Monday, November 02, 2015

Seniors looking to downsize could take advantage of the "McMansion" fad, but need due diligence

A factor that may encourage some seniors to downsize is the practice in many affluent suburban areas of tearing down old homes and building “McMansions”, when local zoning allows it and builders find enough customers who can afford the homes (which happens in northern Virginia).

A senior who believes his older home might be of interest (particularly after a real estate agent or builder suddenly contacts him or her) needs to do a lot of due diligence.  He may owe capital gains taxes if he in turn rents (but some of the gain might be exempt if he lived in the home). If the home was inherited, it could get complicated (whether or not there is a trust or grantor trust).  The homeowner will need to talk to a tax attorney – which could cost a little just for the consultation time if the situation is at all complicated (which is likely). It doesn’t appear that older seniors can stretch out the profits by purchasing annuities, unless I’m missing something.

Seniors contemplating downsizing need to "do the math" and think like insurance companies selling annuities.  Does the money you clear from selling your home pay for rent for the rest of your life expectancy?

Another point to remember is that, if a home is really a target for a tear down in the more immediate future, the land price should rise quickly, meaning the owner can get more money by holding out.

It's also well to note that many financial planners advise seniors to be wary of invitations to place "pocket listings" on the theory that these require less time and disruption of the seller. The Washington Blade has a cautionary piece by Tim Savoy here.
More details on this matter may be forthcoming this winter. 

No comments: