Are your clients house rich and cash poor? Plenty of British aristocrats find themselves in this position. Unlike the landed gentry, the average American cannot charge the public admission to tour their home or arrange to have a TV drama filmed on-site. “Downton Abbey” is set at Highclere Castle in Hampshire. Most older Americans have more limited options for turning their home into a pile of assets that can generate income.
Holding on to the family home
Does this sound familiar? Your clients are seniors living in what everyone considers the family home. The children and grandchildren return for feasts on major holidays like Thanksgiving. It is a maintenance nightmare that soaks up money, yet they stoically endure this because they want to pass the house down to the next generation. But that’s not the whole story. Quoting from the film “Cool Hand Luke,” “What we have here is a failure to communicate.”
Your client’s children now live in different parts of the country. They own nice houses because they have done well for themselves. They live in fear one or both parents will fall down that staircase that might not have passed modern building codes today. Put another way, they don’t want the house you have been preserving for them.
Here are some options you can discuss with your clients:
Sell your house, then rent it back
This might be a good option for people who need cash but do not like change. This transaction can take many forms. A life estate involves the house now belonging to another, often a family member, yet the seller continues living there for their lifetime. You can imagine a situation where the deceased had remarried and wants the house to pass to children from the first marriage while allowing the spouse from the second marriage to continue living there. A more straightforward transaction might involve selling the property to a third party with the understanding that the former owner will becomes a tenant. Of course, they’d have to sign a lease and pay rent.
Borrow against the house
This can take different forms. A home equity line of credit (HELOC) allows you to pull money out, yet commits you to making monthly payments on the loan. This loan usually comes with a variable interest rate.
Taking out a reverse mortgage is another option to consider. The homeowner gets cash and is not required to make mortgage payments, yet the money owed grows because of compound interest. The loan eventually needs to be repaid upon the owner’s death or when the owner is no longer living in the home.
Check out retirement communities
Here’s a news flash: Once you reach a certain age, you start to get regular mailings from “over 55” or “adult communities.” (You likely will also discover your favorite TV programs only feature ads with silver-haired people raving about the new pharmaceutical that changed their lives.) Downsizing to a manageably sized apartment or bungalow in a community with an optional meal plan can make sense.
Some communities are so upscale, it’s like living on a cruise ship. Beware: These can be pricy. Selling the family home and buying into one of these communities can be an option.
Rent an apartment
Why are you considering downsizing? It is because the family home is worth a bundle and costs a fortune to maintain? If you are in good health and mobile, you might consider simply selling and renting an apartment near family members. It’s a smaller home to maintain and your kids will check in on you from time to time.
Move in with your children
This does not work for everyone. Some cultures are built around multigenerational households. John Paul Getty is credited with saying, “Money isn’t everything, but it sure keeps you in touch with your children.” You have seen the novelty sofa pillows with the phrase “We are spending our children’s inheritance.” Some kids would prefer you live with them instead of living on your own. They want to have you around and you can bring tangible benefits to the household like childcare and meal preparation.
Move to someplace with a lower cost of living
Maybe you do not have children living nearby. Many publications rank cities in terms of quality of life for retirees. There are many factors to consider. Cost of living, real estate prices and taxes are a few. The availability of world-class medical care is another factor to consider. Some people even consider moving outside the U.S.
Live with other senior friends
House sharing is another option to consider, especially if you are on your own. Many movie plots flash through your mind. Maybe you are thinking of “Animal House” with John Belushi. Remember “The Odd Couple” first on Broadway, then on TV? Perhaps you remember movies about hippy communes. Thinking optimistically, house sharing is another option to consider.
This might have always been in the back of your mind. Another option is to be in constant motion with an RV. You might have a base in a hotel or rentable accommodation where you can store stuff when you are not around. You spend most of the year on one ship, then on another as you travel the world — or at least the Caribbean. You meet interesting people along the way. The seaborne version of this idea has its share of liabilities: Medical care away from U.S. shores is one example. You would not be the first person to consider this option.
Seniors sitting on a valuable property with no mortgage have a lot of options they can consider for the next stage of their lives.
Bryce Sanders is president of Perceptive Business Solutions, Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” is available on Amazon.