2748: House Rich and Cash Poor by Mike Ballew of EggStack on Building Wealth for Retirement

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[00:00:53] This is Optimal Finance Daily, Episode 2748. House Rich and Cash Poor by Mike Ballou of

[00:01:19] eggstack.com. And I'm your host and personal finance enthusiast, Diana Merriam. Now let's

[00:01:24] get right to it and continue optimizing your life. House Rich and Cash Poor by Mike Ballou of

[00:01:35] eggstack.com. Do you have substantial equity in your home but worry that you may not have enough

[00:01:42] savings to enjoy retirement? If so, you're not alone. That's what it means to be house rich

[00:01:48] and cash poor. Owning a home is an important part of wealth building and a cornerstone of

[00:01:54] the American dream. However, as we age, some youthful aspirations like home ownership

[00:02:00] begin to feel like an albatross. Years of making mortgage payments and costly repairs takes its

[00:02:06] toll on our psyche. Our home that once made us beam with pride starts getting the side eye.

[00:02:13] Fortunately, there are several options at our disposal to deal with this matter.

[00:02:17] Let's look at each one and evaluate the advantages and disadvantages.

[00:02:23] Downsizing. When all of the children are grown and gone, it's just the two of you knocking around

[00:02:29] in that big house. Do you really need all that room? Downsizing to a smaller home has many

[00:02:35] advantages. For one, there's less area to heat and cool, so your utility bills are less. Costs

[00:02:42] such as property taxes and insurance reduce in proportion to the value of your home. The equity

[00:02:48] banked from downsizing can be used to have fun or supplement your living expenses. One of the

[00:02:54] cons of downsizing is the fact that a good portion of the equity goes to the process of buying and

[00:03:00] selling. To rid yourself of your current home, you have to pay a realtor commission and seller's

[00:03:06] closing costs. Plus, there are often repairs or upgrades needed to list the home. When you buy

[00:03:12] your new home, there are closing costs and moving expenses to pay. Reverse mortgage. Another possible

[00:03:20] solution to being house rich and cash poor is a reverse mortgage. If you're 62 years of age or

[00:03:26] older, you're eligible for a reverse mortgage. A reverse mortgage allows you to draw down the

[00:03:33] equity in your home and use it as you wish. Proceeds from a reverse mortgage are not taxed

[00:03:39] and they have no effect on social security or medicare benefits. If you live longer than expected

[00:03:45] or market conditions change, the bank absorbs the loss. No debt is passed on to your heirs.

[00:03:51] The primary disadvantage of a reverse mortgage is that you are essentially married to your home,

[00:03:57] as in until death do us part. Forget about moving to a new location or chasing your

[00:04:03] children around the country to be near your grandkids. We've just touched the surface here.

[00:04:08] If you're interested in learning more, check out our article entitled,

[00:04:12] How Does a Reverse Mortgage Work? Investment Property. If you want to really shake things up,

[00:04:18] you could turn your home into an investment property. Move into an apartment or RV and lease

[00:04:24] your home. Or you could turn it into a vacation rental like an Airbnb. You may end up with more

[00:04:30] headaches than you know what to do with, but there will never be a dull moment. Most retirees

[00:04:35] are looking to offload responsibility, not take on more. However, as crazy as this idea sounds,

[00:04:42] it's actually the most likely to pass on the full value of your home to your heirs.

[00:04:46] If this piques your interest, check out our articles titled, Investment Property

[00:04:51] and Top Considerations for Becoming an Airbnb Host.

[00:04:55] Conclusion. Life is funny. When we start out, we can't wait to quit renting and buy a house.

[00:05:02] As we get older, the thought of leaving home ownership behind and renting feels like a

[00:05:06] breath of fresh air. Let somebody else deal with all the hassles. When something breaks,

[00:05:11] you just make a call. Actually, that is more fantasy than reality. Unless you time it just

[00:05:18] right, renting and retirement is a great way to outlive your savings and go broke.

