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Property Management Blog

Why Pre-Approval Should Be Your First Step

Rudy Andabaker - Thursday, January 19, 2017

In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the amount of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, knowing your budget will give you the confidence of knowing if your dream home is within your reach. “It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approved will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.

By Christian Penner

Do You Know Who Your Neighbors Are?

Web Admin - Tuesday, September 27, 2016

Many of Us Don't Know Their Names and Only Recognize The Vehicles They Drive

Coming up on September 28 is National Good Neighbor Day. The busy lives we lead keep us from getting to know our neighbors like we should. In this day and time, it is more important than ever to learn who your neighbors are and let them know you.

Not all neighbors are good neighbors and that is a fact of life. This day is set aside to get to know your neighbors and do something nice for them. You never know when you may need to call on a neighbor for help or they may need to call on you.

For security reasons it is a good idea to know their names and even have their phone numbers even if you never plan to socialize with them. If they don't want to be known, then that is good to know too. Keeping a look out is just smart this day and time.

This designated day was originally celebrated on the 4th Sunday in September. Presidents Nixon, Ford and Carter made proclamations celebrating it. In 2003, the Senate passed a resolution naming September 28th as National Good Neighbor Day.

National Good Neighbor Day is a day to do a little something extra for your neighbor. Here are some suggestions of things you could do that would be neighborly:

  • Offer a smile or a friendly hello or wave.
  • Invite your neighbor over for a meal or snack.
  • Sare a dessert with your neighbor.
  • Lend a helping hand especially if your neighbor lives alone or is elderly.
  • Go meet the neighbors you don’t know and swap phone numbers.
  • Neighbors you do know, tell them you are there for them.

We can all learn to be better neighbors. National Good Neighbor Day is a good day to start.

By: Debbie Reynolds

What Is Escrow? How It Keeps Home Buyers and Sellers Safe

Web Admin - Tuesday, September 13, 2016

Buying a house can involve big and scary terms, and “escrow” ranks near the top. So what is escrow, anyway?

The good news is that escrow is not as ominous as it sounds. In the home-buying process, escrow is a financial tool that allows you to set aside important items such as the buyer’s earnest money check and purchase agreement document in an impartial holding area, where it will stay until all of the details are worked out between a buyer and a seller, says Andy Prasky, a real estate professional with Re/Max Advantage Plus in Twin Cities.

The escrow officer is a third party—perhaps someone from the closing company, an attorney, or a title company agent (customs vary by state). How much does escrow cost? That varies too—as well as whether the buyer or seller (or both) pays—with the fee for this service typically totaling about 1% to 2% of the cost of the home.

How escrow works

The third party is there to make sure everything during the closing proceeds smoothly, including the transfers of money and documents. Escrow protects all the relevant parties by ensuring that no funds and property change hands until all conditions in the agreement have been met.

Along the way, proper documentation is filed with the escrow officer as each step toward closing is completed. Contingencies that might be part of the process could include home inspection, repairs, and other tasks that need to be accomplished by the buyer or seller. And every time one of those steps is completed, the buyer or seller signs off with a contingency release form; then the transaction moves on to the next step (and one step closer to closing).

Once all conditions are met and the deal is finalized, the money due to the sellers is transferred to them. Meanwhile an escrow officer clears (or records) the title, which means the buyer officially owns the home.

How escrow protects buyers and sellers

Escrow may seem like a pain, but here’s how it can work in your favor. Let’s say, for example, the buyer had a home inspection contingency and discovered that the roof needed repairs. The seller agrees to fix the roof. However, during the buyer’s final walk-through, she finds that the roof hasn’t been repaired as expected. In this case, the sellers won’t see a dime of the buyer’s money until they fix that roof. Talk about a nice safeguard for the buyer!

Sellers benefit from escrow, too: Let’s say the buyers get cold feet at the last minute and bail on the deal. This may be disappointing to the seller, but at the very least, buyers have typically ponied up a sizable chunk of change for their earnest money deposit. This money, often totaling 1% to 2% of the purchase price of a home, has been held in escrow. When buyers back out with no legitimate reason, they forfeit that money to the seller—a decent consolation for the sale’s failure.

Escrow, in other words, is the equivalent of bumpers on cars, keeping everyone safe as they move forward in a real estate transaction. Odds are, no one’s trying to swindle anyone. But isn’t it nice to know that if something does go wrong, escrow is there to cushion the blow?

