Real Estate for Retirement: Buy now to secure your future in paradise
Author: Ryan Stefonik
I often catch myself daydreaming about the many places we’ll visit and the beautiful home we hope to own when retired. While having three boys under the age of four may prolong our retirement goals, it’s never too soon for my wife and me to start planning for this merited chapter.
Some of my most exciting phone conversations occur when my out-of-town clients book their trip south, knowing full well they have only one or two working years remaining. I say exciting as you may not realize it yet, but your lifetime of achievement is about to pay off; purchasing your retirement home may be closer than you think!
When you visit the Lowcountry on this expeditious trip, you may be surprised that your dream home is here, already on the market and beckoning to you as if it were meant to be. As a trained professional, I can recognize that look—the one when you walk through the front door and just know, this is it! Nothing makes me smile more than to witness this delight.
Then reality sets in. You remember retirement is still 730 days away (but who’s counting?), and how could you selfishly manage two estates in these transformative years? A tinge of discouragement sets in, and a day of touring homes/communities comes to an end. Two years fly by. You work hard, retire (celebrations ensue), and you position yourself to move. We find you the perfect home, reach out to a local lender, and wham!—trouble in paradise. The ever-changing lending laws may require income you no longer have. You have savings, yes, but income is the key word. Your home budget may have been based on a former salary or commissions pre–retirement, and potentially without dipping into savings, we may need to reassess your position in the marketplace. These conversations, I’ll admit, are less than exciting. This may be the worst-case scenario, but I’ve experienced this hardship with my clients before.
There is hope and a solution! So, let’s rewind back to your first visit, years before retirement, when you found your first dream home. What if I told you that now is the perfect time to buy? Impossible? Not when you consider these supporting factors:
Value: Both South Carolina and the Lowcountry, continue to dominate the media as top places to live, work and retire. This fuels excitement and brings people worldwide to our communities. I like to say we were the last to get hit and the first to recover from our recent economic downturn. Prices have rebounded, but there are still good values to find. No one has a crystal ball on market pricing, but as area demand grows, so will values. Don’t wait too long and miss this opportunity-friendly market.
Interest rates: The lower the interest rate the greater your buying power. It’s said that for every .5 percent interest rate increase, your purchase price will decrease by 4-5 percent to maintain the same monthly payments. A 1 percent increase could yield a 10 percent loss! While we are seeing some yo-yoing of today’s rates, they remain extremely low compared to prior years. Most sources anticipate a gradual rise over time, so take advantage of today’s affordability and secure that fixed rate.
Lending requirements: As mentioned above, stricter lending laws can put a squeeze on your housing budget. Lenders have little room to bend if your income to debt ratio is off. Many lenders will need to see current income or substantial draws to qualify for those larger loans. This is crucial when planning to purchase your post-retirement home. I highly recommend speaking with a local lender now to work through these situations. You may find that purchasing your retirement home before your last work day will ease your mortgage process, keep cash in your pocket, and prevent any qualification risks down the road.
Rental demands: Hilton Head Island and Bluffton continue to see strong demands for rental housing. This shortage in supply favors homeowners who wish to rent their property either long- or short-term. Purchasing your retirement home now, with your current income, and placing your home for rent, may serve as the perfect solution to bridge that time-gap between today and your retirement. The Hilton Head area has terrific long-term rental companies who can manage your property for you. There is even a possibility your monthly rental income can completely cover your monthly property expenses. How nice would that be?
It may be worth noting that any rental option should first be confirmed eligible by speaking with a professional. Some communities place restrictions on short- or long-term tenants. You may also find that weekly or vacation rentals can be more lucrative on Hilton Head Island, while long-term annual leases are maximized in Bluffton. Each area has its advantages, so make sure your home fits your rental needs.
Peace of mind: With your future home secured and here waiting for you, that peace of mind may be priceless. Change is good, but can often be overwhelming. Imagine having one less thing to worry about while juggling your last day at work and positioning your home to sell. No last-minute closing delays to hold up moving, no risk of higher interest rates when the time comes, and no worrying if your perfect home will be found. It was, and you own it already.
Even if you are a few years from your last day at work, it may be beneficial to purchase now. By taking advantage of today’s favorable rates, current availability, current loan qualification, and high rental demand, you may find that retirement is much closer than you think.
I’d like to openly disclose that while this may be a great solution for many, it may not be ideal for all. Speak first with your financial advisor, CPA, lender or attorney to fully understand the pros and cons. Then be sure to utilize a Realtor, a.k.a. your purchasing partner, to help make your next trip count.
Ryan Stefonik is a Realtor with Collins Group Realty and a Bluffton specialist. A Valley Forge Military Academy alumni and graduate of the University of Mary Washington, Stefonik moved to the Lowcountry from Pennsylvania. He and his wife Maggie are the proud parents of three boys.