WRITTEN BY PJ WADE
Let’s zero in on the family home to reveal room for improvement in ways this investment can be put to work when owners are intent on living full, active lives.
Traditionally, when the children were grown and gone, “empty-nester” homeowners/sellers were faced with two options regarding the family home:
Option #1. Sellers who did not intend to re-enter the real estate market put their profit to work in other investments or projects that meant a lot to them, or they lived off the proceeds. Historically, homeowners who sold the large family home slipped into a quieter, cheaper lifestyle, often dramatically downsizing to move into a smaller space. They either rented, entered a retirement home, or moved in with family. These alternatives provided housing without the benefits and control of ownership and essentially took sellers out of the mainstream.
Option #2. Sellers who used the proceeds of their sale — “cashed in their nest egg” — to purchase a smaller home remained in control of their lives and finances. The ideal downsizing scenario involved selling the large family home and buying a bungalow or condominium unit using less than half the proceeds of the home sale. The left-over capital was used to finance years of quiet, comfortable living on the edge of the mainstream or not — sellers’ choice.
Currently, many seasoned homeowners are not interested in selling their family home only to settle for a lower standard of living, less control of their homes and lives, or disappearing from the mainstream. When traditional options are unattractive or unavailable, sellers often stay in homes and communities that no longer suit them and wait to see what will happen next:
- When faced with the prospect of selling without netting the funds for their ideal next stage, many homeowners hunker down to wait out the real estate market. In many markets, this reaction accounts for lower numbers of available listings.
- In hot sellers’ markets, sellers may be discouraged from cashing in their now-higher-priced homes because they would still not be able to afford their preference — a smaller property in the same or a better area which is significantly less expensive, so there’s a nest-egg leftover. The problem for many seasoned sellers is that competition with first-time buyers and builders drives up prices for smaller homes and this, in turn, stalls seller moves.
The full return from real estate ownership — on top of the benefits gained by living in the property or renting it out — comes from buying smart in the first place, selling smart, and putting the earned profit to work either to purchase more real estate or other investments. Long-time owners are usually able to sell for more than the original purchase price. However, sellers who invest time and effort only in selling, may miss out on earning even greater profits and returns by wisely using the proceeds of the sale.
In many markets, rising residential prices have meant bonuses for sellers and frustration for buyers. Since many sellers become buyers, sellers become winners and losers as described above.
It’s way past time to step outside the box of traditional options. Even in tough markets, a range of housing alternatives should be explored. Imaginative approaches allow sellers to win on the sale of the family home and on the purchase of their next home.
In many real estate markets, sales are not equally brisk throughout the entire area nor through the entire price spectrum. For instance, homes in neighborhoods with popular schools may sell more quickly and at higher prices. Homes listed under $500,000 and over one million may be selling well while the middle market is stalled. Sellers in hot areas will do well when they sell. Those who buy in a stalled market may also gain on their purchase. However, sellers who buy a smaller home in a hot market may pay more than they wish for a lesser property since they are competing with first-time buyers and builders.
Different Seller Strategies Will Earn Different Rewards
Strategy #1. If they can’t find a desirable lower-priced bungalow, sellers could spend more and buy a duplex, triplex, multiple-unit apartment building, or mixed-use commercial/residential building which would provide living space equivalent to a bungalow in the desired neighborhood plus income from the other units, tax deductions, and other financial benefits. An experienced real estate and financing professional will explain how to finance this transaction using the existing real estate and the income history of the revenue property, while keeping the potential for increased appreciation in mind.
Strategy #2: Sellers could explore the full range of community choices open to them beyond what they know about. With the help of an experienced real estate professional, they could search out a variety of locations where the type of housing they want to buy as their next step is available at the price they’d like to pay. The adventure involves expanding beyond what sellers have experienced so far. This is a big country. And then there’s the world..
Strategy #3: Sellers could shift from passively waiting to see what’s next to creating more value in their real estate that could also increase their flexibility with the next step. For instance, adding a self-contained rental suite or apartment — if it is done correctly and to zoning bylaws — can achieve four key results at once:
- Increase property value
- Attract more buyers
- Provide extra income and tax advantages until it’s time to sell
- Provide choice — the seller could move into the smaller secondary unit and rent out the rest of the house for even more income and flexibility until a move makes sense.
Local municipalities and experienced real estate professionals know how adding a rental unit must be done. Armed with the correct information, sellers can engage the right contractor, with relevant experience and a solid reputation, to make this transformation as cost effective as possible.
Consciously shift from traditional, last-century thinking about your real estate. Design the 21st-Century Selling Strategy that works for you and your property.