Anybody upsizing their house in retirement without a mortgage?

[W2R]

Those of you who are "regulars" here, know that I am just never going to be persuaded to take on a mortgage, even briefly. That said, I am thinking of selling my house and buying another sometime in the next few years. Since my present house is pretty, er, "modest" , the new house will doubtless cost about twice as much as my present house. And, I would insist on paying for the house in cash. I have *some* cash in my portfolio, but nowhere near enough.

You all are such a great resource... has anybody else done this? How did you get the excess cash needed out of your investment portfolio in an intelligent way? I am figuring that I will have to sell a percentage of my taxable investments to do this, and fear getting clobbered by the IRS.

Thanks for any suggestions!

[Midpack]

I suspect this goes without saying, but if you need $100K for example, I'd convert $50K in assets (taxable mutual funds presumably) to cash this year, and the other $50K in assets to cash in the next. Spreading the LTCG across two (or more) years should reduce the total tax bite somewhat as IIRC your spending is well under the 15% rate threshold.

Best of luck, will be interesting to see which state the new house is in.

[Dash man]

We are considering a move to Florida and buying a more upscale place. But we keep about 50% of our portfolio in cash right now, so if when we sell our current home we would just replenish the cash outlay from buying a Florida home with the sales proceeds from the house we're in now. We wouldn't have any tax impact, but would just end up with less cash on hand.

[Rustic23]

Up front statement: I am too lazy to figure the math here.

Normally I would agree with you about a mortgage. However, mortgage rates in LA. are from 4.25 to 4.5%. I suspect that interest rates are going up in the next couple of years. So the math. To take out a mortgage, with no prepayment clause, take money out of taxable accounts at amounts that keep you below 15% tax rate and pay back the loan over four or five years. Or, pay higher income tax on a bigger withdrawal. Not sure how to figure the math on this, but I'll bet there is someone here that does.

We went for the bigger house. From 1,800 to almost 3,000 sq. ft. Took out a mortgage, paid it off in less than five years. After we paid it off the interest rates began to drop. Initial rate was 8.25% and we thought we got a good deal! Almost thought about refinancing when interest rates dropped to 4%.

[Gill]

We've moved to an even bigger house every time on four different occasions since I retired nearly 16 years ago. When I retired we lived in 2,100 square feet and now live in 4,250 square feet. I've never seen the reason for downsizing if you can afford it. We travelled a fair amount for most of those years until the last two, and now that we spend most of our time at home we enjoy our big house with all the amenities of living on a country club golf course.

Cash flow can be a problem, and I decided to take a partial mortgage on our last purchase rather than incur large capital gains or unnecessary distributions over and above my RMD from my IRA. The mortgage payment is just another manageable expense with the final payment coming due when I'm 103! I could pay it off any time but likely won't do so.

Bruce

[explanade]

I could sell for a big profit.

However, I don't think it would necessarily buy a bigger home because of how much prices have gone up.

Plus, my property tax assessment would be much bigger, so I'd probably have to pay several times what I'm paying now.

Moving away from the Bay Area or out of California would allow me to get a bigger home and probably have money left over.

Once FIRE'd, there is really little to keep me in the area, though the weather and amenities are nice. I'd imagine a bigger home in say Arizona would be cheaper, have lower taxes but probably bigger electrical costs for the AC.

[youbet]

Quote:

Originally Posted by W2R I would insist on paying for the house in cash.

Really? I'd be more comfortable in paying by check. Personal check if they allow it, otherwise certified. I'm not sure they'd even want you to have a shopping bag full of $20's at the closing.......

How to get the liquid assets to buy the house? The same way you come up with liquid assets for day to day living, only more so. Stop reinvesting divs and int and allow cash to accumulate. Eventually, sell assets optimized in regard to maintaining your AA, harvesting profits and taxes.

If the value of your new house minus the value of the old house is an amount that is a small percentage of your total assets, this shouldn't be a big deal. That is, you won't be selling a significant percentage of your financial assets and the details of how you do so will be more or less inconsequential.

Why do you want a bigger house?

[Gill]

Quote:

Originally Posted by youbet Why do you want a bigger house?

Perhaps because many of us find a bigger house more comfortable and enjoyable.
Bruce

[explanade]

I'm a believer in not using a bigger footprint than necessary.

But more space would be good for storage and maybe more buffer with the neighbors for instance to run the surround-sound system at higher volumes sometimes, maybe even have space for setting up a treadmill.

Those are nice to have but not necessities. The tradeoff for bigger space could be higher costs for housing, taxes and utilities. Of course if you move to a lower COL area, you could save on the first two but probably not utilities.

[W2R]

Wow, I just KNEW I would get some great answers here! And I did. Thank you all so much for sharing your wise comments and experience. Every post so far has been tremendously helpful.

