I admit it, I’m part of the problem. Or at least I will be soon. Both of my daughters are out of the house now, one graduated from Northeastern University and gainfully employed, and the other with only one year left at UC Davis. So here I am in Terra Linda in my single family home, which I really like and can afford but it’s probably more space than I need. One day I may still have use for the extra space because who knows, kids have been known to boomerang home for extended periods of time in their 20’s and God forbid their 30’s. Sometimes they bring kids of their own: YIKES! It’s too early for me to downsize, and I’d like to stay in my house as long as possible.
We have anemic inventory issues because there are millions of Americans like me, empty nesters still in the homes where they raised their families with more space than they need. It makes financial sense to stay in my home for the following reasons:
1) I’m locked into a low interest rate that I don’t want to lose. The mortgage I refinanced during the pandemic is almost like having free money. Almost. While I’ve got this mortgage it’s freed me up financially to pursue other investment opportunities which have out-performed the interest payments on my loan. Finance 101 teaches us to make money by using other people’s money. Why pay off a loan when you can use that money to make more money than the cost of the loan? Having these low interest rates has freed up my capital and created the investment climate of a lifetime.
2) Homes in California, particularly in Marin County, are some of the best long term investments you can ever make. In general, the longer I stay in my home, as long as I take care of it, the more it appreciates. By staying in my home, not only am I not paying someone else’s mortgage, but every month I pay my own mortgage and part of that goes to paying down my principal. I look at it like this: paying down my mortgage forces me to save. Every month the amount I owe the bank goes down, and my equity in the property goes up. I plan to do this for the life of the loan because of my previous point. Why pay off my mortgage when I can make more money with that money elsewhere? In the end, hopefully there will be more wealth I can pass on to my daughters.
3) Staying in my home is affordable. I would not have bought the house if it wasn’t affordable in the first place. My mother stayed in the house I grew up in until she passed away. We talked about moving her to assisted living and selling the home, but she wanted to stay and it was more affordable to keep her at home than place her in assisted living. Had she needed to move out and we were forced to sell she would have taken a huge tax hit, which brings me to my last point for purposes of this blog.
4) If you stay in your home until you pass away, the tax basis is reset to the date of death. That means if you stay in your home until the end, your heirs shouldn’t get hit with capital gains and more wealth will be passed on. As I approach my golden years, that’s one of my biggest goals, leaving as much as possible for my daughters (while continuing to support a number of worthy charities).
I sell real estate for a living, and I realize this blog is not going to help create more inventory. Like I said, I’m part of the problem. I know we need more houses to sell and there is a serious housing/affordability crisis going on. I don’t know how or when that is going to be solved, and unfortunately (or fortunately depending on your viewpoint) the way the cards are dealt I’ve got a winning hand staying where I am.