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How Much Is Your Rent Again?

Homebuyer Associates September 2012 E-Note

Homebuyer Associates www.homebuyerassociates.com
414.254.4129 homebuyeba@gmail.com

How Much is Your Rent Again?

This will read as if it’s for retirees. It’s not. It’s written for my nephews and the age demographic of 25 – 45. Stay awake and stay with me. By the way, until this demographic begins buying homes, it will be difficult for the real estate market to turn the corner. They affect “move-up” seller/buyers.

I read a good deal about real estate and finance. I was struck by a study from the Schwartz Center for Economic Policy Analysis of the New School (SCEPA). According to SCEPA three quarters of retirees age 50-64 have an average defined contribution retirement account balance of $26,395.

Think about that. If you accept (not saying I do) the common rule of thumb to take 4% of your retirement funds annually, adjusted for inflation, you will be able to withdraw $88 a month for living expenses based on the SCEPA average figure above.

For the SCEPA example, Social Security (age 62 minimum; age 70 the optimum) will pay in the range of $1,300 per month. That means you will be asked to live on $1,388 per month. How much is your rent again?

I fit the age demographic of the SCEPA study. I’m thankful I bought real estate at an early age. In summary, I will have more options than those in the study. Why? I’ll explain for the benefit of my nephews.

We know the very rich are able to hire accountants and attorneys to find the best legal methods available to shelter income. Sure, changes should be made to our tax code but for now, the rich follow the laws as written.

I’m an average guy. I work relatively hard, spend less than I make and try to find balance with work, reading, music and tennis. The best tax shelter available to me has been real estate. I’ve written often about the condominium I own in Vail, Colorado. I own that condominium because I bought a duplex when I was 33 years old. I recall well the two duplexes I passed on before purchasing the one I did. I used forethought. I bought right.

I bought the duplex, fixed it up and lived in it. Ten years later I sold the duplex using a 1031 Starker exchange which meant I was not taxed on the sale. The Vail condominium is now worth 12 times more than what I paid for the duplex when I was 33 years old (Ten times if you factor in the improvements I’ve made over time.) But there is more…

The homestead we live in now is worth 7 times more than the first homestead I purchased at age 30 (homestead and investment real estate are distinct from each other). There is a tax shelter for homesteads also.

I have to live somewhere. My wife says so. I’ve suggested (honestly) that we live on a boat for a year. Terry responded, “Which divorce lawyer are you going to use?” So we will remain in our homestead.

From a tax shelter perspective, it means we could sell our homestead and not pay capital gains on our profit. The rules allow a couple to sell and not pay capital gains on up to the first $500,000. That gives us flexibility.

None of this happened by luck but I’m no genius. With a little forethought, effort and the right purchase, the 25-45 year old demographic can begin to set themselves up for a brighter future. Note I said “forethought” and the “right purchase.”

By “forethought” I mean select an Exclusive Buyer Agent who will work for you and by “right purchase”, I mean gather the information needed for an informed choice. My website www.homebuyerassociates.com provides a good source for guidelines on how to make the right purchase.

I’ll provide examples of each in a future E-Note. Stay tuned. Thanks for your time.

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Homebuyer Associates
1835 N. Riverwalk Way
Milwaukee, WI 53212
Phone: 414-254-4129