FREE NEWSLETTER
We know the equity in a home can be important and is part of net worth. It can be used to purchase with cash when downsizing. It can be sold and the cash used for living expenses – tax-free income up to a point. It can be used as income via a reverse mortgage. It seems a growing number of seniors are using home equity to pay an entrance fee to a CCRC. Or it may be part of inheritance.
But those strategies require the ability to sell. Prices keep rising, but we are also told it is becoming very difficult for younger families to afford today’s prices. In some areas, required down payments are 5% or less just to make a house available to purchase.
When we sold our family home in 2018, it took longer than anticipated and the price was $70,000 less than needed to cover the cost of our condo. Doing so today may well be more difficult.
The good news is the selling price for our condo today has increased about 60% and they sell quickly in our 55+ plus community. But will that continue?
So, the question becomes, how important is home equity as part of your retirement planning and what creative ways are you (planning to) using it?
Do you have concerns that changes in the real estate market may upend your plans?
I view our house as an insurance policy – in particular if one (hopefully not both!) of us require “intense care”. We intend to age in place but that wouldn’t be feasible in that situation so moving would be necessary anyway. If we successfully age out then it goes to the kids.
I have a 3 layer model – the house, other non-financial assets, and financial assets. I am projecting using 4% of the financial layer, and then as time goes by selling most of the non-financial assets (second home, undeveloped property, a <cough> boat) and adding to that. While I track the house equity from a “number go up” curiosity, I would prefer not to “need” that value.
No.
we consider our CanDoMinimum to be shelter and NOT an investment.
I have no plans to use my home equity for living expenses, but it is core to the inheritance I will leave for my wife. She’ll sell the place when I’m gone and have her nest egg all set.
With regards to selling, real estate markets move up and down just like equity markets, and we’ve found there’s not much point in trying to predict them. We certainly didn’t anticipate that the Covid shutdown would ignite a frenzy for coastal properties that had realtors from hundreds of miles away literally pounding on our door and incented us to sell. At a different time we’d had the house on the market for a year and a half with no buyers.
I assume my wife will simply wait for the right time.
If she sells for the nest egg, what’s the plan for a place to live?