I’m not sure what you could expect to draw on 300K, but lets say 5%, thats only $15000 per year. That and Social Security is not gonna go that far if you’re paying rent.
Im thinking it would be better to take say $100K and buy a small home or condo (homes can be found for that in this area) and then take a reverse mortgage. You’d still get your 5% or whatever on the remaining 200K and a small amount from the reverse mortgage, but more importantly, no rent.
Any obvious flaws in my reasoning? (single guy, not concerned with leaving any property or inheritance to anyone)
I am NOT any kind of expert or anything, but I think there will be more disadvantages to owning a home once you retire. You won’t have much of any employment “income” so most of the tax benefits of home ownership won’t help you. You’ll have home repairs. You’ll need to make sure someone is there to take care of the property if you want to travel. You will have tied up about 1/3 of your assets into something that is not at all liquid. There are reverse mortgage qualifiers…I do not recall any of them at the moment, but back when I looked into it, I was discouraged by at least a few of the conditions that must be met before one can take out a reverse mortgage.
I haven’t ever asked about a reverse mortgage on a $100k house, but I bet the mortgage company doesn’t pay very much on it. If I had to guess, it would be less than $450/month.
I got that number by looking at what a standard mortgage on a $100k loan would cost you.
$100k principle, 4% interest, 30 year term, monthly payment = $477. I can’t see a reverse mortgage company paying you less than you could get a loan for. They have to make money someplace, and they have to account for the fact that they may be paying you for 40 years, if you live a long time.
I’m not a real estate expert, but that is something I’ve considered as a way to help fund my retirement (own a small home outright and get a reverse mortgage).
What if you get a side by side duplex instead of a single family dwelling? If you can rent the other half out properly that would help too. That would add another $500 or so a month in rent on top of the $450 you could get on the reverse mortgage.
But like others have said you are tied to something that is not liquid which harms your ability to travel. Plus if you are 70 you may not want to manage and upkeep a home anymore, or even be able to.
I’m a parent in my 30s, but if I were single, I’d rather offset rent by subletting a room to a student. Property values are still falling across the country. Or do what Wesley Clark suggested.
I do think home ownership is a lot of work. I don’t own a home but most of my family does. It’s quite a chore for a single person in their seventies.
I agree with the others, it doesn’t seem like the right time to buy a house. In addition to the other costs of owning a house, there are also property taxes and the inability to deduct them from income taxes. When comparing rent vs. mortgage consider that rent already has the property taxes factored in.
The lack of liquidity could be problematic later in life. If the person’s health deteriorates, they may need to move quickly. Selling a house could be an issue.
You also calculated the yearly income based on interest only. Presumably the person would be drawing on some of the principle.
How much is rent in an area with decent houses that sell for $100k? It can’t be that much, can it? An ideal situation would to become roommates with a home-owning retiree. That way both retirees can share costs and house-work.
Based on the OPs description of his circumstances, he would probably not have enough taxable income for the interest and property tax deduction to matter.
One thing to consider is that under our current progressive tax rates you will pay a higher tax rate overall if you pull $100K out all at once versus smaller payments over a number of years.
Sure, but far less interest. I say go for it. Prices aren’t going to get much lower, and you’d do well to outright own a home in your old age. Assuming you can keep up with your property taxes, utilities and living expenses, (which you could do an a two day a week enjoyable job) you are in far better shape than many others. you can always take a reverse mortgage later, or sell off once prices come back around.
Historically, 4% has been regarded as a “safe withdrawal rate” (SWR) with a portfolio 50/50 stocks and bonds. If you think you might need money for more than 30 years, then the SWR goes down. See the chart about one third of the way down the page I linked to.
Reverse mortgages work on the basis of them getting the house when you die. So they aren’t going to give you a reverse mortgage unless you have substantial equity, or own your home outright.