By: Cathie Ericson

Finding a New Home after Downsizing

Web Admin - Friday, August 19, 2016

Once you’ve made the decision to downsize, the next step you need to make is to decide where you want to go and what kind of home you want.

The location you choose will depend on several factors.

  • Do you want to be near family?
  • Do you want to reduce your work commute?
  • Do you prefer a city, a suburb, or a rural environment?
  • Do you want to move to a location that has a lower cost of living?

Depending on where you choose to live, you might not actually be saving money. A large house in an area with a lower cost of living might actually be a better financial position for you than a small house in an area with a higher cost of living. Working out a budget at this point is pretty critical.

Very often, downsizers want a smaller home but with no less luxury. For example, if your larger home has granite countertops, most downsizers choose to have granite in their next home, and sometimes even use some of the extra cash they have to upgrade the kitchen appliances as well. Larger master suites are also a common feature downsizers want, and often are willing to sacrifice larger guest suites.

The type of home you choose will also depend on several factors. Some of your options are:

  • Smaller house - The benefits of choosing to move to a house are many. Choosing a house means you’ll still have to do the maintenance and upkeep, however, even though it will likely be less time consuming and costly than in a larger home. A house will probably have more space than any other option, so if a guest bedroom or two is important to you, or if you want a formal dining room, this may be your best bet.
  • Condominium - Many downsizers choose condos not only because they are significantly less costly than a house but also because maintenance will be done for you. In many cases, condos are only one story so you can eliminate stairs if that’s an issue. Condo living sometimes comes with sweet amenities like clubhouses, pools, tennis courts, and so on. If you choose a condo, however, don’t forget that you’ll have to pay HOA fees which vary dramatically from place to place.
  • Rent - If you want to free up some cash, or move to temporary digs while your dream home is being built or while you’re waiting for retirement, renting might be a great option for you. The best part about it is that you are responsible for no upkeep or maintenance - even a clogged drain is fixed for you. Another benefit of renting is that you can stay in the same town without all of the expense associated with owning. The downside, of course, is that you aren’t building equity so it might not make sense financially.
  • Active Adult community - Sometimes known as “55+ Communities,” active adult communities are a great option if at least one person is 55 years of age or older. Active adult communities can be condominiums, cooperatives, single family homes, or even mobile home parks. The benefit of an active adult community is the opportunity to choose a community of people in the same stage of life. Many also offer amenities such as community swimming pools, clubhouses, tennis courts, and so on.
  • Continuing Care Retirement Community - A CCRC offers lifetime housing with advanced levels of care available as needs change. CCRCs also offer planned activities such as luncheons and parties for residents to get to know each other and socialize. Many offer bus trips to grocery stores and destinations such as the Jersey shore. CCRCs require an entrance fee and a monthly charge for care which is dependent on the level of support required.

When you decide where you want to live and the type of housing that appeals to you, it’s time to consider getting your current home on the market. At this point, you should contact a real estate professional who can help you determine what you need to do to prepare your home for sale as well as help guide you to finding your new dream home!

By Wayne and Jean Marie Zuhl

Here’s What Can Go Wrong When You Don’t Get Renters Insurance

Web Admin - Wednesday, August 03, 2016

“You don’t really know what you’ve got until it’s gone.”

Wise words, certainly, but not something I took to heart until I found myself evacuating New Orleans because of an oncoming hurricane. Eight hours of gridlocked traffic gave me plenty of time to reflect on the value of my belongings.

But I will say this: My panic would have been way worse had I not taken safeguards to protect my possessions with renters insurance.

I got lucky that time and came through unscathed, but every day other renters aren’t so fortunate. Hurricanes, wildfires, robberies, tornadoes—you never know when something could go horribly wrong. And if you’re not covered (or don’t have enough coverage), the results can be simply devastating.

Chance of rain—inside your apartment

Imagine waking up to a downpour from your ceiling. That’s what happened in May to Danny D’Apuzzo in South Florida, who ended up soaked and feeling like he was caught in an “indoor hurricane,” D’Apuzzo told 7 News Miami.

The culprit? His overhead sprinklers had gone off accidentally, drenching his belongings. The good news? D’Apuzzo had renters insurance. The bad? His limit was $10,000, and the damage totaled $15,000.

Lesson learned: Even if you have insurance, make sure you have enough.

