The real estate market is cyclic, with a more active market in the spring and summer, and a less active market in fall and winter. It is similarly cyclic during every decade with cycles of increasing activity and, then downturns with less activity. You may have noticed that the long term view of a home’s worth always shows increasing value. If you own a home now, it is, in almost all cases, of greater value than when you bought it, therefore, you have some equity in it. By holding on to your home, you can establish a real estate retirement plan.
The Real Estate Retirement Plan
If you think that it is a good time to sell, move to a bigger home or move out of town, you might consider keeping the property that you own now as a rental. You can pay for a new home with a mortgage loan. Interest rates on loans are still very low, and rental rates are very high. In most cases, you will find that someone else pays for the balance on your rental property, and you have a free and clear asset of substantial value when you retire.
This can pay for your retirement or a college education for your kids.
The FHA reported a few years back that the national average of annual appreciation for residential properties was 6%. If you can estimate the value of your home, and add six percent, and then compound that for the years remaining before you retire; the value will probably surprise and please you. If you own a home that is worth $200,000 today, then at 6% compound interest it would be worth about $283,000 in May of 2020. That is $83,000 that you’ve made, by holding onto your home as a rental property.
Financing The Real Estate Retirement plan
You need to know the value of your property, and the amount of your loan to arrive at your equity. If it’s substantial, and you need some of it for the new home purchase, then you can refinance your mortgage, get a second lien, or best of all, do a home equity loan. You need to know the types of loans available for the purchase, especially the down payment required, and what loan amount you qualify for. Lenders will also give you 75% of your fair market rental income to add to your other income for the purpose of qualifying for the new loan. If you don’t want to be a landlord and deal with repairs, reletting and such, hire a reputable property manager.
This plan also works great for a college fund for a child if this schedule works to serve your interests best. In either case, we can help you with all the matters that need to be resolved before you make this decision. If you would like to learn more about this retirement plan please fill out the form below, call me or email me directly and I will connect you with a specialist who can help you plan your investments.