Have you considered where you will live when you retire? Would it be in Colorado or elsewhere, and what would the home look like? The sooner you think about this and take action the better. The earlier in your life you start saving, the more time there is to grow your retirement nest egg. In addition to financial investments, housing is a crucial factor. Make a plan to find a second home and buy it as soon as you can. Ideally, you will own this second home free and clear to move into when you’re ready to retire.
There’s no better time than now to buy a retirement home. If you change your mind in 15 years and don’t want to move to the home you buy today, you can still sell it and use the proceeds to buy a home where you want to live. The home-buying environment is perfect right now for making such a decision: mortgage rates are still at historical lows and the rental market is strong. The combination of these two factors make it possible to rent out your future retirement home — and even have a positive cash flow. There may even be tax advantages for you if you treat the property as a rental on your tax return. Of course, be sure to check with your professional tax advisor first.
Odds are pretty high that your future retirement home will cost a great deal more 15 years from now than it would today. We don’t know what the interest rate will be 15 years from now, but again, odds are high that they won’t be any lower. This is another argument for taking action now, so you can get the home price and interest rate locked in. Otherwise, it may be tough to afford the home 15 years from now.
For example, if you’re thinking of moving into your retirement home 15 years from now, a 15-year mortgage could be just the ticket. A tenant paying rent now would help support the current mortgage payment, and in 15 years, you could own your home free and clear. After the home has been a rental for 15 years, you will probably need to fix it up and make improvements to transform it into the retirement home that’s right for you. If cash flow is tight, you can still take out a 30-year mortgage loan to keep the payments smaller, although the equity build-up won’t be as fast.
In Colorado, we have quite a number of “snowbirds,” or seasonal retirees. When the snow starts falling, these snowbirds travel to their retirement home in warmer climes, such as Arizona. They return to Colorado in the spring and summer. A great example is to buy your retirement home in Arizona and rent it out until you are ready to use it for yourself.
If you go ahead and buy a retirement home today and finance it so that you own it free and clear by the time you retire, there’s yet another benefit. Rather than using the proceeds from the sale of your primary residence to buy a retirement home down the road, you can use the proceeds to help fund your living expenses during your retirement.
Your REALTOR® has connections across the nation. If you’re thinking of looking for a retirement home in another city, ask for a referral and get the process started. Be sure to consult your tax professional to go over these ideas as well.
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail [email protected], call 303.441.5611 or visit boulderco.com.