“Being underinsured is a big problem,” says Loretta Worters at the Insurance Information Institute. “We recommend people do a home inventory to make sure they have the right amount of insurance.”

The fire was the least of their problems

When a fire broke out in the second floor of an apartment complex in Kalamazoo, MI, in May, Wiley Gates and his girlfriend considered themselves lucky: Everyone got out safely, the fire was put out, and they were even able to go back inside their first-floor apartment to grab a few pieces of clothing before leaving for the night. However, the next day when they returned to get the rest of their stuff, they found nothing but a pile of rubble. According to WWMT, the fire marshal decided to bulldoze the building without notifying the inhabitants. Hey, couldn’t they have called first?

Lesson learned: Even if someone else’s wrongdoing destroys your stuff, no one is responsible for it but you—so it’s no use pointing fingers at the fire department or your landlord, either.

“Unless there was negligence, the landlord isn’t responsible for covering a renter’s belongings,” says Worters.

Teenage shenanigans gone wrong

In May, a group of teenagers in Tucson, AZ, stole an SUV and led police on a high-speed chase—then ended up crashing into a house that was being rented by the Burwell family. According to KVOA, the homeowners insurance covered repairs to the home, but it did not cover anything inside—and the Burwells didn’t have renters insurance. That left the family with the costly recourse of suing the offending teenagers’ families in the courts.

Lesson learned: If you’re renting someone’s home, don’t assume the homeowner’s insurance covers you. Renters need their own separate policy, and should take heart that teenage shenanigans are covered as well as tornadoes. Without it, “the injured party would have to seek damages against the thief in court, since it was the thief’s negligence that caused the accident,” says Worters.

‘We figured federal aid would be all we’d need’

A family in The Colony, TX, lost their rental home and belongings to a tornado in May, but that turned out to be just the start of their struggles. After the twister passed through, the family called the Red Cross, which paid to put them up in a hotel for a few days. But after that? Nada.

Erica Whited contacted a total of 275 organizations looking for help, including FEMA, Health and Human Services, the IRS, CCA, and the governor’s office. Their response? The storm didn’t do enough damage to qualify as a disaster, and as such her family did not qualify for relief.

“There wasn’t enough widespread damage or financial loss,” Whited told The Colony Courier-Leader.

Lesson learned: Typically, in large-scale natural disasters, federal programs can step in and provide aid. But it’s by no means guaranteed and likely won’t provide everything you need. To be fully protected, start an emergency fund and insulate yourself with insurance.

By Angela Colley

What Does a Home Inspector Look For? A Whole Lot

Web Admin - Wednesday, June 29, 2016

After you’ve made an offer on a home and it’s accepted, you might want to start packing your bags. But hang on—you’re not home free yet. Before you close the deal, it’s wise to hire a home inspector to check out the house for major flaws that might need to be fixed. After all, even if a house looks like it’s in great condition, appearances can be deceiving.

So what does a home inspector look for, anyway?

In short: a whole lot. “We’ve got 1,600 different items on our list that home inspectors are supposed to look at,” says Claude McGavic, executive director of the National Association of Home Inspectors, which trains and certifies home inspectors throughout the country.

And their discoveries can help home buyers big-time: Provided you have a home inspection contingency in your offer, you can renegotiate with the seller to fix certain problems or to lower the price. Or, if the problem is more than you want to handle (think faulty foundation or roof on the verge of caving in), you can walk away from the deal with your deposit in hand. Either way, it’s a win-win for the buyer.

This home inspector spotted a problem with a home’s blown insulation.

What does a home inspector look for?

Inspectors run down a checklist of potential problems. While we won’t list all 1,600, here’s the boiled-down version:

