Yesterday, we discussed the potential of selling your larger-than-needed home and moving to a different location. In a MoneyWatch column written by Charles Farrell called "Retirement Roadmap", he suggest that the difference in what you sold your home for and what you pay for a new home elsewhere could be used for income generation. And it could, provided you have a completely paid for home.
For the vast majority of us, this is simply not the case nor will it be. You will, in all likelihood be selling a home that still has a mortgage. This means, that in order to get some of the equity out of the home, you will need to sell into a good market. Conversely, a good market makes buying another home more expensive than it would be in a market such as the one we are in now. That's not to say it can't be done. But it needs some preparation and a little bit of luck to accomplish.
Mr. Farrell uses the example of a net profit on the sale of home valued at plus $500k and your use of only $300k in your repurchase. Focused mostly on how much this money could generate in potential income moving forward, he overlooks some of the other potential uses for the money that may not generate income. But will certainly keep you from spending whatever you may have.
For instance: Perhaps an even better use of the $200,000 would be to it set aside for future medical needs - which should just about cover the costs for a couple in retirement. There is also the tax reduction, the possibility that the house will be closer to what is really needed in retirement (services, doctors, entertainment, kids/grandkids) and if they are buying new, no upkeep costs moving forward for ten-years.
It is a win-win even if you don't use the money for additional income, you will create some as a side effect. The goal is to begin making your house as desirable as possible and do so in small increments so as to not create a great deal of debt. This will ensure the highest resale value and greatest amount of equity available when you do sell - even in this market.