Property mistakes specific to seniors

Property mistakes specific to seniors

Property considerations can take centre stage if you’re a senior looking for some changes in your living arrangements. You’ll want to plan your next step carefully, whether you’re an empty nester downsizing to a smaller home, or looking to move to an aged care facility. Doing so will help you save money and increase your retirement nest egg, avoid costly delays, and minimise stress. The following are common property mistakes specific to those aged over 50.

Working without a plan

Begin your plan by identifying what you want to achieve and write down the steps – including any research – that you’ll need to action. With a clear plan, you’re more likely to address all relevant issues and avoid costly mistakes along the way.1

Not using an inventory list

If you’re downsizing or moving to a smaller residence, you’ll probably be giving away or throwing out certain things. Take the time to create an inventory for review. Even very small items can have significance for you as a memento or be highly valued by other family members.1 Rather than simply donating everything, stop and think about whether you might want to keep certain items or give them to a family member.

Not researching enough

Before downsizing, renovating, or moving to an aged care facility, make sure you’ve done the appropriate research. Ensure that you can afford to take this next step and seek advice if you’re unclear about anything, especially how your tax obligations or income streams might be affected.2 Consider the type of property that will best suit your needs, whether you’re looking at a unit, apartment, courtyard home, terrace house, townhouse, or some other property type.

Consider all other factors that will be impacted by your move or change. For example, can you still obtain any health care that you might need at your new residence? It is important to check that you have easy access to any specialists or medical facilities.2

Similarly, consider the types of features that you’ll need in your downsized house, whether these include access to public transport, easy maintenance, or low upkeep costs. It’s desirable to have sufficient security of tenure and be able to enjoy a level of security and privacy at your new property.2

If you’re renovating, carefully consider the new changes – bathroom modifications or elevators – and make sure that they’ll provide what you’ll need for the medium to longer term. Sometimes a little research and weighing up of options could save you from having to move.2

Not understanding aged care arrangements

For seniors moving into aged care facilities or retirement communities, there are a range of terms that can be highly confusing to anyone. It’s important to get the terminology right because it can impact what laws regulate the residence and therefore your rights.3

For example, specific federal government laws regulate nursing homes while lifestyle communities and retirement villages are usually subject to a maze of local and state laws.3 Whatever you are buying into or leasing, seek independent advice on your contract and understand all your rights and obligations before you commit your money.

Not understanding the pros and cons of renting out property

Owning an income-generating property could be a great option for funding your retirement, but do take time to understand the benefits and limitations before leaping in and buying a property. While there are tax advantages such as depreciation and the possibility of rental yield growth over time, rental properties incur upkeep expenses, and there’s always the risk of troublesome tenants.4

Buying a property is an illiquid investment, so you can’t easily withdraw your cash if you need it.4 Seek professional advice if you have any doubts about investing in rental properties to fund retirement.

Waiting too long to downsize

The bigger your home, the more you’ll have to pay in utilities and other upkeep costs. Sometimes seniors wait too long before downsizing.2 You can in fact start planning to downsize well before your nest is fully empty. For example, a granny flat or spare guestroom could be sufficient for your youngest child in his or her university years before moving out.

Not investing proceeds from downsizing

Retirement means you need to have enough income to live on a few decades or more without working. If you do downsize, avoid the common mistake of not investing the proceeds.2 Think of the windfall as money to be invested for the future, not money to be spent. Speaking with a financial consultant will help you identify better ways to invest your windfall when you downsize.2

Retiring with a mortgage

More and more Australians are retiring with a mortgage.5 Unless you have an income-generating rental property, it’s usually best not to be constrained by a mortgage when you retire.2 People are living longer than ever, so you’ll want to plan to be mortgage-free in retirement if possible so you can maintain your current living standard without excessive financial burden.

Since you’ll not be working (or you’ll be working much less), pay off your mortgage as much as possible before you retire, and avoid committing to a new mortgage or using your home equity to fund your retirement – unless you’re certain you can comfortable fund your repayments without hardship.

Buying now to live later

It can be a major drain on your finances to purchase a second home with a vague plan to retire someday. It’s best to plan for a rapid downsize rather than buying and keeping a second home without a set timetable for moving in and selling your existing home. Even if you think you’ve found a great bargain you need to take advantage of, it can end up costing you more than you expect to maintain the second house.2

By avoiding these common property mistakes you can make sure the downsizing process – whether it be to a smaller property or an aged care facility – will run as smoothly and hassle free as possible. If you do your research and plan ahead when downsizing, you may also find you save a considerable amount of money.


Sources

  1. Moving Seniors – 5 Mistakes To AvoidDownsize My Home
    http://downsizemyhome.biz/moving-seniors-5-mistakes-to-avoid/
  2. 5 real estate mistakes retirees makeMarketWatch
    http://www.marketwatch.com/story/5-real-estate-mistakes-retirees-make-2014-10-20
  3. Complex contracts and the 'lifestyle village' swindleABC News
    http://www.abc.net.au/news/2014-07-17/kohler-complex-contracts-and-the-%27lifestyle-village%27-swindle/5601198
  4. Funding Retirement With Rental Property IncomeBankrate.com
    http://www.bankrate.com/finance/retirement/funding-retirement-with-rental-income-1.aspx
  5. AIST report: One in four retirees has mortgage or is paying rentnews.com.au
    http://www.news.com.au/finance/superannuation/one-in-four-retirees-has-a-mortgage-or-renting-a-home/news-story/ebe8a85a830aa7ff5872d457885a9932

Disclaimer

These articles are provided as reference material to allow more informed decision making, but are not intended as being a complete source of information on any topic. All readers should make their own independent analysis on the topic to make sure they have considered the aspects that are important to them.