As retirement approaches, the kids leave, and you have more time to spare, a big question that arises is what to do with the family home.
Many older Australians choose to downsize, but this is not for everyone.
CEO and founder of myprosperity.com.au Peter McCarthy says those who choose to hold onto their biggest asset can often struggle to find extra cash.
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“The issue with those with larger homes is that they’re asset rich, typically, and cash flow poor,”Mr McCarthy says.
“We’ve got a higher cost of living, but the pension isn’t keeping pace with that. So people who felt three or four years ago that they could make ends meet, retain their home and live off the pension with increasing electricity costs, rates and those sorts of things, they’re finding that their cost of living is going up.”
If you are one of those who want to keep your big home, here are seven tips that might put extra money in your pocket.
1. Reverse mortgage
Reverse mortgages are one of the most popular options for those looking to unlock the equity in their home, Mr McCarthy says.
A reverse mortgage is a loan against your home that does not have to be repaid until the home is sold or you pass away.
Mr McCarthy warns that those who choose a reverse mortgage often make an emotional decision rather than a mathematical decision.
“It is taking out debt at a time when we would always try to structure people’s affairs so that they are moving into retirement not in debt and free of the stress of that,” he says.
2. Borrow to buy
Managing director of Silvertail Property Investors Nidal Rasheed says he has helped many elderly couples to borrow against their family home to buy an investment property.
Mr Rasheed says many of his clients are able to generate up about $100 per week in profit from rental income if they buy a second home in a high demand area.
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3. Don’t borrow to live
While borrowing against your main residence might be a smart investment option, borrowing to live is probably not.
Greg Harper, general manager of advice services at Cbus Superannuation, says such a loan should only be considered after all other options have been exhausted.
“They can serve a purpose, but gee, it would only be a measure of last resort for me.”
Mr Harper says the biggest risk is that, if house prices plummet, you could end up owing a greater proportion of your property’s value.
3. Rent a room
Rather than buying a rental property, you could simply rent out a room, Peter McCarthy suggests.
Some of his clients have even added self-contained studio units to their property, or renovated their house to retain some privacy.
“That requires permits and those sorts of things because it can be seen as a separate dwelling,” Mr McCarthy cautions.
Actor James Franco designed this AirBNB for an LA event.
4. Go high tech
Websites like AirBNB can be used to house swap or find a short-term renter to boost your income.
Contrary to the stereotype, Mr Rasheed says older Australians are embracing technology in these ways.
“I do a lot of travelling myself and a lot of the people that I’ve come across are starting to use AirBNB and funnily enough I actually learned this from someone in their late 50s. I’m a Gen Y and I was learning these things from someone who’s a baby boomer,” he says.
5. Subdivide
For those with a large property, subdivision could be another viable option.
“A number of developers, for example, could joint venture with you to unlock the value, so rather than someone saying I’m going to become a developer or an expert in subdivision, they can partner with the developer who will do all that work for them, and then potential share in some of the profit,” Mr McCarthy explains.
6. Sample the city life
You could also move closer into town or into an apartment while renting out your family home.
Mr McCarthy calls this a hedge strategy – a way to stay in the property market while testing out a smaller home.
“My experience is, once they’ve tried that, it’s an easier decision to sell their home because they know what they’re moving on to, but they’ve hedged their bets in case they don’t like it,” he says.
7. Self-manage
Nidal Rasheed has also helped some of his clients to invest in an investment property via a self-managed super fund.
“Self-managed funds are very popular these days because you can control your own investments,” he says.
“A lot of people are buying investment properties through their self-managed super funds and then the rent that’s coming in is obviously then later on supporting their lifestyle.”
But he cautions that it’s not for everyone as you would need a large balance in your fund to cover and justify the costs involved.
