Selling Home May be Better Option Than Renting

 

office pictures may 2012 002

 

 

 

 

 

 

Jane M. Young CFP, EA

 

It’s time to move but you hate to sell your house when the market is down.  Maybe you should rent your house for a few years? Or, on second thought, maybe not.

There are many factors to consider before deciding to rent your home.  Do you have the temperament and the time to be a landlord?  Are you comfortable with the idea of having someone else living in your home?  Do you want to manage the rental yourself or do you plan to hire a property manager?  If you manage the property yourself do you have time to learn about fair housing laws, code requirements, lease agreements, escrow requirements and eviction procedures?  Who will take care of repairs and maintenance and are you ready for tenant calls in the middle of the night?  If this sounds a bit daunting, a property manager may be your best option.  A property manager will cost you about 10% of the rent.  Be sure to include this in your cash flow analysis.

Before renting your home do a realistic cash flow analysis.   Add up your projected expenses and deduct them from your projected rental income to see if renting will result in a profit or a loss.  If you project a loss, does your projected appreciation on the home while it’s rented compensate you for the time and money it will cost you? Do you have funds to cover a negative cash flow?  Your expenses may include your mortgage payment, property taxes, insurance, home owner’s association dues, maintenance and repairs, legal and accounting fees and property management fees.  A rule of thumb for maintenance and repairs is about 1 – 2% of the market value of your home, depending on the home’s condition.   You may need to spend money up front to attract good quality tenants.

When calculating your rental income, you need to decrease your projected rental income by about 8% to allow for vacancies.  In Colorado the average rental vacancy rate has been around 7-9 percent over the last five years, based on U.S. Census data.  When a renter moves or is evicted it can take several months to get a new renter in place.

If you rent you can take a tax deduction for depreciation against your rental income.  To calculate your annual depreciation, take the value of your home, on the date you begin renting, less the value of land and divide it by 27.5.  Unfortunately, this is just a temporary gift from the IRS.  When your home is sold you must recapture all of the depreciation at 25%.

Other potential drawbacks to renting your home include the possibility of major damage inflicted by a tenant, drawn out eviction processes, negligence or safety lawsuits and costly maintenance issues.

An additional consideration, if you have a capital gain on your home, is the loss of the capital gain exemption of $250,000 for individuals and $500,000 for a couple if you haven’t lived in your home for 2 or the last 5 years.

Stock Can Be a Good Option in Retirement

 

 

 

 

 

 

Jane M. Young

As we approach retirement, there is a common misconception that we need to abruptly transition our portfolios completely out of the stock market to be fully invested in fixed income investments.   One reason to avoid a sudden shift to fixed income is that retirement is fluid; it is not a permanent decision. Most people will and should gradually transition into retirement.  Traditional retirement is becoming less common because life expectancies are increasing and fewer people are receiving pensions. Most people will go in and out of retirement several times.  After many years we may leave a traditional career field for some well-deserved rest and relaxation.  However, after a few years of leisure we may miss the sense of purpose, accomplishment, and identity gained from working.  As a result, we may return to work in a new career field, do some consulting in an area where we had past experience or work part-time in a coffee shop.

Another problem with a drastic shift to fixed income is that we don’t need our entire retirement nest egg on the day we reach retirement.   The typical retirement age is around 65, based on current Social Security data, the average retiree will live for another twenty years. A small portion of our portfolio may be needed upon reaching retirement but a large percentage won’t be needed for many years.   It is important to keep long term money in a diversified portfolio, including stock mutual funds, to provide growth and inflation protection.   A reasonable rate of growth in our portfolio is usually needed to meet our goals. Inflation can take a huge bite out of the purchasing power of our portfolios over twenty years or more.   Historically, fixed income investments have just barely kept up with inflation while stock market investments have provided a nice hedge against inflation.

We need to think in terms of segregating our portfolios into imaginary buckets based on the timeframes in which money will be needed.  Money that is needed in the next few years should be safe and readily available.  Money that isn’t needed for many years can stay in a diversified portfolio based on personal risk tolerance.  Portfolios should be rebalanced on an annual basis to be sure there is easy access to money needed in the short term.