Quote:

Originally Posted by Midpack I suspect this goes without saying, but if you need $100K for example, I'd convert $50K in assets (taxable mutual funds presumably) to cash this year, and the other $50K in assets to cash in the next. Spreading the LTCG across two (or more) years should reduce the total tax bite somewhat as IIRC your spending is well under the 15% rate threshold. Best of luck, will be interesting to see which state the new house is in.

You must be reading my mind! This is exactly what I was thinking about. I tried to simulate it in TurboTax and it looks like $50K would be do-able. I am thinking that two or three years should do it. It's very encouraging to me that you thought of exactly the same strategy, and even the same amounts to withdraw and at the same times.

Quote:

Originally Posted by youbet Really? I'd be more comfortable in paying by check. Personal check if they allow it, otherwise certified. I'm not sure they'd even want you to have a shopping bag full of $20's at the closing....... How to get the liquid assets to buy the house? The same way you come up with liquid assets for day to day living, only more so. Stop reinvesting divs and int and allow cash to accumulate. Eventually, sell assets optimized in regard to maintaining your AA, harvesting profits and taxes. If the value of your new house minus the value of the old house is an amount that is a small percentage of your total assets, this shouldn't be a big deal. That is, you won't be selling a significant percentage of your financial assets and the details of how you do so will be more or less inconsequential.

You're right. Thanks for your thoughts.

Quote:

Originally Posted by youbet Why do you want a bigger house?

I don't necessarily want a bigger house as far as square footage, although I would really like to have a garage, better location, and certain other features that add value and sometimes more square footage comes along with these upgrades and features. By "upsize" I meant in terms of selling price.

I have been looking for houses that I like here, and have only identified one every couple of years that appeal to my picky nature. Cost of these houses has generally ranged from around $90K-$140K more than my present home would sell for.

I am not ready to pull the trigger because we haven't really decided where we will be living, but when we do I want to be favorably positioned.

[youbet]

Quote:

Originally Posted by MBMiner Perhaps because many of us find a bigger house more comfortable and enjoyable. Bruce

W2R wants a bigger house because "many of you find a bigger house more comfortable and enjoyable?" I don't think so.

I've been reading W2R's posts for many years. She seems pretty independent and likely is a person to have her own reasons for whatever she does. I doubt she's tuned into what "many of us" are thinking or doing. I'm betting she has her own reasons.

Maybe she'll respond with an answer to my question, directed at her, herself.

[youbet]

Quote:

Originally Posted by W2R I don't necessarily want a bigger house as far as square footage, although I would really like to have a garage, better location, and certain other features that add value and sometimes more square footage comes along with these upgrades and features. By "upsize" I meant in terms of selling price. I have been looking for houses that I like here, and have only identified one every couple of years that appeal to my picky nature. Cost of these houses has generally ranged from around $90K-$140K more than my present home would sell for. I am not ready to pull the trigger because we haven't really decided where we will be living, but when we do I want to be favorably positioned.

Makes complete sense. I more than agree on having a garage. No surprise that you're being thoughful and moving on your own timetable and in regard to your own wants/needs.

In additional to looking at tax and rebalancing implications, think about what account you'll store the loot in. Money market accounts aren't paying much these days. Also, check at your bank about bridge loans. You might find it handy to be able to complete the purchase of a new place before your've completed the sale of your current residence. A bridge loan might enable you to do so without the need to liquidate additional assets for "cash" on a short term basis.

We've been looking at real estate a bit too. We've been in our house 36 yrs and it works OK for us. But we would like to be closer to the kids/ grand kids (currently 20 miles) and we'd like a bit more room and another bath to make overnight guests more comfortable. Our current home is about 5% of our net worth and it looks like we could get what we want by increasing that to 7% or 8%, so not too much of a change in AA.

Good luck with this. Make it a fun thing!

[W2R]

Quote:

Originally Posted by youbet W2R wants a bigger house because "many of you find a bigger house more comfortable and enjoyable?" I don't think so. I've been reading W2R's posts for many years. She seems pretty independent and likely is a person to have her own reasons for whatever she does. I doubt she's tuned into what "many of us" are thinking or doing. I'm betting she has her own reasons. Maybe she'll respond with an answer to my question, directed at her, herself.

Wow, I love the compliments! I understand what MBMiner is saying too, though, and appreciate his post as well.

Although the ideal house size for me would be about 1200 feet, assuming it has an absolutely stellar floorplan, I must admit that I am flexible about square footage. So, I would consider anything from around 1200-2500 square feet. My present home is 1600 square feet.

