Downsizing is an Alternative

 

Dream home concept

It is estimated that over 15% of the population in the U.S. are over 65 years of age.  With one of the most common fears of seniors being their money will run out early, it is understandable that downsizing may be strategy to meet their goals.

Once the kids are grown, have careers, relationships and get a place of their own, parents find they may not need their “big” home like they did before.  In other situations, their lifestyle might have changed, and the house just doesn’t “fit” anymore.

The benefits of a smaller home can include the following:

  • Easier to maintain
  • Lower utilities
  • Lower property taxes
  • Lower insurance
  • More convenient location
  • Single level
  • Possibly more energy efficient
  • Possibly lower maintenance

Like any other big change in life, it is recommended that a person should take their time to consider the possible alternatives and outcomes.  Are they going to stay in the same area?  What type of property would suit their needs for the future?

The tax-free exclusion allows a homeowner to take up to $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers.  Part or all of this could be used to generate income for retirement.  Other uses for the equity could include paying off other debt, taking the trip of a lifetime or making a special gift.

There will be expenses involved in selling a home as well as the purchase of a new home.  These will lower the amount of net proceeds you’ll have to invest in the new home.

Homeowners should consult their tax professionals to see how this applies to their situation.  Please contact me at (206) 979-9632 or David@TheHarlanTeam.com if you have any questions about what your home is worth or how long it might take to sell it.  Other things that could be of value are our Homeowners Tax Guide or Sellers Guide.

iBuyers – Convenient at a Price

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There are an increasing number of real estate companies, termed iBuyers, like Open Door, Offerpad, Zillow, Knock and others that market a service that has an appeal to homeowners.  The pitch for these quick cash offer companies will include some variation of “let us buy your home in days without the normal hassles of listing.”

This approach attempts to provide an alternative to selling a home in a normal manner at the expense of not realizing the full equity a homeowner is entitled. There is no fiduciary relationship requiring the broker to put a seller’s best interest above their own interest.  An iBuyer does not represent a seller and does not owe client-level services like loyalty, obedience disclosure among other things required by state license law.

The offer is based on an automated valuation model, many times, without a physical inspection of the home.  In some cases, a contract is written but there are provisions that allow iBuyers time to possibly “flip” the property to an investor or use an “out” in the contract to void the sale.

The reality is that a company cannot stay in business if they pay too much for the property.  The iBuyer becomes the Seller who now must be concerned with pricing the home properly to cover the normal selling expenses as well as repairs, improvements, and holding costs that will be incurred until the property sells.

There could be circumstances that make it necessary for a homeowner to sell their home at a discount.  The seller could be in a distressed situation needing immediate cash.  They might need a quick sale and don’t want to be bothered with repairs or marketing efforts.  Or possibly, they may have found their next home   and need to act quickly. The instant liquidity comes at a cost to the seller in lower proceeds from the sale.

To realize the maximum possible equity, a real estate professional in your area can advise you about the fair market value of your home, a reasonably expected sales price, the costs involved and how long it will take.  Before accepting a price to sell your home to a wholesaler, you owe it to yourself and your family to find out what you can expect if you take a conventional sales route.

Get Rid of Things You Don’t Need

Sometimes it is time to remove the clutter

 

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Periodically, you need to rid yourself of things that are taking up you time and space to make room for more of what you like and want.

There’s a frequently quoted suggestion that if you haven’t used something for two years, maybe it isn’t essential in your life.

If you have books you’ll never read again, give them to someone who will.  If you have a deviled egg plate that hasn’t been used since the year your Aunt Phoebe gave it to you, it’s out of here.  Periodically, go through every closet, drawer, cabinet, room and storage area to get rid of the things that are just taking up space in your home and your life.

Every item receives the decision to keep or get rid of.  Consider these questions as you judge each item:

  • When was the last time you used it?
  • Do you believe you’ll use it again?
  • Is there a sentimental reason to keep it?

You have four options for the things that you’re not going to keep.

  1. Give it to someone who needs it or will appreciate it
  2. Sell it in a garage sale or on Craig’s List.
  3. Donate it to a charity and receive a tax deduction
  4. Discard it to the trash.

Start with your closet.  If you haven’t worn something in five years, get rid of it.  Then, go through the things again and if you haven’t worn it in two years, ask yourself the real probability that you’ll wear it again.

Another way to do it is to move it from your active closet to another closet.  If a year goes by in the other closet, the next time you go through this exercise, those clothes are on their way out.

If the items taking up space are financial records and receipts, the solution may be to scan them and store them in the cloud.  There are plenty of sites that will offer you several gigabytes of free space and it may cost as little as $10 a month for 100 GB at Dropbox, to get the additional space you need.  It will certainly be cheaper than the mini-storage building.

When It’s Important…Find the Facts

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Most parents don’t put a lot of credence in the statements “Everyone is doing it” and “No one does that anymore.”  They’ll dig a little deeper and get the facts of the situation.  Interestingly, when it comes to buying a home, similar common myths continue to prevail surrounding what it takes to buy a home.

One of the most common myths is that it takes 20% down payment to get into a home.  Certainly, an 80% mortgage might have the most favorable interest rate. It won’t require mortgage insurance and qualifying requirements might be a little less but there are alternatives.

“88% of all buyers financed their homes last year and consistent with previous years, younger buyers were more likely to finance their home purchase.  In 2018, the median down payment was 13% for all buyers, 7% for first-time buyers and 16% for repeat buyers.” Stated by the 2018 NAR Profile of Buyers and Sellers.

  • Qualified Veterans are eligible for zero down payment, 100% mortgage loans without mortgage insurance.
  • Conventional loans are available with as little as 3-5% down payments.
  • FHA mortgages have a 3.5% down payment.
  • USDA mortgages for rural housing have two major products: one does not require a down payment and the other has a 3% down payment.  Maps, based on population numbers, are available to determine if the area you’re interested in purchasing in is eligible for a USDA mortgage.

We’ve come to believe that facts can be instantly verified by searching on the Internet.  Unfortunately, there are a lot of things on the Internet that are questionable and certainly, that includes some information on mortgages.  Specifically, some loans are not available in certain areas and to a particular persons based on their income and credit history.

The best approach, when it comes to buying a home, is to get the facts from a knowledgeable and trusted loan professional before you begin the home search process.  Contact me at (206) 979-9632 for a recommendation.

A website may not provide relevant information for your individual situation.  Purchasing a home is a large investment and taking the time to find out the facts is worth the effort.