A final myth with regard to investing in retirement is that money needed to cover your retirement expenses must come from interest earning investments.  Sure, money needed in the short term needs to be kept in safe, fixed income investments to avoid selling stock when the market is down.  However, this doesn’t mean that we have to cover all of our retirement income needs with interest earning investments.  There may be several good reasons to cover retirement expenses by selling stock.   When the stock market is up it may be wise to harvest some gains or do some rebalancing.  At other times there may be tax benefits to selling stock.

 

Financial Guidance for Widows in Transition

 
A workshop from the heart for women who are widowed

or anticipate becoming a widow in the future . . .

or those with a widowed friend or family member

 Friday, August 3, 2012 from 9:30am – 11:30am 

at Bethany Lutheran Church

4500 E. Hampton Avenue

Cherry Hills Village, 80113

OR 

  Friday, August 3, 2012 from 2:00 – 4:00 PM
 
at First Lutheran Church

1515 N. Cascade Avenue

Colorado Springs, 80907

 There is no charge to attendees, but advance registration is required.
Call 1-800-579-9496 or email Bob.kuehner@lfsrm.org

 Join us for a special presentation by Kathleen M. Rehl, Ph.D., CFP®, award winning author and speaker. She presents practical information in an engaging and entertaining manner, along with issues of the heart. The workshop is open to all . . . although it’s especially designed for women. So, bring your gal friends for an enjoyable morning out together.

   Kathleen’s world changed forever when her husband died. From personal grief experiences, her life purpose evolved-helping widows to feel more secure, enlightened and empowered about their financial matters. She is passionate about assisting her “widowed sisters” take control of their financial future.

 Dr. Rehl is a leading authority on the subject of widows and their financial issues. She is frequently invited to give presentations across the country on this topic.

 She and her book, Moving Forward on Your Own: A Financial Guidebook for Widows, have been featured in The New York Times, Wall Street Journal, Kiplinger’s, AARP Bulletin, U.S. News & World Report, Consumer Reports, Investment News, Bottom Line and many others. The guidebook has received 10 national and international awards.

 To devote more time to writing and speaking, Kathleen closed her practice to new clients some time ago. She was previously named as one of the country’s 100 Great Financial Planners by Mutual Funds Magazine.

 Please be our guest for this educational and enlightening workshop!

 This event is a sponsored gift to the community from
 Jane M. Young, CFP with Pinnacle Financial Concepts, Inc.
   

 (719)260-9800

www.MoneyWiseWidow.com

 
   
 

Financial Words of Wisdom from Widows for Widows

Jane M. Young, CFP, EA


I have met with numerous widows over the last few years to get a better understanding of what they are experiencing and to learn how I can best support and assist them.   Below I have shared some of the most meaningful and consistent messages and comments I heard from these brave women.  I hope this is helpful to both men and women who have recently lost a spouse and family members of someone who has recently lost a spouse.

  • Avoid making major decisions during the first year.  I think I heard this from everyone I spoke with and it is very wise advice.
  • Be obsessively selfish, after the loss of a spouse it is especially important to focus on you and physically take care of yourself.  Later, once you are feeling better you can help others.
  • Grief is very sneaky, one moment you feel fine then it sneaks up on you.  Expect some irrational behavior.
  • Be easy on yourself, it is normal for grief to last three years.  The fog will begin to clear after the first year but things will still be fuzzy for up to three years.  This can be difficult because friends and family expect you to heal more quickly than is realistic.  Everyone grieves differently but three years is very normal.
  • During the first year you feel like you’re operating in a fog, it is easy to forget key dates.  You frequently feel lost and confused and forget how to do things.
  • Grief can consume hours and hours of your day.  It’s hard to focus and get things done.  There is very little energy to learn new things.  It’s normal to feel apathetic.
  • The loss of a spouse is a huge tragedy in your life.  Everyone else seems so focused on themselves. Try not to get upset at others who go on with their own lives as if nothing has happened.  They are busy and they don’t want to open themselves to the pain.
  • It’s very important to take the time to select a trusted team of professionals.  Your team should include an attorney, financial planner and an accountant, if your financial planner does not prepare taxes.
  • Being a new widow can be very scary, it is scary to be alone.  You have a tremendous need for encouragement and acknowledgement that you are making progress.  Try to spend time with positive and supportive friends and family.
  • It’s hard to shift from making plans and setting goals together to making plans and setting goals on your own.  You don’t have to do everything the way you had planned with your spouse.  You need to set your own course and reach for new hopes and dreams.

 

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