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Your home as a retirement asset? Yes, but higher returns are possible

Josh Norris

Gary Parker

By TED CARTER

Retirement security may await at the end of a rainbow, but is leaving a home behind the best way to get to it?

Yes and no, a financial planner and finance professor say.

But for Gary Parker, it’s not even a close call. Homeownership and retirement security are synonymous, he says. That’s not surprising since Parker sells homes for a living.

On the other hand, his thinking seems to be conventional wisdom, at least among his homebuyer clients, notes Parker, broker at Summit Real Estate Consultants in Flowood and president of the Central Mississippi Realtors.

The question has seldom come up in his 43 years of selling real estate in the region, Parker says. It’s understood, he adds, “that real estate is going to be a good investment.”

This sentiment survives even “in real estate’s down periods,” Parker says.

A good investment it might be, but it lacks financial flexibility, says Josh Norris, owner of Jackson’s LeFleur Financial.

“It is an asset but it is not a very liquid asset,” says Norris, a CPA and Certified Financial Planner.

One way to create some liquidity, he says, is to sell the family home, buy a smaller one and spend or invest the money left over from the sale. “Finance is about choice,” Norris says, and asks: “Do you want to live in a nice big house where the kids can come at Christmas or do you want to have money for travel and other things?”

Here’s something else for retirees in large homes to think about, says University of Mississippi finance professor Sergio Garate:

“You need to understand your property is only getting partly used… a third of the house is not being used.”

With a downsize, sound investment of the proceeds can bring regular paydays, Garate notes. “You can put it into a safe fund at, say, 4 percent,” he says.

What the retiree gets, he says, is a “low risk and an income” not there before.

Garate, who instructs Ole’ Miss students in financial planning, says proportion is something retirees should think seriously about. If you buy too much of something, you lose, he says.

“Do you really need a big” truck or car to go get groceries?

And what about all that square footage under air you are forking money out to maintain?

“Sell the house, downsize,” Garate advises. “Put the extra equity in mutual funds. Don’t keep losing that income every month.”

As for the kids and grandkids on the holidays, “Rent them a nice hotel suite. That’s cheaper than maintaining this big house,” he says.

Norris, the Jackson financial planner, says making the case for diversified investment often bumps head-first into the tendency of people to see the value of property as something tangible, not just something in a paper statement.

Many people want something they can “see, feel and touch,” Norris adds.

And that attraction is a big positive for homeowners still years away from retirement, Garate says. “It helps people” get into a savings mode by building equity in an asset.

There’s always a 15-year mortgage to consider as a savings vehicle that can turbo-charge payoff on the home, Garates notes, but cautions retirees  should take a thorough look at any restrictions the shorter home notes carry.

Norris says retirees can do the 15-year note and avoid restrictions entirely by just doubling the loan amount paid monthly. He further advises taking a look at returns from the financial markets as an alternative.

Both Norris and Garate agree that the economic crash of the last decade shook confidence in owning real estate and financial markets products. They also agree that a varied mix of investments is the best bet to get sustained gains and avoid serious losses.

“It’s kind of scary and that makes people nervous,” Norris says of investing.

He advises owning real estate but making sure there’s compensation from it. Otherwise, “Spread out your risk,” Norris suggests, citing index funds made up of companies of similar market capitalization.

Notes Garate, “You don’t want to put everything in one basket. It’s a better idea to use a diversified portfolio.”

Parker suggests considering this scenario: Homeowners who did hang on through the tribulations of the last decade are now reaping big rewards from a hot sales market.

“As fast as we put them on the market they sell,” Parker says, bemoaning a fast-shrinking inventory of residential properties.

It is the first time ever he can’t find houses for all buyers, he says.

“It’s scary it’s this good.”

Parker emphasizes one other thing about owning a home in retirement: You can put your money in the stock market and wake up tomorrow and your money is gone — but you still have a place to live.

When the dust clears,  he says, the home “is going to be there for you.”

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About Ted Carter