When you consider big purchases, such as a car or boat, it will have a lasting financial impact. However, no purchase has such an impact on our financial future like a home. Be it a rental, vacation, or primary home, or even something in between, protecting your most valuable assets is key to your financial health and ultimately your retirement. In fact, experts recommend between 20% to 30% of one’s net worth be allocated to their primary estate!
Thus no matter your age you must always consider the impacts a new home, or your first ever home, will have on your financial future.
Although many dream of a vacation home, on a beach, ranch or in the mountains, sometimes buying a second home isn’t in your best interest. Further, buying a turn-key property is great, but what about properties that need a massive renovation, or are unwanted all together? Many consider buying a rental property, or multi family property, but is that a good decision? Lastly, resizing and reaccessing your home and needs through life is important. Although your sprawling home and estate may have been a treat while raising a family, downsizing can not only save you on utilities, but time and effort on maintenance outdoors and in.
Some of us may even find ourselves over leveraged, or own ‘too much’ home, compared to their liquid assets, which can put you at risk during your retirement when you’re transitioning from the ‘accumulation’ stage to ‘decumulation’ of your assets. Our educational webinar with Brian Kennedy and Vincent Catalano, financial experts and planners of KCA Wealth, and Real Estate Agent and Expert, Aaron Piscioneri, will cover all of this on June 8th, but we’ll preview just some of the topics that will be covered during the educational webinar.
Virtual Educational Course:
Real Estate And Its Role In Financial Planning
Hosted by KCA Wealth Management
Guest Speaker: Aaron Piscioneri
Date: June 8, 2021
Location: Virtual Educational Course
*EVENT HAS PASSED. WE WILL ANNOUNCE OUR NEXT REAL ESTATE EVENT SOON. PLEASE REACH OUT IF YOU'D LIKE A SUMMARY OF THE SLIDESHOW*
What to do with an unwanted property
Aaron Piscioneri is an experienced real estate agent in the Camp Hill Borough. He has helped many clients facing this exact issue. Dealing with unwanted property is often a burden no one wants, however, dealing with the property in the near-term often can save owners down the line. Although many may want to ‘hold for the right time’, owners must remember that maintenance costs do add up, and equity and bond markets are consistently more liquid and provide, on average, more consistent returns. Dealing with a knowledgeable and devoted agent like Aaron is the best route of action if you’re currently in this conundrum, and after the sale, or release, of your property properly managing any proceeds with KCA Wealth is a wise choice.
Your home as a long-term investment
Anyone that tries playing the short-term gains of the housing market is rolling the dice at each purchase. Buying real estate, put simply, is expensive. Transactional costs easily exceed 10% and require big down payments. Although in the long term these fees are minimal, consistent transactions do add up. This can be exceptionally difficult during times of crises, such as those selling their homes at significant losses after the 2008 meltdown where $2 Trillion was lost, whereas most properties are now worth much more than their values even before the crisis. Much like equity and bond markets, housing sees cyclical swings in pricing.
The state of the real estate market –Is it the right time to move?
Although we often hear of a ‘hot’ or ‘cold’ market these terms are all relative. A ‘cold’ market is often a buyers market, whereas sellers are hunting for buyers, and likely offering better deals. Hot markets are often quickly rising in price, with buyers outbidding one another. Instead of trying to time the market, however, just like in equity markets it is less important when you buy, and more important how long you hold. Just as we have seen in equity markets, buying just prior to the 2008 crash caused losses in the short term, and buyers in 2009 saw significant gains. However, all buyers, in the long-term, have seen gains regardless of their purchase timing in most cases. Rather than worrying about timing, it is best to ensure you stay invested in the real estate market with appropriate allocation of your savings between your home, retirement, and personal savings accounts of diversified assets.
The pros and cons of a second home?
This is a challenge many homeowners face moving into retirement, and even before. Second homes provide you a getaway, but also even more to manage, and oftentimes more exposure to real estate in your personal portfolio. First, it is essential you sit with a qualified financial professional, such as KCA Wealth, to ensure you are properly diversified. Secondly, it is essential you realistically will use the second home as much as planned. Consider your annual costs, sometimes a timeshare, or flat out hotel/weekly rental is a far better bang for your buck, and provides you the flexibility to travel to various locations throughout retirement. Oftentimes, in retirement hotspots, such as those in Florida, ‘snowbirds’ will continually rent on a long term basis for specified month(s) on an annual basis giving consistency of your second home’s location, without the responsibility of homeownership. Ensure you properly research fully the costs and benefits of owning a second home in retirement.
Should you be a landlord in retirement?
Being a landlord in retirement can be an excellent way to not only diversify your portfolio, but also stay active in retirement. Although owning a property as a landlord is not always a cakewalk, you must still accept the responsibility and frustrations that oftentimes come with rental properties. Ensuring you buy a rental property with the maintenance and duties you are willing to provide not only in the near, but long-term, future is essential. Although you may enjoy doing the handyman work, or lawn at your rental property today, you must calculate the costs of this maintenance down the line when you may not be so willing. Further, assessing the risks and returns of becoming a landlord, while evaluating your current portfolio is essential.
Right-sizing your home for retirement
We move through a multitude of homes through our years. Many of us start in an apartment or townhome, and as we age and build a family we may move into larger home(s) with yards, alongside additional bedrooms and living areas. However, in retirement we often live with just our spouses once more, without the need of a backyard for the kids (but maybe grandkids!) or those extra bedrooms as our children grow and move on and build their own families. Frankly, downsizing can relieve the maintenance and work larger homes require, and can also provide us the opportunity to take equity out of our homes for retirement to diversify our assets into a more liquid portfolio. Assessing your home’s value for retirement requires more of a thought than just today; you may still enjoy doing yard work and maintaining a large home, but you must consider the scope of your entire retirement. This is also important when downsizing to a new home. Because homes are a long-term investment we need to ensure we can age into our homes in the decades of our retirement.
Don’t forget to join us June 8th for our educational, but fun course. KCA Advisors Brian Kennedy and Vincent Catalano will share additional insight on how your real estate fits into your overall financial plan. They will dive far deeper into each of these questions, and field many more!
At KCA Wealth Management our mission is to be there every step of the way in supporting the members of our community with the financial and educational resources they need and deserve to prosper in retirement.