Snowbirds Often Flee Cold Places in the Winter

Very often retired people that live in cold places spend their winters in Arizona or Florida.  The high season in terms of rental homes in these states is December - April.  And, nicer homes in great golf course gated communities with country club amenities usually book as much a year in advance.  Snowbirds can expect to pay $3,500 to perhaps as much as $20,000 a month during high season depending on location, home size and proximity to the beach etc.  Further many owners require multiple months during high season of at least 3 months. 

Usually most of the monies are paid upfront, sometimes in two or three payments, but for sure all in advance at least a month before move in.  If the tenant cancels any time in the process, monies are forfeited unless the landlord is able to secure another renter for the same time period.  That is often not a problem because highly desirable homes in great areas usually experience demand from last minute renters who did not book months in advance.  But it rarely happens unless there was some medical emergency.  Snowbirds love their snowbird rentals.  

Renting for the cold months from an expense standpoint can make more sense than buying a second home for the months selected.  Rents are typically all inclusive and include access to the club or recreation facilities,  utilities, trash, cable, WIFI, gardener etc.  And, these homes are fully outfitted so all the tenant needs to do is move in with the clothes they plan to wear during their stay.   It is no muss no fuss.  

So for a lump sum of money buying three or four months during winter can be much cheaper than actually owning a second home that will not be used for most months of the year.  This usually works very well for retired people that have family back home with grandchildren they want to be close to for most of the year.  You can find homes for rent on snowbird websites.  There are thousands available in both Arizona, Florida and other states.  

Great Schools Are Important To Property Values

The state of Nevada where I live ranks 49th out of 50 in terms of its public schools.  The fact is that 9 out 10 kids in the state do not have the scores, or the grades to go to college.  Yet, there are some neighborhoods in Nevada that have great schools with ratings of 8, 9 or 10 out of 10 in the Great Schools rating system.  Those areas tend to have the highest property values in the state.  Unless you are moving into a retirement community, whether you have kids or not, you should try to buy a home in a neighborhood with great public schools that rank 8, 9 or 10.

You will pay more for that neighborhood; but when it comes time to sell, you will get more back.  Most important if and when a downturn comes, which is inevitable,  homes in the neighborhoods with the best schools tend to retain a good share of their value.  Part of the adage of location, location, location aside from the specifics of the particular property involves great schools.   Always remember, there are no bargains in real estate.  And, if you buy crap, you will own crap. 

There are some exceptions to the rule.  There are cities with high property values because of supply and demand that have lousy public schools.   And, any area near the beach is going to have homes that sell for a lot whether the schools are good or not.  In both those cases, parents will be putting their kids into private schools so they don't pay much attention to the public schools.  But again this is the exception to the rule.  Even if you plan to put your children into a private or religious school, it is still best to buy where there are great public schools. 

At Paragon Home Resources, we work with families to sell and buy homes all over the country.  We can help you identify the best schools in the best school districts to insure that you are making a good investment.  

Paying Off Your Mortgage - Does It Make Sense

Most people believe it is a good idea to have a home paid off by the time you retire.  However, with interest rates so low, it may not be a good strategy for everyone.  It is possible to get an interest only loan today usually for up to 10 years.  And, while it is true, interest only means that nothing is going to pay off the principal, the payment is likely to be half what you would be paying if the loan was fully amortized.  And, since very little money goes to pay off the loan anyway until the last 10 years of a 30 years mortgage; maybe just paying interest for 10 years makes sense to provide more spending money in retirement during the years while you are still healthy enough to travel and live a great life.  

Ultimately, odds are that 10 years from now, you may choose to move anyway.  That could be the time to downsize into a retirement community in a low cost, low tax state.  And, or if you have a lot of equity in your home, you could do that now to eliminate a house payment altogether.  

Of course, everybody's financial circumstances and life spans are different.  A good rule of thumb; though certainly not fool proof is to take the average of your parents ages when they died and assume you will live that long.  Not everybody lives to be 90.  We know that because on average men in the United States live to be 76 and women 81.  

So as you consider your financial decisions plan to enjoy life.  If you need more money to live now, just maybe paying off your mortgage is not a good idea.  The day will come when you won't be able to travel.  That will be the time when staycations and living in a great community with amenities at your doorstep and family nearby will be the most important.  Talk to your accountant to devise the best financial plan for you. 

Home Warranty Insurance - Buyer Beware

Should you choose to purchase home warranty insurance be sure to read the contract before you sign on the dotted line.  Like all insurances the fine print matters.  Typically, they place limits on coverage so that while you think you are covered, you may find that when it comes time for them to pay, it can turn into a real hassle.  Some of the companies operate from overseas call centers.  You can spend hours on the phone attempting to resolve a claim.  And, plan on dealing with call center hell.  

