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Main Residence Equity, how much to keep?
08-03-2014, 11:23 PM
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#1
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Dryer sheet aficionado
Join Date: Apr 2014
Location: Alberta / SoCal
Posts: 34
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Main Residence Equity, how much to keep?
How much home equity do you feel safe to move to your investment portfolio?
We are getting close to pulling the pin on our corporate careers for reasons well documented here. Approx 280k / year between both of us but it's getting unbearable. I'm 53 & DW is 51. We have 700k equity in our home but are willing to move away & downsize considerably, possibly to a manufactured home on an acreage. The extra 500k from our home would supplement our 1.3m investments nicely making for a comfortable retirement income. We are Canadian so don't have to worry about excessive medical expenses or capital gains on our home. I am concerned, however, on loosing so much equity in case of unseen expenses. We have an economical California property we plan on spending the snowy seasons at.
Has anyone used their home equity to finance a portion of their retirement income?
Tom.
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08-04-2014, 05:34 AM
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#2
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Moderator Emeritus
Join Date: Aug 2007
Location: Northern Illinois
Posts: 16,603
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Haven't done it yet, but selling our home, downsizing, and putting the proceeds into our retirement portfolio is definitely on the radar. It'll also decrease future expenses
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08-04-2014, 06:54 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2014
Posts: 7,373
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Quote:
Originally Posted by JTOrt
I am concerned, however, on losing so much equity in case of unseen expenses. We have an economical California property we plan on spending the snowy seasons at.
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Not sure what you're concerned about that would cause you to lose equity. If you put any equity released into investments, you still have that money unless there's a market crash. Of course, there are housing market crashes, too, so your equity isn't always safe sitting in a house.
In DH's and my case, downsizing and investing released equity hasn't been a part of the plan. We did move out of NJ to a much lower COL area at a very good time (2003) and had a large chunk of money we didn't need to buy a new house and invested that. I'm very glad we made that decision; home values have been stagnant here since then.
We'll be downsizing in the next year or so and are hoping to sink the equity in this house into another and not have a mortgage. When rates are low, it's always made sense to me to borrow, but now I want to decrease the cash outgo since I retired 3 months ago and I'm not planning to collect SS till I'm 70 (8.5 years from now).
The exception would be if we have another market crash between now and when we downsize. I may take out a mortgage and move the proceeds from the sale of our current house into investments.
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08-04-2014, 08:31 AM
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#4
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Dryer sheet aficionado
Join Date: Apr 2014
Location: Alberta / SoCal
Posts: 34
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My main concern is having the house equity as a final hedge against financial meltdown. But you are correct, if that were to happen the housing market would crash as well. An equivalent home in a smaller rural market is 30 - 35% of where we are now so it would be difficult to get back into this market. That's the decision we are contemplating. As with many here, we are realizing this is a much better option than working for a faceless corporation.
JT.
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08-04-2014, 09:51 AM
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#5
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Recycles dryer sheets
Join Date: Jul 2013
Location: Villa Grande
Posts: 275
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ER'd one year ago and faced the very same decision. We owned a house in San Francisco and one in the country one hour North. We decided we did not want to shoulder the expense of two homes in retirement and, by selling the city house we would release a lot more equity to invest in our retirement. We are still "in" the real estate market because we own our country home where we now live - and it is paid off. Also, given the volatility of the re market of late, I sleep better at night now.
The answer for you may depend on what you will do with the equity released from the sale of your Canadian house. Will you invest the proceeds and rent? If so, what will your housing costs be? Will you buy something smaller and invest the rest? Move to your California home?
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08-04-2014, 10:48 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
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Quote:
Originally Posted by JTOrt
My main concern is having the house equity as a final hedge against financial meltdown. But you are correct, if that were to happen the housing market would crash as well. An equivalent home in a smaller rural market is 30 - 35% of where we are now so it would be difficult to get back into this market. That's the decision we are contemplating. As with many here, we are realizing this is a much better option than working for a faceless corporation.
JT.
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I'm assuming you currently live in Calgary or Edmonton. Based on the current strength of those housing markets and the historic volatility of the Alberta economy, this might be a great opportunity to cash in on your home equity and find a cheaper place to live.
Here in the Okanagan Valley, there is a constant stream of Albertans following that route. Housing is not cheap here but if people are willing to downsize or rent they can add a nice chunk to their portfolio.
You also have funds tied up in your second home in California. At a pinch you could sell that. The key questions are, first, will your portfolio be sustainable, and second, will you be happy moving to a rural acreage?
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