My clients and I will often discuss real estate as we plan for their retirement, and that conversation has become more frequent—and way less predictable—this year. The stories we’re all hearing about a global real estate frenzy are enough to make even the most reluctant sellers eager to list. As my clients prepare and plan for retirement, they’re feeling pressure to sell and worried about how to compete in this wild housing market. So I’ve put many of my clients in contact with my brother, Michael Perrone, owner of The Perrone Group, to help them buy or sell a home successfully. We’ve worked together to help many people achieve their retirement dreams by thinking creatively about how to win, even in this market. Below are some of the tips he and I put together to help make this wild housing market work for your retirement, too.
Factor in the tax incentive
There’s no doubt that if you sell a home in 2021, you will make money. It’s the ultimate seller’s market. As long as you don’t need all of the profits for a new house, that profit is after-tax money you will use to fund your retirement. This money is different from the money you have in your IRA, for example. You pay taxes on that when you take it out. The first $250,000 ($500,000 for a couple) of a gain from what you originally bought the house for is completely tax free. This is a significant tax incentive for selling a home that can jumpstart a retirement plan, and the time to cash in is now.
Sometimes it’s ok to let go
Homes hold so many memories and emotions inside of them. Oftentimes, I’ll ask my clients why they’re holding onto a family home when they could sell it and use the money to retire sooner, or make a move to a place they’ve always dreamed of living. Nine times out of ten, they will say they are holding onto the house for their kids, even if they haven’t even asked their kids’ opinions on the matter. The truth is that most of the time, the kids have already let go of the house they grew up in. My advice is to ask yourself why you’re holding onto a house. If a part of you is holding onto it for your family, talk to them about it. You may just be surprised by their perspective.
Skip the countertops, but paint the walls
Many of my clients will put off listing their homes because they think they need to do a lot of work on the house first. The truth is, especially in today’s market, you don’t actually have to do that much to your house to get it ready to list. Your biggest bang for your buck will be painting. There’s nothing like walking into a house where the walls are freshly painted in neutral colors. Kitchen countertops and updated bathrooms are great, but they can be costly or delay the selling process. The biggest ROI is a freshly painted interior.
Don’t rush into anything
People are understandably worried that the housing market is going to crash. Panic-buying or selling a house is always a bad idea, regardless of the market. I’ve talked with many clients who are moving up their moving timelines because they want to get the timing right. You don’t want to make any rash decisions based on predictions or fear. Retirement is not something to rush into. Take the time to make the right decision.
Downsizing means actually downsizing
Moving is the worst part of selling and buying a house. The less stuff you bring with you, the easier the experience. I’m certainly not a life coach, but I have noticed a trend through the years as a retirement planner. The less possessions that somebody brings with them into retirement, the happier they are. If you hold onto stuff out of an obligation to the past, it can weigh you down. There are many services that help people who are downsizing to sell items in their homes. Max Sold is a company that will organize an estate sale on your property and help ensure everything is sold and/or removed from your property within a set time period.
If you’re buying a house in this market, you have to be mentally prepared to pay more than asking or forego an inspection. A lot of people are taking a shotgun approach and waiving everything for every house they come across. But buyers should be very picky right now. Because you are probably going to have to pay above asking and waive contingencies to get the contract, make sure the house is exactly what you want. Hone in on a neighborhood or a type of home so you can feel good about paying more for it.
There are ways to stand out, even in this crowded market
Unconventional methods of purchasing exist, and a real estate agent with experience in this market can help advise you on how to get your offer noticed. Most people agree that sending a personal letter doesn’t work today, so put down your pen. Understanding what the seller wants in any given situation will help. Inside tip: They want the most money. However, they may want it presented in a certain way. Finding a realtor who thinks creatively about how to present an offer will be a huge advantage for buying a house in this market.
It’s easy to get excited about this wild real estate market in pursuit of cashing in on high home prices. But it’s still important to have a plan for where you want to go, what type of place you want to live in, and how you want to spend your money. You only get to retire once, so make it count. Looking for a financial planner to help you create a path toward achieving all of your retirement goals? Contact us.
By Matt Perrone