Housing Decision During Retirement

Recently I took a  certification class for the designation of Senior Real Estate Specialist. I found there was  a wealth of information to assist my clients that are reaching retirement age or have parents with limited and/or fixed income.  All of that to say is there is a lot to think through when planning for retirement.  Certainly the below is a unique view of how some approach retirement. The Phoenix metropolitan area is wonderful place to retire with the mild climate and plentiful golf courses, so read on for more enlightening information…

A couple is planning to tour the United States in a travel trailer during their first few years of retirement. They are going to sell their current home now and purchase another home when they finish their travels.

An interesting exercise is to determine the optimum time of selling the home: now or when they’re ready to buy their replacement home.

If they intend on traveling for more than three years, then, it may be a good decision to sell prior to the sojourn to avoid paying taxes on the gain in their home. IRS allows for a temporary rental of a principal residence while still keeping the $250,000/$500,000 capital gains exclusion intact. A homeowner must own and use a home for two out of the previous five years which means that it could be rented for up to three years, but it would need to be sold and closed before that three-year window expires.

If the travel will be less than three years, there is an option of selling now or later. Using the example below, the homeowner sold the home, paid their expenses and invested the proceeds in a three-year certificate of deposit until the replacement home was purchased.

case study retirement-1.jpg
As an alternative, if the homeowner rented the home, not only would they have income, the home would continue to appreciate and the unpaid balance would go down resulting in larger net proceeds. Based on a 5% appreciation and continued amortization of the mortgage, the net proceeds could easily be $40,000 more.

case study retirement-2.jpg
Obviously, there are a lot of considerations that affect the decision to sell now or later but in an appreciating real estate environment, being without a home for several years could affect the financial position of the owner in the replacement property.

It is certainly reasonable to look at various alternatives before making a decision. Call me at 480.355.8645 or Email me [email protected]cateArizonaHomes.com to help you look at the different possibilities and talk to your tax professional.


About the Author

Gina is an Associate Broker with RE/MAX Fine Properties and the Team Leader for The Gina McKinley Group. She is dedicated to selling homes in Arizona and passionate about providing the ultimate customer service experience through her expertise in the field. Gina received her real estate license in 1998 and has worked hard to service her clients by obtaining the designations and special education of Certified Distressed Property Expert, Certified Residential Specialist, Accredited Buyers Representative, Certified Investor Agent Specialist, and the Short Sale & Foreclosure Resource Specialist. She has been recognized by RE/MAX International with the prestigious Life Time Achievement Award, the highest level awarded by RE/MAX. Gina has also been named "Top 1%" in the State of Arizona by Real Trends. Gina's real estate, marketing and business knowledge, experience, and contacts ensure that you will receive a world class customer experience when you work with the The Gina McKinley Group to help you buy your new home, an investment home, handle your property management or sell your current one.

Gina's personal time is spent with her family, Dan, Jeffrey, & Kristin. She is passionate about giving back to the community, serves on a housing council, and works in various fund raising activities for autism. Her hobbies include travel, fitness, gardening, and outdoor activities such as hiking, equestrian, and golf.