Senior Buyers
Frequently Asked Questions by Senior Home Buyers
1. I’ve decided to sell my home. Should I
rent or should I buy another home?
Whether maturing sellers should rent or buy their next home is not only
an emotional decision, but also largely a question of economics. The
most important financial factor that comes into play is determining the
highest and best use of the cash you receive from selling your home.
Many times, tying up a lot of cash as equity in a home does not provide
the best cash flow. The question to ask yourself is: Do I have
sufficient cash flow from other sources? If the equity in your current
home represents a substantial portion of your assets, how you use
these funds is very important in determining your quality of life. To
understand how this works, consider what maybe called the “Cheap Living
Myth." One of the most commonly uttered phrases by senior homeowners is,
"Our mortgage is paid off, so it's really cheaper for us to keep living
in our home than it would be for us to rent a home." Most seniors
honestly don't know that they might be able to rent an equally
nice home in the same neighborhood and pocket thousands of dollars in
extra cash every year.
2. Is there a simple rule of thumb I can
use to decide whether I should buy or rent my next home?
Advanced courses in real estate economics use a “two-thirds/one-third”
rule. The first two-thirds of most people's lives are spent acquiring
and leveraging assets while the last one third of most people's lives is
spent earning income (i.e., generating cash flow) from those previously
acquired and leveraged assets. So, people who used to figure they would
live to be 60, 65 or maybe 70 years old would acquire and leverage
assets until they were 45 years old. Then, from that time forward, they
would try to generate income from those assets. People who, today,
figure they will live to be 90 years old, say, could be acquiring and
leveraging assets until they are 55 or 60 years old.
3. I’m planning to move into my vacation
home. Is this a good idea?
Maybe. It's important to make a careful and considered decision about
where you want to live at any time in your life. You should select an
area where you feel comfortable and secure and that you have had ample
time to visit. Many people make a quick decision to sell their home and
move into a previously purchased second home (i.e. a vacation place in
the mountains, the desert, or a ski resort). However, there is a big
difference between living somewhere for a couple of weeks each year and
living there year-round. Many times, people don't know what the place is
really like. Also, those few weeks each year are usually during the
height of the social or recreational season and may not reflect year
round activities. For example, many people decide to move to a desert
community without ever having visited that locale in the middle of the
summer when the temperature can reach 120 degrees. People who are
considering moving to their second home on a year-round basis should
live in that home for an extended period of time before making this a
permanent decision and certainly before selling their primary residence.
4. Should I consider relocating to another
state?
Younger seniors generally are more flexible and enthusiastic about
relocating to a brand new distant community, while older seniors tend to
be more inclined to stay in a familiar community. Seniors also tend to
relocate to be closer to trusted family members. That usually means
moving to wherever their children or grandchildren have decided to live
or returning to a hometown they themselves left behind years earlier.
Many seniors moved to sunny retirement-friendly states (e.g., Florida,
Arizona and California) a generation ago, when they were in their late
'50s or early '60s. These seniors are now living much longer than they
had expected and are facing more difficult housing decisions.
Approximately 30 percent of seniors have lived in the same home for 30
years or longer. It's no wonder that making a major move with a lot of
accumulated belongings seems daunting. If you decide to make a
long-distance move, be sure to spend a lot of time in your destination
state and at various times of the year, if possible, before making your
decision. You may want to rent a home in your new community before you
decide to buy a home. Whether you’re moving a long distance or a short
ways away, start packing for your move as early as possible. Choose a
reputable moving company, sign a moving services contract and consider
purchasing additional mover's insurance.
5. How can I be assured that my next home
won’t be a “money pit”?
If you are buying an existing resale home (i.e. not a brand-new home),
it’s important to obtain as much protection as possible. Talk to a
REALTOR® who specializes in helping seniors and who understands senior
issues. This is a good step toward learning about all the options
available to you. One such option is to make sure the property is
thoroughly inspected by a competent building contractor or home
inspector (your choice) prior to signing off on your contingencies. You
may, want to obtain a professional termite report from a pest control
company. Many real estate professionals recommend the purchase of a home
warranty product. For example, American Home Shield Warranty and other
companies provide warranties with certain special benefits for seniors.
A warranty means you’ll have to pay only a maximum fee — for any type of
repair covered by the warranty program. These products give you the
opportunity to ensure the quality of your next home. A REALTOR® with the
Seniors Real Estate Specialist® (SRES) designation can tell you about
other quality-assurance opportunities.
6. How can I be sure I won’t lose money on
my new home?
There is no guarantee that any particular home will appreciate in value;
however, residential real estate has historically proven to be an
excellent long-term investment. Keep these strategies in mind to choose
a home that will pay off over the years:
- Purchase a home in a well-established neighborhood with good schools, a low crime rate, and easy access to transportation and attractive shopping areas.
- Purchase an undervalued home, or one that is unpopular at the moment due to its architectural style or specific location within the well established neighborhood.
- Avoid over-paying for a home just because it has a strong emotional appeal to you. Paying too much in the first place means your home will be worth less than you paid for it on the day you move in.
7. Should I pay cash for my next home or
obtain a mortgage?
If you’re buying a home in an unfamiliar area, you should probably take
advantage of the financial leverage of a mortgage. That way, you can
check out the area more thoroughly before tying up a lot of cash in your
home. Leverage is important because if you bought a home for $250,000,
for example, and made a down payment of only $50,000 or $60,000, you
wouldn’t have all your cash tied up in the home. You would have to make
mortgage payments for a while, but if you didn’t enjoy the area and
wanted to move, you would still have cash available for that purpose. Of
course, if you decided to stay put, you could pay off the mortgage.
8. Should I put my money into other
investments instead of buying another home?
One good answer to this question is that you might well be able to buy a
home AND put money into another investment. Many seniors look at
purchasing a small multifamily building with two, three or four attached
homes. (A two-home building is called a “duplex” and a three-home
building is called “triplex.”) Instead of using the equity in your
existing home to buy another home or a condominium, you can buy a
multiple-unit building, move into one of the units and rent the others
to tenants. The benefit is that you’ll be an owner and be able to
generate income from this investment. The point isn’t to buy a large
apartment building with 10 or 15 units that could bring on a lot of
management and maintenance responsibilities. Another advantage is that
you could move from one of the larger units in the building to a smaller
one if you need less living space in your later years. If you finance
part of the purchase with a mortgage, you can use the rental income from
the other units to pay some or maybe all of the monthly mortgage
payments.
SUMMARY
The American Dream is to own your home. Over 80% of mature Americans
over 75 still live in and own their properties. However, many of us, as
we age, are not able to maintain our homes. Some will choose to downsize
to a condominium or other maintenance-free dwelling. Others will decide
to move to an active adult community with recreational and social
amenities. Still others will need to look at assisted-care living
facilities. Today, when many Americans are living to 85-90+ years, we
have until 60 before converting to cash flow. What are you planning to
do with your equity? Where you live for the rest of your life is a major
part of your retirement plan. Believe it or not, many seniors could be
better off renting and using their equity to develop better and more
effective retirement income. Ask yourself or discuss it with your
spouse: What is the highest and best use of my current Equity? The
security of homeownership is not to be denied but it must make economic
sense. Your Seniors Real Estate Specialist® will help you to find the
best housing for your specific needs.
