For many retirees, the purchase of a family home was one of the best investments ever made. For many more, it could be the only investment ever made. But there are several options asset-rich homeowners may want to consider if they need to free up some cash. Remember, when it comes to real estate, gains on your principal residence are the only tax-free profit you can realize. So, before making any decisions, always discuss your intentions with a trusted financial advisor.
Option 1: Scale down
As hard as it may be to adjust, your nest is empty. And if there are no family members around to help maintain your big home and the land it’s perched on, it could put a strain on your finances if you have to hire someone to do the work. Furthermore, if every day’s a financial struggle, it might be time to scale down and move to a smaller, less expensive home.
The good news is the number of attractive alternatives now available. You may want to buy a more compact, cheaper home with easy upkeep. As well, you might even locate this type of home closer to the children and grandchildren, allowing you to exchange visits more often. Perhaps you’d prefer to head straight for a quietetirement community, or purchase a modest dwelling in or near a luxury resort, many with their own 18-hole golf course. Still others choose to move out of the suburbs and into a downtown condominium, with easy access to public transit, restaurants and theatres. All of these options offer affordable alternatives to the family home. And it appears even more choice is on the way. Like never before, developers are acting on the demand for affordable housing as the growth of Canada’s 50-plus population explodes.
But there are drawbacks. Some folk become very attached to their family home – often a symbol of love and stability in their lives for many years. Children may have been born and raised there, and it may have been the site of countless celebrations and anniversaries. As for costs, most condo-style properties come with maintenance fees and other charges. Some start out low to attract buyers and then escalate sharply year after year. Plus property taxes in some larger urban condos can be prohibitive.
Option 2: Rent
Your fully-paid-for home likely provides you with very affordable accommodation. But have you fully considered the direct and indirect costs of its upkeep? In addition to utility bills and property taxes, you must consider any lawncare and domestic help required, as well as home maintenance and repair costs. Also, do you have to travel by car to get to grocery stores and shopping malls? An alternative might be to sell your big house and put the money to greater use in an investment portfolio. Many new condo-style apartments have all the conveniences of home – and then some.
Option 3: Reverse mortgages
If you don’t want to move out of your home but feel the need to have some extra cash on hand, a reverse mortgage could prove a worthwhile arrangement. Under the terms of a reverse mortgage, a lending institution will provide you with a monthly annuity for the rest of your life, in return for a gradually increasing share in the equity of your home. Arrangements are generally made so that should one spouse die, the other can remain in the house and continue to receive the monthly annuity. The income is not taxable, but when the second spouse passes away, the mortgage becomes due and must be paid back before any remaining equity in the house can be passed on to beneficiaries. It’s important to note that age should factor into your decision. The younger you are, the longer – and therefore smaller – your lifetime annuity will be. And the longer you live, the more equity in the house the lending institution will retain. For retirees with no heirs or beneficiaries, an estate that diminishes to zero per cent may be an acceptable option. For others it may not.
Option 4: Start a B & B
Bed and breakfast businesses are cropping up everywhere. For the entrepreneurs who run them it’s a chance to stay active, meet new people, earn extra income and stay in the home. But stay in the home you must, unless you hire someone to housesit when you need to get away – and that could cut into your profits. On the plus side, many home renovation and maintenance costs, as well as some household purchases may be tax deductible if they’re considered legitimate business expenses. These tax savings may be all you need to remain in the home you love.