  • Grounds: Inspectors are looking for current or future water issues such as standing puddles and faulty grading or downspouts. They check out landscaping to see if trees and shrubs are in good condition (an arborist will give you a more detailed assessment); and evaluate pathways, retaining walls, sheds, and railings.
  • Structure: Is the house foundation solid? Are the sides straight? Are the window and door frames square? This part of the inspection is particularly important when you’re considering buying an older home.
  • Roof: The inspector’s looking for defects in shingles, flashing, and fascia, all of which can cause ceiling drips; loose gutters; and defects in chimneys and skylights.
  • Exterior: The inspector will look for siding cracks, rot, or decay; cracking or flaking masonry; cracks in stucco; dents or bowing in vinyl; blistering or flaking paint; and adequate clearing between siding and earth, which should be a minimum of 6 inches to avoid damage from moisture (although dirt can be in contact with the cement foundation).
  • Window, doors, trim: If you want to keep heat in, cold out, and energy bills low, windows and doors must be in good working condition. The inspector will see if frames are secure and without rot, caulking is solid and secure, and glass is undamaged.
  • Interior rooms: Inspectors are concerned about leaning walls that indicate faulty framing; stained ceilings that could point to water problems; adequate insulation behind the walls; and insufficient heating vents that could make a room cold and drafty.
  • Kitchen: Inspectors make sure range hood fans vent to the outside; ground fault circuit interrupter (GFCI) protection exists for electrical outlets within 6 feet of the sink; no leaks occur under the sink; and cabinet doors and drawers operate properly.
  • Bathrooms: Inspectors want to see toilets flushing, drains draining, showers spraying, and tubs securely fastened.
  • Plumbing: Inspectors are evaluating pipes, drains, water heaters, and water pressure and temperature.
  • Electrical: Inspectors will check if the visible wiring and electrical panels are in good shape, light switches work correctly, and there are enough outlets in each room.

How you can help the inspector

Bring any and all concerns about the property to your inspector before he begins, so he’ll keep a sharp lookout for possible problems. If the seller has disclosed damage, give your inspector a heads up about that, too.

Another smart move is to accompany the inspector during his rounds. It’s in your best interest to understand the home, its systems, and potential problems. For instance, an inspector can introduce you to electrical panels and shut-off water valves (which the seller may not know how to operate or forget to show you), and if he spots a problem, he can show you exactly how a system is malfunctioning and what it means. And this info will serve you well not only before you buy, but afterward as well.

By:Lisa Kaplan Gordon

Protecting Your Pets when Selling Your Home!

Web Admin - Tuesday, June 21, 2016

Are you in the process of selling your home or considering selling your home? Do you have pets? There are numerous ways that you can make the process easier for everyone, including your four legged family members.

When placing your home on the market, remember that the easier it is to show, the easier it is to sell. When my husband and I sold our home in Florida, we had a newborn baby, five cats and a large dog. The dog was a sweetheart, but looked & sounded scary when strangers entered the house. We sold the home in 2005 (when the market was booming), which means it was being shown 2-5 times per day. While it wasn't always easy to clear everyone out, we made it possible. We really wanted to sell the property and knew that buyers are more likely to look at a property if the seller is not hovering around.

When showings were scheduled (sometimes just minutes prior to the showing), we would put the dog on a leash, the baby in the stroller, and each cat in a kennel... then we took a stroll around the neighborhood. We left blankies and water in each kennel and placed them in the laundry room so they were always available for quick access. We then closed the door, left photos and manuals for the washer/dryer just outside the door, and it worked really well. Most people didn't even open the laundry room door, except the buyers that were really interested in the property. And our kitties were not stressed out by having strangers around them.

By placing the cats in the kennels and taking the dog for a walk during showings, we never had to worry about them sneaking out the front door. Most Real Estate agents are very careful about pets, but some pets (mine included) can be very quick & sneaky.

With cats, ALWAYS keep the litter boxes clean. If you aren't already (and you should be) scooping them twice a day, start as soon as you place the home on the market. If a potential buyer walks in to a stinky house, they may not even consider looking past the front door. If your dog is barking or growling at potential buyers, they will probably run back to their car as fast as possible and may not ever look back.

If you cannot be present when a showing is scheduled, make sure that your agent is aware of all pets and any special instructions. When we couldn't be present for showings while trying to sell our home, we would leave our cats in the Laundry Room and lock the door. If a buyer was serious about the property, we could always schedule a second showing if necessary and make sure that our pets were locked up and safe. Cats especially don't handle change or stress very well, and these precautions made life much easier for them as well as us and the real estate Agents showing the property. Our REALTOR® also knew our dog, and she would let her in the backyard before the buyers showed up.

Also remember, that just because your dog or cat is friendly, not everyone loves them like you do. Some buyers do not want your lap dog or crazy cat chasing them around the home and tripping them as they walk around. Even worse... What if your pet bit someone? YIKES!

By Amy Hahn

How to Divide a House When You’re Getting a Divorce

Web Admin - Tuesday, June 07, 2016

It happens: Marriages fall apart. And as if dissolving your union weren’t hard enough, if you own a home together—almost certainly your largest joint asset—you’ll also have to decide what to do with it. Do you stay, sell, or hand ownership to your ex?

