This is an article written entirely by Jeff Green, a real estate broker in California’s Central Valley.
One of the greatest rewards for owning real estate is the day when you can live where you want mortgage/rent free. The stability and security of obtaining this goal later in life is often in direct conflict with challenges that many face in the early or middle parts of their careers.
The solution: Buy your retirement house first!
As a recent guest on the Mr. Credit Radio Program we touched on this topic for a few moments. This article introduces the concept of securing a paid off retirement home even if you think you can not afford it. By using this strategy you turn the process of obtaining a retirement home around 180 degrees. Instead of straining your resources to purchase where you live now with the hope of cashing in and retiring, you may want to rent locally and own from a distance. We will discuss the benefits of this strategy further in the article. Let’s first take a look at some common problems that people face in obtaining a retirement home.
Common Problems solved by purchasing your retirement home now.
- I can’t afford to buy where I currently live. In order to pursue their career paths, first time or younger home buyers often find themselves living in expensive metropolitan areas that price them out of the housing market. Some choose to spend hours a day commuting to own a home in an outlying area or they simply opt out of home ownership. By becoming an non-resident homeowner you can pick a market that fits your budget and in many cases buy a house with positive cash flow from the rent. In other words, you make a minimum down payment on your retirement home and someone else pays off your mortgage.
- I don’t live where I want to retire. Most people have plans to retire in areas that feature activities they like to do. You may currently enjoy boating, skiing or being in the desert, mountains or beach only when you are on vacation. Wouldn’t it be great pay that home off before you retire and have it ready when you need it. Due to changes in career you may have to move several times before you settle down. Because of the costs associated with buying and selling, the sooner you move after purchasing a home the more likely you are to make less or even no money on your investment. So if you don’t live where you want to retire you may be able to maximize your goals by buying a retirement home elsewhere and continuing to rent locally. This way you can realize the power of long term investing in real estate.
- I don’t know where I want to retire but can’t afford to buy where I live now. Your “retirement home” may not be the home you retire in. The house you purchase could simply be a financial investment that, when it matures, allows you to purchase in an area that you choose later in life. In other words, purchasing a home out of the area creates a bank account that you can draw from in the future. When you retire, you can either sell your house and cash out your investment or place a line of credit on the house through which you can pull money out of the home to invest elsewhere. If you keep the house you could pay down a line of credit with rental income.
Pick Your Nest and Pick Your Egg
Everyone needs a nest egg or two, or three, or four…. For the purposes of this strategy the nest is the real estate market and the egg is the investment If you can not afford to purchase where you live now and/or it is not a wise choice based on your need for mobility and career growth a consideration of where to purchase is a conversation you must have. If you know where you want to retire and can afford it, then you are in a great postion to select a nest (real estate market) in which to purchase your egg (investment house). In a number of years your investment becomes your home.
If you just need an investment to provide money for retirement than your choice of the nest that egg is placed in should be based on three factors. Current cost, potential for appreciation and return on investment.
- Current cost vs price. There are a lot of well priced homes that will cost you a fortune to prepare for rent and a ransom to maintain. An investment property should be recently built or remodeled with little or no deferred maintenance as well as constructed with modern building techniques (or purchased at a price less than it would cost to rehab the house up to it’s market value in today’s market). A cute bungalow build 100 years ago might be worth a lot of money some day, but remember the that repairs and maintenance can eat your profits way.
- Potential for appreciation. Is the house located close to good schools and in the “path of progress” for future development? What are the surrounding houses like? What is the general plan in the community?
- Return on investment. The return you will net is a the result of maximizing appreciation and minimizing costs. Keep in mind factors like vacancy rates and the volatility of the local job market.
Planning for retirement should be approached with an “all hands on deck” mentality. The skills of financial planners, CPAs, real estate professionals and others can make or break your ability to earn for your retirement. If you are considering the purchase of a retirement home now, you would be well served by finding an qualified real estate agent to assist you in the process.
Jeff Green is a real estate broker in California’s Central Valley. He assists investors purchase investment properties in rapidly appreciating neighborhoods. You can find Jeff on line at www.LiveCentralValley.com
Categories: Buying Real Estate