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5 Big Ways Your House Can Play A Role In Your Retirement
The house can be a really touchy subject to talk about with someone. Because the moment you start to educate an individual about how it can be used for financial leverage, he might start to look at you with those suspicious eyes.
It can also be a sensitive topic as the way this subject is brought up can make the homeowner feel self-conscious in a “You think I’m that desperate?!” kind of way.
Somehow a house takes up a fundamental spot in a person’s mind. And rocking that foundation can incur the wrath of that person.
But if you think about it, your house is quite possibly the biggest buffer you have to withstand any significant negative financial impact. Other than that, it can also play a critical role in how early you can retire.
If you play this card right, at the right time, you won’t run into any situations where you need to ask for financial assistance from anybody in retirement.
For most people the bulk of their wealth is locked up in their houses as home equity.
This is your money… on paper. If you don’t take action to make use of it, all you have is an asset to boast about with friends and a nice looking balance sheet.
Now if you have no intention to leave your accumulated wealth in the house to someone who did not pay for it, maybe it’s about time you learn about the many methods you can utilize to make that home equity work for you.
1) Reverse Mortgage
This is actually a pretty fair transaction. Nobody is trying to pull a fast one by taking owner ship of your house at less than what it’s worth.
A reverse mortgage basically allows you to draw on the equity in the house while you continue to live in it. This will be useful cash if you are not working or drawing any passive income from any other sources.
When set up as an annuity mortgage, you will receive the money as a monthly cash payment. A useful feature when you intend to enforce a sustainable budget on yourself.
Sometimes also set up as a home equity line of credit, you can usually borrow around 50% to 60% of the property’s value.
When you eventually sell the house or death occurs, the proceeds will be used to pay off the principle and interest. This also means that it will be more suitable for older homeowners because the longer the term you take up for such facilities, the more interest you are going to pay.
Also note that the more you draw from this equity, the less your children will inherit on your death.
They can take care of themselves anyway.
More and more youngsters are buying the absolute biggest house they can afford on their first purchase. They sometimes even do it when they cannot afford it!
There is a little logic into such gung-ho acts that some might perceive as “stupid”.
Because real estate tend to appreciate over time, having a big house with big value will also mean that value appreciation will be larger on a dollar amount.
You don’t need to attend a math class to know that 1% of $100 is much more than 1% of $10. They then get a bigger bang for their buck in future when they sell it to the next owner.
In many markets, these “fools” are laughing all the way to the bank with this investing strategy.
Many older folks live alone with their partners after their children go out and make a name for themselves in the corporate world. This means that the big house they live in might be too indulging for a couple.
If you don’t really need such a big house, you can turn to the simple option of selling it and buying a smaller one. The remaining proceeds after your purchase of the smaller house should be a nice hefty amount that you can live off for years to come… unless you have some bad spending habits.
Real estate agents love to get involved in deals like these because there are 2 transactions to look forward to. You can negotiate for a lower commission fee if you want. Or you might even decide that you will not need one.
The issue is whether you are willing to take on the hassle of relocating. You could lose friends and even end up living in a location that is not as accessible as what you are used to.
3) Income suite
Maybe you are familiar with this term from watching reality TV shows.
But an income suite is a very good way of getting someone to pay for your expenses.
An “income suite” is basically just a fancy word used to describe renting out a room, basement, or attic. Rental income alone could be enough to give you a stress-free life.
Many homeowners are in the rental game of passive income.
And if you are willing to invest a little money on doing up a basement for example, you can remodel it like a standalone apartment by itself… raising the rental you can charge.
The main problem that will be tugging at you is whether you are ready to have strangers living in the same premises as you.
Maybe a duplex with dual key access might be suitable?
This requires a little capital. But the rewards can be well worth it.
If you happen to own a place that has large blocks of land, consider subdividing it. Then build a new tiny house on that land and either rent or sell it.
You might even want to keep it yourself as you now have raised the value of your property. Meaning that you could get a bigger loan from a bank for a reverse mortgage.
In this case, go back to point #1.
5) Get your children to buy it from you
It’s about time they serve a little payback time.
Look at it this way. If you don’t get them to buy it from you, they will inherit it from you for free. Why make life difficult for yourself just so your children will reap the benefits of your labor?
You might think that this is a tough ask… especially if they are experienced home buyers.
But unless your children are heartless scavengers, you should be able to talk some sense into them and get them to contribute a monthly sum to you.
Some points that might aid your pitch
- They will eventually have the house when you pass on.
- They can sell it then and keep the money for themselves.
- You brought them up. It’s time for payback.
- Threaten to give the house away to a charity.
You could also get creative and get them to repay the monthly installments of a home equity loan that you will take up against the property. You get a lump sum from the bank, while they get a monthly liability.
Eventually they will still get the house. Then they can sell it and distribute the proceeds accordingly.
You house is your biggest asset
You can probably see that I’m trying to convince you that your house is you most valuable asset. But if you just sit on it and refuse to allow it to work for you, it’s really not an asset.
Many people hold onto their home with so much capital tied into it that it’s heartbreaking to see them live a less than average lifestyle.
And many times, this inaction is due to a lack of knowledge on how to tap onto that equity locked up in the house. Make your house a solution rather than a burden.