[00:05:23] Monthly rent payments are significantly higher than paying insurance and property tax on a

[00:05:28] paid off home. Plus when you rent, you're at the mercy of the landlord who can raise your rent or

[00:05:34] kick you to the curb anytime they please. Unless you rent a house, you have to lug groceries and

[00:05:40] trash up and down stairs in the rain and snow. There's no doggy door or fenced in backyard. So

[00:05:46] every time nature calls, you have to take Fido for a walk to an unpleasant patch of grass where

[00:05:51] everyone else walks their dog. If that's not enough, you have to listen to your neighbors

[00:05:56] fight and make up. Think about it. Retirees who yearn to ditch their home and rent have

[00:06:02] simply forgotten what it's like to rent. A better way to deal with homeowner burnout and age-related

[00:06:07] issues is to stay in your home and pay people to do things for you. Almost anything you can

[00:06:13] imagine can be outsourced. Lawn mowing, snow blowing, painting, maid service, pressure washing,

[00:06:18] pest control, repairs and maintenance. Think you can't afford it? Except for maid service,

[00:06:24] you pay for all of that when you rent an apartment or condo plus profit. It's built

[00:06:29] into the monthly rent. You can preempt unpleasant emergencies by being proactive about maintenance.

[00:06:36] Every 15 years, replace your home's roof, water heater and heating and cooling system.

[00:06:41] Sound too expensive? It does. But if you break it down into its monthly equivalent,

[00:06:47] it really isn't. A roof is $15,000, a water heater is $1,000 and a new heating and cooling system is

[00:06:54] $7,000. That's $23,000. Set aside $120 each month. That's $23,000 divided by 15 years divided by 12

[00:07:04] months and you'll have the money when you need it. Finally, consider this. If you're house rich

[00:07:11] and cash poor, at least you're rich in something. That's a first world problem that much of the rest

[00:07:16] of the world would be happy to have. You just listened to the post titled House Rich and Cash

[00:07:26] Poor by Mike Ballew of eggstack.com. And I'll be right back with my commentary. Looking to part

[00:07:32] ways with complicated, expensive and uncertain shipping? Then give your business the edge it

[00:07:38] needs with USPS Ground Advantage Shipping from the United States Postal Service. Keep everything

[00:07:45] simple with clear upfront pricing and no unexpected surcharges. Keep things affordable with some of

[00:07:52] the lowest prices out there and keep it all reliable with on-time ground shipments. It's

[00:07:58] time to turn shipping to your advantage. Learn how at USPS.com slash advantage.

[00:08:06] USPS Ground Advantage, simple, affordable, reliable. It goes without saying that a lot of

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[00:09:28] visit acorns.com. This article reminds me of an email I got from a listener who was questioning

[00:09:35] if she had enough to retire. While she had over a million dollars, a large majority of that was in

[00:09:41] her house. So she couldn't really live off that in retirement unless she sold the house. I like

[00:09:46] the advice from my friend Frank Vasquez over at Risk Parity Radio, who recommends to have no more

[00:09:52] than 10 to 20 percent of your net worth in your residence so that you can put the bulk of your

[00:09:58] money into income producing assets. On another note, I did some reading recently on reverse

[00:10:03] mortgages and it sounds to me like this is a last resort option that only makes sense for people

[00:10:09] with certain unique circumstances. One of the things that I read that gave me pause is that

[00:10:14] the reverse mortgage must be repaid when the borrower dies, permanently moves out or sells

[00:10:19] the home and you're accumulating interest through the life of the loan that eventually needs to be

[00:10:24] paid back. So if you want to leave your home to your children for example, having a reverse mortgage

[00:10:30] on that property could cause problems if your heirs don't have the funds needed to pay off the loan.

[00:10:36] Another thing to consider is that in order to benefit from the reverse mortgage,

[00:10:40] you need to be healthy enough to continue living in your home.

[00:10:44] If an individual's health declines to the point where they must relocate to a treatment facility,

[00:10:49] the loan must be repaid in full. So a reverse mortgage might not be the best long-term strategy

[00:10:55] for someone who has growing health concerns as they age. And that should do it for today. Have

[00:11:01] a happy rest of your day and I'll see you on the Tuesday show tomorrow where your optimal life

[00:11:05] awaits.