While there’s no one-size-fits-all solution when it comes to dividing the house during divorce, there are multiple options that will allow you to move forward with a roof over your head.

Let’s take a look at some of the different ways couples can tackle dissembling the household.

Option 1: Sell and split the profit

Selling the home and dividing the profit is often the least messy of all possible scenarios.

“A lot of financial advisers and attorneys recommend that clients just sell the home,” says attorney Brette Sember, author of “The Complete Divorce Guide.” “It can often be the simplest way to solve all the problems. Everyone gets their share, and there is no lingering joint debt to resolve.”

Still, there are some caveats to keep in mind. First, if you’re trying to sell during a down market, when your house is likely to sit on the market and you stand to lose money, consider moving out and renting the property instead.

If you’re selling at a profit, on the other hand, you’ll want to watch out for capital gains tax, although the bar is high. An individual can exclude up to $250,000 in capital gains on the sale of a primary residence, and a married couple filing jointly can exclude up to $500,000. So depending on when your divorce is finalized, you might have more leeway. Those making a profit might also consider agreeing to use that money to pay off the legal expenses of your divorce.

That said, many people are understandably attached to a home, or decide that remaining in it is best for the children. In which case, consider the next option.

Option 2: Buy out (or get bought out by) your spouse

Before you make the decision to stay and possibly buy out your partner, it’s important to find out if it’s financially feasible. Natalya Price, a Realtor® with Coldwell Banker Residential Brokerage in New Jersey, who is recently divorced, says it’s important to remove emotion from the equation as much as possible. Of course, this is often easier said than done.

“I have a client who wanted to remain in her five-bedroom home, but in two years her children will leave for college,” Price says. “I asked her, ‘Do you really need this big house with all these rooms? Would it be smarter for you to sell your home and rent an apartment or a condo within the same community?’” Whether you’re the partner staying or going, make sure the buyout terms—which will include a professional appraisal of your home’s value—sound fair and accurate.

“With a buyout, you have to be very careful,” Price cautions. “Because there’s no actual sale involved, the figures can be very subjective. Think about how many homes are listed and don’t sell at that number. Until there’s a buyer willing to pay actual money, it’s just a number and you’re banking your future on that.”

So if the amount being offered doesn’t sit well with you—on either side—experts encourage you to get another appraisal, much like seeking a second opinion from another doctor before moving forward.

Option 3: Delayed buyout

If you (or your spouse) want to stay in the home but aren’t in a position to purchase it at the moment, there is another option: arrange to delay the buyout.

In this scenario, the spouse that stays simply continues making the monthly mortgage payments until he can afford to buy out the other, or until the kids move out and he is ready to sell.

But this option also has its own headaches. Long-term ones.

“It can lead to a lot of potential issues if people aren’t careful,” says Realtor Nicholas Kensington of The Matheson Team in Scottsdale, AZ. “Since this arrangement can last years, there can be plenty of fights about how the house is being cared for.” Or, even worse, if the partner who stays starts dating someone, can that person move in?

If you’re the spouse who’s allowing your former partner to stay in the home, you’re in a vulnerable situation should something go awry.

“The biggest issue is your name remaining on the mortgage,” Sember adds. “If your ex doesn’t keep up the payments, you’re liable. It could ruin your credit rating if payments start to be missed or if the home is foreclosed on.” Plus, it might affect your ability to buy another home.

The best policy to avoid any messes is to hash through all the what-ifs with a lawyer, and come up with a written plan of action. Who will do and pay for repairs? What if mortgage payments can’t be made? As long as these worst-case scenarios get addressed, no one is left holding the bag.

Option 4: Divide it, literally

Remember that “Brady Bunch” episode in which Peter decides to divide the room he shares with Bobby in half? Of course, hilarity ensues as the brothers soon discover that each loses access to things he needs.

Attempting to live together after the split can pose plenty of challenges.

In real life, trying to co-habitat after divorce is a lot less entertaining—and it doesn’t even have a laugh track.

“Some couples choose to live together in a home after a divorce if they can’t sell it and neither can afford to live elsewhere until it sells,” Sember says. “Being roommates after a divorce can be very complicated, both emotionally and practically. Will you share common spaces? Can you have guests? How will you share all the upkeep costs? There is a lot to work out, and most people find this is harder to do than it initially seems.”

