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.

Many people hear "retirement" and think— what? 401K? Roth vs. Traditional IRA? Stocks, bonds, mutual funds? Do they?

Or do many people put money away according to the suggested amount and then simply hope that when retirement comes all will work out?

One report I read estimated that 66 million Americans have put away a Whopping $0 towards retirement.

Many people are still thinking there might be a thing called Social Security around when they retire. Social Security: as of 2004, the average annual Social Security retirement benefit is approximately $11,000. That is not a lot to live on folks. Plus, we all hear the news periodically that there might not be any Social Security around when we get older and need it.

And as a further WAKE UP call, I found a calculator which estimated (without Social Security):
* a couple at 40
* bringing in $90k a year (together)
* with very modest investments
would need to save an additional $2,690,000.00 ( yes 2 million +) in order to retire at 65-- OR – plan on working an additional 29 years!!

Now before you get overwhelmed and click over to another article—lets put our heads together and simply cover a few very very basic start up basics.

1) Standard Of Living: You need to know at what standard of living you will want to live during retirement.
2) Basic Living Expenses: You will need to calculate the cost of basic living expenses (at that level) i.e. electric bill now of $200 = what in 2030?
3) Hobbies and Leisure Activities: Know what type of hobbies, and leisure activities you will keep busy with and what their cost might be then.
4) Family Visiting / Travel: Realize that more and more children move away when grown. So while they work out of state—YOU may need to do the traveling to see them. Plan for these costs.
5) Convalescent Care (nursing home costs) provincially run about $100/day median. You will need to multiply that times the same 4% inflation rate. Then multiply that times the number of years before you may need it—to approximate how much you may need to afford for your housing when you need assistance. Truth be known—WE need to plan to handle that cost ourselves, rather than think our children will be able to take on that kind of additional cost.

You will need to total yearly amounts. You will need the approximate yearly cost to live (at your desired level) during regular healthy retirement. And, you will need the total yearly amount of costs to live in assisted or full care living facilities ( for each – you and mate).

Multiply each yearly amount by the number of years you might be living in that circumstance. Example: Retire at 65. Live healthy retirement- 15 years (so 15 x yearly cost of healthy living) . Live assisted – 8 years ( so 8 x yearly cost of living in care).

You now have two totals that when added together equal your estimation of the total dollar amount you will need to draw from in order to live after retiring. NOW you are ready to begin planning your investments in such a way that you can achieve that TOTAL number by the time you retire.

Here are some tools to help you now that you are ready to take that first step:
USA Today retirement cost calculator: http://www.calcbuilder.com/cgi-bin/calcs/RET2.cgi/usatoday
Motley Fool’s retirement area http://www.fool.com/retirement.htm?source=PFinAg
Metlife’s retirement area http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,1674,P1946,00.html
About.com’s HUGE retirement resource area: http://www.retireplan.about.com/

Until next time—all the best,
Kate