[W2R]

Quote:

Originally Posted by youbet Makes complete sense. I more than agree on having a garage. No surprise that you're being thoughful and moving on your own timetable and in regard to your own wants/needs. In additional to looking at tax and rebalancing implications, think about what account you'll store the loot in. Money market accounts aren't paying much these days. Also, check at your bank about bridge loans. You might find it handy to be able to complete the purchase of a new place before your've completed the sale of your current residence. A bridge loan might enable you to do so without the need to liquidate additional assets for "cash" on a short term basis. We've been looking at real estate a bit too. We've been in our house 36 yrs and it works OK for us. But we would like to be closer to the kids/ grand kids (currently 20 miles) and we'd like a bit more room and another bath to make overnight guests more comfortable. Our current home is about 5% of our net worth and it looks like we could get what we want by increasing that to 7% or 8%, so not too much of a change in AA. Good luck with this. Make it a fun thing!

Thanks! I think it will be such fun.

[unclemick]

Hmmm - I married a bigger house. Thus my old house - with a mortgage is going to get paid off to which I cashed out taxable long term gains Dec 2013 and Jan 2014.

Also was re-reminded 401 k (wife's) can be borrowed against as a loan to one's self should the current planned kitchen remodel exceed current set aside stash. Expect that it will.

Sooo - split tax hit across two tax years and may do an internal loan to be off over several years - with excess cash (over expenses) due to RMD. Old age(over 70 1/2) and all that rot.

heh heh heh -

[W2R]

Quote:

Originally Posted by unclemick Hmmm - I married a bigger house. Thus my old house - with a mortgage is going to get paid off to which I cashed out taxable long term gains Dec 2013 and Jan 2014. Also was re-reminded 401 k (wife's) can be borrowed against as a loan to one's self should the current planned kitchen remodel exceed current set aside stash. Expect that it will. Sooo - split tax hit across two tax years and may do an internal loan to be off over several years - with excess cash (over expenses) due to RMD. Old age(over 70 1/2) and all that rot. heh heh heh -

Thanks, UncleMick. I am 65 1/2 and age 70 1/2 is on its way, so I still have five years at a relatively lower tax bracket before RMDs start. So, I need to get more cash lined up. That is my thinking, anyway. I love hearing about you two newlyweds and I'm glad you were able to "marry up" to a bigger house.

[explanade]

Do you have to worry about flood insurance down there?

[W2R]

Quote:

Originally Posted by explanade Do you have to worry about flood insurance down there?

We don't have to worry about it; we just have to pay it! Mine is pretty cheap ($669/year) compared with homeowners/wind/hail ($2019/year). My home has never flooded since it was built in 1972.*

If/when I move, if it is in south Louisiana I will lose my grandfathered wind/hail policy with Allstate and will have to move to Louisiana Fair (state sponsored wind and hail), since new policies are unobtainable otherwise down here IIRC. So, my insurance costs will probably more than double. My property taxes will, too, since we have a $75K homestead exemption. But hey, what's money for....

* That is, never flooded although wind blew water into it in 2012 when the door flew open during Hurricane Isaac but no claim was necessary since it did not exceed the required 5% deductible for wind and hail.

[Rustic23]

Why we like the bigger house.

About 700 sq ft is in a guest house. Only heated and AC when someone is there, and we seldom have to clean it.

Large TV room. We both enjoy watching TV and it has a 65 inch screen, now, will be larger in a year or two, and a great sound system.

DW is into scrapbooking and has a room just for her stuff. Both the TV room and the scrap room are somewhat sealed off from the living room and as both of us are somewhat slobs, we can have guest in and living room is all ways neat and clean.

Big shower, nothing like showering together. Enough said.

Kitchen is reasonable in size, and it is where everyone gathers when we have parties.

Big garage, for storage of stuff, and rolling toys.
All this sets on 1.2 acres and 300 front feet of a lake

We could do with considerably smaller place, but we LBOM for 60 years, we designed it, built it, and love it.

Having said that, DW's brother lives in a 1,000 sq ft place with his wife. (he use to be a submariner!) and is happy. (he most likely has double our income) So for me, asking why someone like XX, or YY because you don't is a pointless discussion.

[W2R]

Quote:

Originally Posted by Rustic23 Why we like the bigger house. About 700 sq ft is in a guest house. Only heated and AC when someone is there, and we seldom have to clean it. Large TV room. We both enjoy watching TV and it has a 65 inch screen, now, will be larger in a year or two, and a great sound system. DW is into scrapbooking and has a room just for her stuff. Both the TV room and the scrap room are somewhat sealed off from the living room and as both of us are somewhat slobs, we can have guest in and living room is all ways neat and clean. Big shower, nothing like showering together. Enough said. Kitchen is reasonable in size, and it is where everyone gathers when we have parties. Big garage, for storage of stuff, and rolling toys. All this sets on 1.2 acres and 300 front feet of a lake We could do with considerably smaller place, but we LBOM for 60 years, we designed it, built it, and love it. Having said that, DW's brother lives in a 1,000 sq ft place with his wife. (he use to be a submariner!) and is happy. (he most likely has double our income) So for me, asking why someone like XX, or YY because you don't is a pointless discussion.

Your house sounds nice. In my case, I want the big garage and big shower, but around here few small houses have both.