By: Liz Alterman

Too Little, Too Late

Web Admin - Tuesday, May 24, 2016

Selling a home can resemble riding a roller coaster. There is the starting point of filling out paperwork, deciding on a price, taking pictures, and figuring out a listing date. Then there are the highs of receiving an offer and negotiating the contract. But sometimes the lows come flying in when the contract doesn’t come together. Sort of like riding a plane with a bit of turbulence followed by a safe landing.

Emotions can run the gamut when we are negotiating a contract. Sometimes buyers are left with the feeling of not wanting to make a mistake but also not trusting their agent to understand which road to take. It’s at these times when buyers can become “stuck.”

Whether or not a buyer is stuck, decision making is not easy. If the final price they will accept for their home or the ensuing repairs is a concern, it’s always a good idea to ask your real estate agent the consequences of not moving forward.

Recently, a seller client became stuck. He had received a cash offer, not asking for anything other than a home warranty plan that would probably cost $550 and a quick closing. The buyer was even willing to pay transfer fees and capitol assessments! And yet the seller stopped cold in the negotiation process and stalled at a specific price, higher than the final offer by the buyer.

My advice and sales comparisons were ignored and the contract fell apart. We are now waiting for showings to re-start and hopefully another offer will surface soon. If we receive a financed offer, there will be appraisal contingencies and the buyer has to complete the financing process. There are more ways a financed offer will fall apart versus a cash offer. Even this advice was ignored.

If you can’t trust your agent to be your advocate, then you are working with the wrong agent. Interview your agent and ask what they would do in the above situation. Sound reasoning and advice should be the answer. Too little too late, we don’t have any showings planned and he is now back pedaling wishing he had listened to my advice.

By Jan Green

Should Retirees Rent or Own?

Web Admin - Friday, May 20, 2016

Richard Mia/The Wall Street Journal

Rent or own? It’s a question many young adults face as they try to find the right balance between their housing needs and financial situations.These days, many older homeowners are grappling with it, too.Home-sales data and anecdotal evidence suggest that more baby boomers are putting for-sale signs on their homes this year, seeking to unlock the equity they have regained since the housing downturn.The National Association of Realtors, too, says the median age of home sellers has risen to 54 from 46 since 2009, an indication that empty nesters who were waiting for a housing-market recovery are starting to list their properties.Of course, planting a for-sale sign in the yard raises the question, “Where to next?” And for baby boomers—especially those with oversize houses and inadequate savings—it is a decision that could have a major impact on how they fare financially in retirement, some experts say.

Unlocking equity

Although investors have been told for years not to think of their primary homes as investments, having a healthy chunk of home equity can make a big difference when it comes to planning retirement finances.

“If retirement savings present the risk of a shortfall, one of the best things you can do is liquidate real-estate assets,” says Christine Benz, director of personal finance at Morningstar Inc. “That’s more palatable than hearing you need to keep working until you’re 72.”

Andrew Carle, executive in residence at the Senior Housing Administration program at George Mason University and a senior housing researcher, says it is important for older consumers to consider their needs not just for the next few decades, but for the final one-third of retirement.

“We know that the boomers haven’t saved enough for retirement,” Mr. Carle says. “What they do have is equity in their homes; but do they know how to spend it? Most of them haven’t thought about the last five to seven years of their retirement, which will be the most expensive.”

Those who opt to rent, Mr. Carle cautions, must be careful not to “fritter away” the cash they unlock through a home sale and instead try to preserve it for future income or medical costs.

Asset or albatross?

Renting has both advantages and disadvantages for older consumers. On the plus side, renters typically enjoy a wider range of housing options, flexibility (a one-year lease is a short-term commitment) and the fact that building managers handle repairs, landscaping and snow shoveling.

A big financial disadvantage for older renters, however, is that as rising rents take a bigger portion of a fixed income, there is no offsetting increase in equity like there often is when you own a home. And rental prices can double over a 25-year period.

Charles Farrell, a financial planner with Northstar Investment Advisors LLC in Denver, says if a rental starts out at 30% to 40% below the prior mortgage payment, it may be worth considering. But he advocates that seniors not spend more than 15% of their annual retirement income on housing—rented or owned—because as the years progress, medical expenses typically rise. (Other financial planners says seniors should spend no more than 25% on housing, and less if they own a home outright.)

By Jane Hodges

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