Retirement Home Planning
Buying a vacation home that
doubles as a future retirement home requires forethought and
thorough investigation. Conventional wisdom tells us to first settle
on a desired location and then look for the least expensive house in
the best possible neighborhood. This is of course true, but buying a
future retirement property demands additional consideration. Without
a doubt, the purchase of a dual purposed home can be one of the most
important and financially rewarding decisions a pre-retirement
couple undertakes. Quite simply, the ultimate home buying decision
comes down to establishing relatively conservative financial
boundaries, drawing up a wish list and employing a real estate
broker to find a home that will serve your needs now and in years to
Even prior to the financial planning phase, a vacation and future
retirement home buyer should take a step back and make certain that
there is 100% commitment. Ask yourself a few simple questions.
First, is it possible that your financial position could materially
change for the better or worse in the upcoming years? Have you
decided on a location that requires a dramatic environmental change?
What about relatives, does it matter that their next trip may
require a flight instead of a drive? If youíve answered Ďyesí to any
of these, our advice is to find a long-term rental in the area and
give it a test drive. If, on the other hand, there are no doubts, it
is time to set your financial parameters.
Once the decision is made to
move forward, you need to figure out how much of a home you want and
what type of home you can afford. The latter is a bit easier to
quantify as most financial institutions prefer mortgage payments
that are less than 29% of gross monthly income. However, if you have
a good financial track record, banks will afford you some latitude.
Obviously, lending rates are a crucial factor in this equation,
especially if you go the adjustable rate route. A word of caution:
be careful of Adjustable Rate Mortgages that look particularly
attractive in todayís low interest rate environment as an uptick in
rates could lead to a potentially unpleasant financial situation.
Remember that buying now for a future retirement is a long term
proposition and your new investment should appreciate with no
financial carrying cost surprises.
An additional factor to consider is whether your prospective
vacation property can provide rental income before it becomes your
full-time retirement home. If so, you would be able to deduct a
portion of your mortgage interest payments, taxes and property
amortization against the rental income. In other words, it is a
great way to build equity and create additional cash flows. It
should come as no surprise that an increasing number of people have
taken advantage of this strategy.
After defining your financial boundaries, itís time now to come up
with your wish list. What do you want in a home? How many bedrooms
and baths? Do you want to live in a private gated community or out
in the country? Does it have potential as a rental property? In
addition, off-site criterion should be established to ensure that
all aspects of your vacation home experience are amenable to your
current and future retirement lifestyle. For example, are there
property management services and what about local conveniences such
as transportation and healthcare facilities?
Now that you are armed with your financial parameters and wish list
itís time to find a local broker and see whatís available. Almost
70% of home buyers leverage the internet to research properties so
if you havenít already, itís time to start surfing the web.
Simultaneously, you should be refining your financing plan by
contacting a number of financial institutions and mortgage broker
aggregators. Donít be bashful, comparative shop with at least two or
three companies to ensure that you understand the various financing
options and are being offered the best deal.
As we all know, the relationship with a broker is extremely
important. A broker must truly understand your financial parameters,
desired home criterion and lifestyle objectives. Brokers are
normally paid for by the seller. Therefore, itís your job to
establish the broker and buyer relationship that best works for you,
not the seller. Remember, this is your vacation and future
With a bit of good luck, buying a vacation and retirement home can
yield some interesting financial benefits including long term
capital appreciation and additional cash flows. Thorough planning
can help mitigate future uncertainties and make the home buying
process into a truly rewarding experience.
Robert Flournoy is a staff writer for Golf Home Connect. For
additional information on golf course community real estate visit
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