by
Charlie McHenry
Thinking
About a Resort Retirement Home?
Better
Think About Buying Now!
Buying
Now Ensures A Choice Location and Rental Income Helps Pay for the
Home
As
the Baby Boom generation ages, more and more of us are thinking
of retirement homes. Dreaming of communities in the country, close
to golf, theatre, art galleries and forested hillsides. Or maybe
your dream is of Florida sands, palm trees and year-round heat.
In either case, you’d be well advised to act on your dream sooner
rather than later.
It’s
a simple matter of economics and supply and demand. Real Estate
prices are trending upwards. Property values appreciate annually.
There are only so many award-winning, really choice resort retirement
locations. And the baby boomers are getting ready to snap them all
up.
Take
Mt. Meadows in Ashland, Oregon. This resort retirement community
on 31 acres has run out of property with only 26 units left to sell
and 14 more on the resale market. Named the "Best Small Active
Adult Retirement Community in America" by the National Council
for Senior Housing and one of the 100 "Best Master-Planned
Communities" by Where to Retire Magazine, Mt. Meadows is a
good example of the kind of premier community most retirees are
looking for.
In
addition to its familiar and comfortable design – just like an old-fashioned
neighborhood – Mt. Meadows is special because it offers investors
private ownership of its condominium residences. This preserves
a buyer’s capital; includes the ability to sell at any time or to
enhance income through a reverse mortgage; and, enables purchasers
to leave the property to their heirs. The owners also control management
of the development. There is no "corporate headquarters"
dictating increased fees or changes in popular policies.
Not
all retirement properties are structured in this manner. In many
cases, investors are buying a "building". In these single-building
retirement developments, residents are housed in an apartment with
a very small kitchenette. The building has a lobby and a dining
room; and, occasionally meeting rooms or a library.
Residents
often do not "own" their apartment units, and there can
be "buy-in" fees in addition to monthly charges in these
buildings. A vast majority of retirement facilities and developments
in the country are corporate owned. Changing economic conditions
or a change in management can influence staff, policies and fees
for facility residents.
It
is incumbent on investors to review the many kinds of retirement
developments, their management structures and financial models,
before deciding where to buy. It is wise to include the family accountant,
financial advisor and/or attorney in these considerations. But there’s
one more thing to think about…
We’ve
all heard real estate’s golden rule: It’s all about location, location,
location. And that’s why it’s important to start looking for your
retirement home now and to be ready to purchase once you find your
match. Premier locations are being developed, and soon won’t be
available to buyers. That’s reason enough for most 50 year-olds
to start looking tomorrow.
Getting
into your dream retirement home with very little down and utilizing
rental income to help finance the purchase is an even more compelling
reason to consider investing in a retirement home today. There are
several scenarios that come to mind. You may have recently become
empty nesters and are considering downsizing your long-term family
home – in which you have considerable equity. This is one of the
very few times in life that the IRS allows you to take your profits,
up to $500,000, tax free. You can buy a smaller, more inexpensive
home with some of the profits, and use a portion of the remainder
as a down payment on your dream retirement home. Depending on the
down payment, monthly rental fees may just cover mortgage payments,
helping pay for the home until you are ready to move in.
In
another scenario, buyers can use the proceeds from a 1031 exchange
to fund the purchase price or down payment on a retirement home.
To qualify for this tax exemption, you must rent your retirement
home out for a couple of years. That fulfills the IRS requirement
that you move money from one investment property to another property
intended as an investment. At that point, or any thereafter, you
can sell your primary dwelling and "convert" your investment
property from a rental into your new primary dwelling – thus avoiding
any tax on the entire transaction. If you use equity from your existing
home, or the proceeds from a refinance to fund the down payment,
you get into your dream retirement home without any significant
outlay of your personal capital. And if you rent the property until
you are ready to retire and move, your renter’s money helps pay
for the home.
What
should investor’s look for in a retirement home that they intend
to rent before occupying? Again, location is a priority consideration.
Most retirement homes are located within an hour’s flight from the
buyer’s previous, principal residence. Most are located in areas
that have a mild climate; outstanding recreation, cultural resources
and health care facilities; and, are easy to get to – like many
parts of Southern and Central Florida, known for their retirement
communities, and like Ashland, Oregon – where Mt. Meadows is located.
Ashland is home of the Tony Award-winning Ashland Shakespeare Festival,
Southern Oregon University and the Mt. Ashland Ski Resort.
A
mountain-side college-town, Ashland has been named one of the Top
10 Small Art Towns by John Villani in his book The 100 Best Small
Art Towns in America. It boasts some of the best restaurants in
the Northwest. The area is close to nine lakes and three major rivers
including the wild and scenic Rogue and Klamath Rivers. And, there’s
a major airport served by three airlines just minutes away in Medford.
Wal-Mart and a host of other shops, from outlet stores to boutiques
and galleries, are just five minutes away.
In
addition to location, buyers should consider their own unique financial
circumstances. Purchasing a retirement home is a strategic decision
with implications for the future. It is important to maximize the
flexibility and minimize the financial burden of such a purchase.
Resort retirement developments that allow residents to purchase
their properties provide superior flexibility and a number of creative
ways to allocate the costs.
Sometimes
the adult children of a retiring couple will fund the purchase price
or down payment for a Mt. Meadows condominium – and their parents
pay a monthly "rent" that covers the mortgage payment
and fees. In this scenario, the kids share the depreciation of the
unit for tax purposes – as well as the appreciation in real dollars
for future profit.
In
another version of this model, well-off parents gift their adult
children and wives with the maximum $10,000 allowed – tax free –
on an annual basis. The children then use these funds to make the
down payment on the retirement property – which they own. In other
cases, residents have "loaned" their adult children the
funds necessary to purchase a Mt. Meadows unit, then left the property
to their kids in their wills. The value of the property in these
cases is calculated based on the day of death, and thus the heirs
avoid any previous profits or appreciation.
However
you decide to fund your resort retirement home, the time to start
looking for a premier property that offers you and your family the
maximum in flexibility and investment potential is right now. In
fact, savvy buyers can get into a retirement home in a number of
creative ways and even leverage rental income to help make monthly
mortgage payments until they are ready to move in.
