Retirees' Most Common Real Estate Mistakes

Retirees want different things out of retired life. This also rings true when it comes to their real estate decisions. Some folks want to downsize and travel more. Others want to buy a bigger home in their favorite destination and host their ever-growing family for every holiday and vacation. Regardless of goals, there are a few mistakes that all retirees need to be aware of and avoid in order to enjoy their retired years to their fullest.

Mistake #1 – Failing to assess your future needs - Will your current living situation mesh with your vision of life post-retirement? Does it have a main floor bedroom, which is much easier on the knees. How about the time and resources required to maintain a home’s exterior and yard when you no longer feel up to the task? Should you refinance to a 15-year fixed mortgage to pay your home off sooner? Discuss the advantages and disadvantages to living in your current location post-retirement and take thoughtful inventory of your conclusions. Use these conclusions to inform your next actions whether it be relocating, renovating your current home to meet future needs, or keeping everything the same.

Mistake #2 – Waiting until retirement to buy a second home – Shift your mindset away from waiting until retirement to buy your dream vacation home and towards purchasing a practical property that can be rented for positive cash flow during your working years. Ideally, this second property is purchased in your 30s-40s so that rent collected by the tenants contributes significantly to paying down the mortgage while providing you with a second stream of income. When retirement comes, you have a couple options: sell your current home and move into the rental, sell the rental (and perhaps your current home) and use the equity to buy a new home without carrying a large mortgage, or extract the equity accrued and use it to purchase yet another rental property to throw off even more cash flow to cover living expenses. 

Mistake #3 – Rushing to buy in an area that you do not know well – You may be eager to move somewhere new upon retirement. Take the time to do the due diligence and understand what all aspects of living in this new area entail; physically, emotionally, and financially. Some folks assume that they want to move to Arizona to golf all day and bask in the sun but they fail to evaluate the specific region in which they’re looking for quality restaurants, shopping, commute times, transportation options, and health care providers.

Mistake #4 – Using retirement money to pay off the mortgage – Aim to have your home paid off prior to retiring but do not do so by tapping retirement accounts to pay the monthly mortgage. The tax penalty levied on utilizing these fund before retirement really chips away at aggregate value of these types of accounts. Think about refinancing just before retirement if you do need to carry your mortgage with you.

Mistake #5 – Deeding the property to you children – Let’s say that you want to move into a smaller home and allow your kids to take over your current residence. It makes more financial sense to sell them the home versus deeding the home as gift. Selling your home provides profit and tax incentives by way of the capital gains exclusion which allows you to avoid paying tax on up to $250,000 as an individual or $500,000 as a couple tax-free. In addition, your children will not be required to pay capital gains based on the different between the homes original price and current value. Note: your children would not be required to pay capital gains if they lived in the house for two out of the last five years.

Adapted from 5 Major Mistakes that Retirees Make with Real Estate via

Post a Comment