There are many people living in Palo Alto
who have been here for a long time and have a lot of equity in their
homes. They may not have huge retirement income, but there is money in
the value in their home if money is needed. The question is what is the
best thing to do if a senior needs money? Sell, rent, reverse mortgage?
is no correct answer. Each option has pros and cons. The first thing to
do would be to speak with an accountant or financial adviser to
understand the tax consequences of the different options. I just want to
give you some broad information about each of these options to help you
make an informed decision based on what is best for your particular
Reverse Mortgage: The mortgage
company will give you a monthly amount, or a lump sum. The interest and
fees are paid when the home is sold. These costs are high, but they are
ultimately paid by the heirs, not the home owner, under many
circumstances. You get to live in your house, off of the money you have
in equity. However, once you leave the home for 3 months or longer (in
most cases) the home must be sold and the bank repaid. This means if you
go into a nursing home for 3 months or longer, the home is sold and the
owner pays any capital gains tax at that time as well as paying off the
fees and interest on the loan.
Rent Out your home:
Rentals in Palo Alto are scarce and are fetching large sums. You can
probably rent your home for enough money to pay for care in assisted
living. You would not have to sell your home and pay the capital gains
tax so there would be more equity preserved for your heirs. However, you
are still responsible for any repairs that may be needed, which could
be expensive, and you will need someone to manage the property once you
Sell: Prices in Palo Alto are back to their peak levels. Homes rarely sell under a million dollars, with 1400 square foot Eichlers
and ranches easily selling in the 1.4-1.6 million dollar range. That is
plenty of money to pay for expenses if you need assisted living.
However, once you sell you need to pay capital gains tax, and you need a
safe investment that pays you income to help pay the expenses you need
in your retirement living situation.
This is never an easy decision, and it requires excellent profession advice to determine what is best for your situation. My best professional advice
is make this decision early so that your plans can be carried out in a
systematic way rather than after a crisis has occurred. This will
enable you to focus on a change in health or family circumstance, not
"What do I do now?"
If you have any questions about buying or seling homes in Palo Alto please feel free to contact me.
Keller Williams Realty Palo Alto