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.

Owning A Second Home Is Easier Than You Think

Buying a second home is a serious financial commitment, but it is can also lead to a feeling of complete freedom. It can provide you with a vacation home, a place to escape from your mundane routine and an investment in the future for when you retire. Aging and wealthier households, smaller families and new technologies that allow professionals to work from remote places are all significant demographic trends. These trends indicate that buying a second home is becoming a more reasonable option for many Americans. The recent changes in tax laws are also making second home purchases more affordable. Strategically planning your purchase, consulting a trusted professional and taking your time are the keys to making the perfect investment.

Strategies For Retirement Investments

Planning for retirement early is smart, especially now. Many experts believe that as the Baby Boomer generation gets closer to retirement property values will increase at a rapid rate. More people will be buying second homes in high demand locations so locking in a lower price now can save thousands. If you are buying a house you want to retire in later be certain to consider all the possible changes and growth for the area. Many times development and increased populations change the face of a seemingly perfect location within just a few years. Another alternative to consider is investing in a home and using it as rental property first. At retirement you can choose to improve and make the rental home your primary residence. You can then sell or exchange and buy the retirement home of your dreams.

Tax Advantages Can Be Found Everywhere

Regardless of the avenue you take to invest in your retirement, the IRS offers tax advantages in a wide variety of ways. Mortgage interest and local and state real estate taxes are all deductible if you live in your second home a portion of the year. Write offs are limited to two homes. If you rent the home for less than 15 days you do not have to claim the rental income or pay taxes on it. If you rent your second home more than 15 days you must report the rental income. However, now all of the expenses used to run the property are deductible. Property taxes, interest, insurance, repairs, utilities, supplies, cleaning and maintenance are all considered expenses. Equity in your first home can also help with the purchase of a second home as a retirement investment. A home equity loan or line of credit can be used to cover the down payment on a second home. Be aware however, that borrowing in this way only allows the first $100,000 of equity debt to be written off.

Get Creative About Your Investments

Another tax strategy is using the IRS Code, Section 1031. Section 1031 says no gain or loss will be recognized in the exchange of property held for use in an investment. This allows savvy investors to purchase a property and later exchange it for one of like kind. For those planning to retire this means you can purchase a second home as a rental property/vacation home and build your investment. At retirement you can then exchange the property for the dream home you have always hoped for and defer the capital gains tax. The savings is incredible. Of course, real estate deals like this can be tricky so always take advice from a real estate professional and be certain all the transactions are done legally.

On Your Way To The Retirement Plans You Hoped For

Retirement can be a stressful topic for many people. However, more and more middle aged Americans seem to be using forethought and common sense to build the life they know they want to have after 65. Education, creativity, clear thinking, asking questions and knowing the kind of future you want to invest in is the way to achieve success. Using the tax system strategically to reach your goals will lead to a retirement full of joy, comfort and quality time to do what truly matters. When you are ready to search for a second home, or a place to start your retirement, enlist the help of a seasoned REALTOR. One that knows the market of the area you have targeted for your purchase and an SRES or ABR designation after their name. The SRES designation is the most important qualification to help you find the assistance you need. Now that you are ready don’t wait, start making your dreams come true!