How Moving Can Save Your Parents Money

As a senior real estate specialist, I'm often approached by senior clients who say, “I'd like to move out of my home, but I don't want a monthly payment.” It's my job to remove that obstacle and help them make the move. To do that, I need to help my clients understand that even though they may own their homes outright, and even though they may not be writing out a monthly check to a mortgage company every month, it still costs them money to live at home.

Realizing Significant Savings

The most important cost to understand is lost opportunity. If a senior owns a home worth $250,000, the money is just sitting there; it's not earning interest. That home owner could receive a nice positive monthly cash flow if he or she were drawing interest from those dollars. For example, let's say Mrs. Jones owns a $250,000 home. After selling it, she should net close to $227,000. What if she took that $227,000 and invested it in a conservative 4% interest earning account? She could be drawing $757 per month from that investment! If we add up Mrs. Jones's current monthly costs of owning her home (e.g., home owners' insurance, taxes, yard maintenance, mechanical repairs and utilities), we can then add the $757 (aka the lost opportunity) to the sum of those costs to figure out what it really costs Mrs. Jones to live in her home every month.

If Mrs. Jones sold her home, invested the $227,000 and had that $757 monthly income, we could take that money and apply it to the cost of a new rental apartment. Using the method above, you can show your parent how a monthly rent payment is actually less than it costs them to stay at home, even if it's owned outright. Using this same method, you can even show how the purchase of a new condo can cost less than staying put—all because your parent would be drawing interest on that investment.

The idea that a mortgage-free home still costs money to live in is a new idea for many seniors. The worksheet below is meant as a tool to introduce this new idea and open a discussion with aging parents or loved ones. It doesn't include more complex equations like tax benefits or mortgage interest write-offs. Therefore, it is not meant to be a financial planning tool, but rather a discussion tool. When I use this with my clients, I always follow up by encouraging them to talk with their financial advisor. After all, it's prudent to plan what to do with the lump sum from the sale of the home before the sale occurs.

How to Use the Worksheet

Download the worksheet. Fill in the yellow highlighted boxes with your information. Investment returns are calculated using 4% interest. Closing costs on the purchase of a new home are calculated using 4% of the sale price. Interest rates and closing costs may vary by location. See your financial advisor for specific information.

True Costs

If your aging parent wants to move, don't let monthly rental costs stand in the way. Have the discussion and present the facts so that everyone feels good about the final decision.

Posted in Assessing your Financial Picture, Downsizing Your Home, Real Estate for Seniors, Selling the Family Home, Weighing your Housing Options