One of the problems with these companies is replacement of an appliance in the event it can't be fixed.  If you own high end appliances, odds are pretty good they will not be compared with high end appliances to determine a replacement value.  In fact, you may be offered half what the actual cost to replace is since they will compare what you have with much cheaper appliances that are available at Home Depot or Lowes.  This is a particular problem for people that own custom homes and or people that have just chosen high end appliances for their homes.  It can be a very frustrating experience.  

These could be the reasons that Dave Ramsey, a leading advisor on financial issues advises against buying home warranty insurance.  Instead, he recommends self insuring, in essence putting money aside to deal with home repairs that are inevitable.  If your appliances, air conditioner etc. are more than 10 years old, the odds are pretty good that repairs will be needed.  So plan for it.  Make sure you have your emergency repair money sitting somewhere to cover repairs that will be needed.  

Moving Outside The United States To Retire

Many people facing retirement on a limited income consider moving outside the United States to retire.  First, if you do so, try it before making the decision permanent.  Rent in the country for a year or two.  Don't sell your home in the United States unless it is in a location that is not where you would want to return if you do come back to the United States.  Most important, consider medical issues.  Medicare is not applicable outside the United States.  So, depending on the country, you may need to buy medical insurance, or perhaps buy into the government program if they have socialized medicine.  Aside from the financial issues, the real question is access and capability.

As we all get older crap happens.  The odds are pretty good that most of us will have some serious medical issue after we turn 70 and sometimes even before.  It is true, you could come back to the United States assuming you are not dealing with a medical emergency that would require immediate care.  Many countries do not have good medical care once you get outside their capital cities and even then it may not be as good as the technology and care that is available in the United States.   Certainly, if you are dealing with some chronic disease think long and hard about leaving the US and even then it is best to retire to a city that has state of the art medical care.  Even in the US some second and third tier cities are short on doctors and hospitals. 

Then there are the language and cultural issues.  If you move to a non English speaking country, you will need to learn the language because not all of their citizens will speak English.  And, you can't be indignant when they can't understand you.  Further, Americans tend to want things done yesterday when in many of these countries manana never comes.  It may take weeks to get things done.  So, you will need to be very patient.  If you are a Type A personality, it may not work for you.

In any case, think long and hard about moving out of the United States to retire.  There are many lower cost options in our own country within 100 miles of a major city that could be a better choice.  

Turning Your Principal Residence Into A Rental Property

Designating your home as your principal residence comes with some great tax advantages at least for now.  So, if you sell your home and realize a capital gain on sale, a single person can avoid tax on $250,000 of gain.  A married couple can avoid tax on $500,000 of gain.  If you have owned your home a long time, it is very possible that you could see a major gain on sale in various markets where prices have risen dramatically.  

However, before turning your principal residence into a rental property, talk to your accountant to discuss the tax treatment.  Once you start earning rental income and taking depreciation on the property and various write-off's, you may jeopardize that capital gains tax treatment that comes from designating your home as your principal residence.  In order to get back on track, you must move back into your home for two years before selling to take advantage of the tax free gain.  But again, talk to your accountant before you take these steps. 

And, keep watching the news.  President Biden is intent on raising taxes in 2022.  If it happens, there could be an impact on capital gains treatment that could change this entire discussion.  Never give up tax free income if at all possible.  

Home Sale Disclosures

When selling a home or land just about anywhere in the country, the seller will be asked to sign an extensive disclosure statement concerning the condition and history of the land, home, surrounding properties and just about anything else that could have an impact on value.  Believe it or not, if someone died, or was murdered in the home, it often must be disclosed.  And, just so you know, if there was ever an insurance claim on the home, it is recorded and will come up when the buyer attempts to buy home insurance.  A claim on the home counts as a ding and could result in higher insurance rates as a bit of an assigned risk.  It is like a pre existing condition related to medical insurance.  

Things like remediation for asbestos or mold can be big deal killers because even though the problem may be fixed, some buyers won't chance it. It is always a good idea to provide a home warranty policy for one year at the seller's expense to guard against the buyer coming back and demanding repairs on major systems after the sale closes.

At Paragon Home Resources, we have worked with families to sell and buy homes all over the country.  We can provide counseling assistance concerning the in's and out's of home sale and home purchase disclosures.  If problems do surface, it may be an opportunity to negotiate a lower price or repairs before the sale closes.  But just remember, failure to disclosure anything that matters could result in litigation after the sale, so don't do it.