it?
Better off doubling up mortgage payments and owning outright
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Old 10-14-2009, 07:13 PM
 
29,793 posts, read 34,889,516 times
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Quote:
Originally Posted by Boompa View Post
Wow that's exactly the kind of thinking that got us to where we are. Capture the equity and do what with it?
Better off doubling up mortgage payments and owning outright
Ok no one is disputing that and if you read the article that is part of the article. If you own your house outright you still have equity and that is part of your net worth. If you need access to your net worth to live off of or even pay medical bills how do you capture that part of it. Did you read the article? Your point is not within the context of the article. If you bought a house 30 years ago for $75,000 and never borrowed from it and now have paid it off and it is worth 100K that is still part of your net worth. I think you might want to read the article.
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Old 10-14-2009, 07:15 PM
 
29,793 posts, read 34,889,516 times
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Folks read the article you are trying to make points and argue points that have nothing to do with the original post and link. You are 75 and your expenses including medical costs are starting to become greater than your ability to pay. You are drawing down the saving part of your net worth but that is part of your need to survive til 94. What do you do? That is the question. The article is about financial planning and living in retirement and the fact that most calculators and articles don't help people factor in the home equity part of their net worth as they plan for future years and their needs deep into retirement. Some will need it in varying degrees and others won't. However if needed medical care is dependent on accessing more of your net worth then currently is being done how does home equity factor in? My father in laws house was just sold. He is in a nursing home and now he has that as spending money etc to last him longer than he will last. Perhaps it is there in your plan for liquidity in later life when you are no longer able to remain in the home. Perhaps it is part of your transition to another living setting. The big thing is to plan for it. Some not yet retired are planning to use that to downsize and become mortgage free. Once your home is paid for pretty much the full value is part of your net assets. How you access it will determine how much is available. That is a major problem with using the reverse mortgage scenario. It is fee expensive and if used to soon depletes your assets and might be needed later. However that is all part of planning.

Last edited by TuborgP; 10-14-2009 at 07:25 PM..
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Old 10-14-2009, 07:55 PM
 
48,516 posts, read 83,989,888 times
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To rent the home I how live in and have owned for the last 14 years would have cost me in rent over 285,000 during that time.I can now sell it for even more. If you think allthose expoenses like taxes and upkeep are not included on the lese or rent then your baldy mistaken.That is why landlrods are in the business and make a profit off them. Apartments are even a better investment. At the ned of 30 eyars you have rangable property of value. Atthe end of a lifetime of paying the lease on the same property your have nothing and the lanlord is well off. Owning is not for everybody but to lease a eqaul property is not a good investment in life;IMO.You pay the oweners cost plus a hefty profit to him.
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Old 10-14-2009, 08:13 PM
 
Location: Sierra Vista, AZ
16,133 posts, read 20,836,456 times
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Quote:
Originally Posted by TuborgP View Post
Ok no one is disputing that and if you read the article that is part of the article. If you own your house outright you still have equity and that is part of your net worth. If you need access to your net worth to live off of or even pay medical bills how do you capture that part of it. Did you read the article? Your point is not within the context of the article. If you bought a house 30 years ago for $75,000 and never borrowed from it and now have paid it off and it is worth 100K that is still part of your net worth. I think you might want to read the article.
If you needed money you could mortgage the house. The house I owned 30 years ago I paid $35,000 for and it is worth $200K today
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Old 10-14-2009, 08:22 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,647 posts, read 40,010,157 times
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And how do you qualify to repay the mortgage? (zero income in my case, assets only)

I am glad I still have some active HELOCs, but I expect them to be pulled, since I don't owe on them.

Lenders I have spoken to on commercial projects say there is no money to loan, (commercial or residential - even to their best clients) as most banks are trying to improve their liability ratios to meet new FDIC requirements. Most banks are likely 'over lent'. A senior with no income to pay a mortgage is not gonna get a loan, even with a low DTE ratio.
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Old 10-14-2009, 09:22 PM
 
Location: Sierra Vista, AZ
16,133 posts, read 20,836,456 times
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Quote:
Originally Posted by StealthRabbit View Post
And how do you qualify to repay the mortgage? (zero income in my case, assets only)

I am glad I still have some active HELOCs, but I expect them to be pulled, since I don't owe on them.

Lenders I have spoken to on commercial projects say there is no money to loan, (commercial or residential - even to their best clients) as most banks are trying to improve their liability ratios to meet new FDIC requirements. Most banks are likely 'over lent'. A senior with no income to pay a mortgage is not gonna get a loan, even with a low DTE ratio.
OK then how are you paying it now, if you have no income?
Reverse mortgage?
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Old 10-15-2009, 01:53 AM
 
71,763 posts, read 71,853,273 times
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the reason i say dont look at your house as an investment is because for alot of people whether your house is worth a million dollars or 100,000 its a moot point if your living in it. its a consumption item, its an expense as long as your using it. if you live in your house forever and dont sell it whats it matter to you... it may matter to your heirs, or the tax man but you arent spending your kitchen to buy goceries .


its like fine art or expensive collectables that you enjoy and use and have no intention of selling. unlike true investments which can be sold in a heart beat and changed into other investments and asset classes or spent your home is generally your place to live. until the day comes that its not a consumption item anymore in my eyes its not in my investment catagory.

when the day comes that you sell it, well you need another home so unless you have money left over its a moot point again how much you made. if you dont buy another home then you have to pull the rent money from it for the rest of your life or your spouses life. until your living arraingments are in place again and your holding cash in your hand that can be spent elsewhere its still a consumption item.

its to easy to be house rich and cash poor if your home is most of your net worth and unless your willing to take some un-diserable measures like in the article there is no way to spend your house efficiantly or easily.

sure you can get a reverse mortgage to get money out but if i had to pay 30-40,000 bucks in fees on a 200-250,000.00 deal or so from the average home i think thats a pretty poor deal and pretty poor planning. besides its no different then taking anyother loan except its a balloon payment due when you no longer need the house and they take the house as collatoral.

to many of us looked at our house as our retirement piggy bank and found when the time came it didnt provide as much money left over after downsizing that you thought.

listen you all can do what you want and count what you want . but i wont count my home as being anything other then a place to live and a place i have to allocate money to so i can pay the expenses. until the day comes that i sell it and i can see how much cash i have in hand to live on and still have a place to live it stays off my investment sheet.

infact we just did that, traded the nyc place and bought a retirement home in the pocono mountains of pa. it was a wash ,we just got more for the same money.

Last edited by mathjak107; 10-15-2009 at 03:15 AM..
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Old 10-15-2009, 06:28 AM
 
8,204 posts, read 11,925,738 times
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Quote:
Originally Posted by StealthRabbit View Post
This is a catch-22 as I see many promoting 'Pay-off-the-mortgage', and then ??? your home becomes your vault, which has now become a vault with a missing key to many seniors. I too, consider a house a liability as well as a potential asset, but don't count your chickens before they are hatched!

Right or wrong...I have carried a small mortgage while enjoying access to cheap cash from the bank's low rates on my mortgage.
I agree with you 100%, but you're going to find that we are in a distinct minority on this board. One of the most respected financial planners in the country, Ric Edelman, has counseled for years that you should carry the biggest mortgage you can afford over the longest term possible rather than pay it down quickly or pay it off entirely.

I will be relocating to a much lower housing cost area (from D.C. to Vegas) and could pay cash for almost any house that I want to buy out there from the settlement funds of my sale here, but that would probably be one of worst things that I could do with that money (other than taking it to a casino of course).
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