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Downsizing? Why You Might Want to Keep Your Old Home

May 18, 2021

Downsizing? Why You Might Want to Keep Your Old Home

As older California homeowners feel the pinch of rising property taxes, many are swapping their old family homes for something smaller, cheaper, and more suited to senior living.

Many senior homeowners are selling their properties in order to put equity into their next home and pad retirement savings, but is selling really the right call?

Why you should think twice before selling your California home

If you’re like most Americans, your home is your largest asset. And if you’re a California homeowner who bought their house 30 years ago, you probably paid far less for your home than it’s worth today. After researching home prices in your area, you’re thinking about cashing in on that appreciation. But should you?

Home prices in Southern California are higher than ever, and rents continue to rise at a steady pace. For long-time homeowners who purchased when prices were low, market rate rent could be significantly higher than the mortgage payment — if there’s a mortgage at all.

Renting out your home rather than selling provides a steady source of income throughout your retirement years. And you have two potentially lucrative options to consider. The first being renting your home as a long-term rental. This choice provides guaranteed rental income every month, and you may even find a tenant who stays for years. The other option is to turn your home into a vacation rental. And while it doesn’t provide monthly income you can count on, living in Southern California gives you a fair advantage to keep your rental booked most of the time. Bringing in a vacation rental management company will cut into your profits a bit, but it’s often worth the peace of mind knowing that bookings, security, in-between cleanings, and on-site local support will be taken care of.

Renting it out is not the only benefit of keeping your home, however. If you have children or grandchildren who live in the area, keeping your home means you can pass it on someday. With your help, your loved ones can own a home in a market where it may not have otherwise been possible.

While it’s possible to gift a house while you’re living, you’ll receive much more favorable tax treatment if you leave the house to heirs in a trust. If you want your children to take possession of the house now, consider renting it to them at market value. If you choose, you can gift up to $15,000 per recipient ($30,000 for a married couple) to assist with rent without incurring gift taxes under the annual gift tax exclusion.

When selling your home is the right choice

Keeping the house in the family is a great thing to do, but it’s not a practical option for everyone. Even with downsizing, homeowners staying in the San Anselmo area will be faced with the same high housing prices when they go to buy. Unless you can afford a substantial down payment without impacting your retirement, or afford both a HELOC and a mortgage, you may need the proceeds from a sale in order to buy your next home.

You may be tempted to use the sale proceeds to pay cash for your downsized home. However, as nice it feels to be mortgage-free in retirement, paying cash may not be the best financial move. Due to their fixed income, seniors are at an increased risk of becoming house-rich and cash-poor. If that happens to you, you could have trouble keeping up with property taxes, maintenance, and other retirement expenses like healthcare and long-term care. Instead, consider either renting a condo or apartment or putting down a sizable down payment on a smaller home and investing the rest in fixed annuities or bonds for future retirement income.

Of course, needing the money isn’t the only reason to sell your home. If you’re not concerned about keeping the house in the family and want to enjoy your retirement without worrying about a second home, contact a real estate agent about listing your home for sale. Dedicated real estate professionals Kurt Galitski and Liz Peters will help you get your house on the market at the right price and the right time so you can sell your home quickly and move on to the next phase of life.

Image via Unsplash

Article courtesy of Ideaspired

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