The Missing Step Retirees Must Take Before Selling Their Home

As each year passes, more and more Relaxing Retirement members approach me with a desire to downsize the large home they raised their children in, and move to a more manageable situation.

Assuming for a moment that you’re able to find exactly what you want at a price you’re willing to pay (a more significant challenge than most anticipated), your next challenge is preparing your home to be sold.

While we’re currently in a seller’s market, as I noted above, a deal is not a deal until the closing and money changes hands.

And, prior to closing, virtually all buyers want their home inspector to go through your home for hours with a fine-tooth comb to determine if it really is as good as it looks on the outside.

What Could Go Wrong When Selling Your Home?

Let’s assume that you found what appeared to be the perfect buyer.  They’re clearly excited and want to move in right away.

However, the pragmatic attorney they hired strongly suggests that they have an inspector put your home to the test first before they sign a Purchase and Sales Agreement (P&S) and make their 10% deposit.

On the night of the inspection, you receive a phone call from your realtor who explains that the inspection report revealed some issues that the buyers want resolved before signing a P&S.

This is sort of an emotional blow because you’ve taken such good care of your home and you’ve never experienced any problems.

The written inspection report revealed that you have a small sample of termites, a mold issue in your attic, and that your septic system doesn’t appear to be within code.

How could this be?  You’ve had your pest control company out every year.  And, how could your septic system be out of code?

This doesn’t sound good.

Unfortunately, it gets worse.  The carpenter and pest control folks were able to deal with the termite issue, but it required replacing a support beam which turned into a major project because an entire ceiling had to be opened up to gain access to it.

Next came the “mold” issue.  It turns out that you have a small sample of mold in your attic which necessitates that they inspect and run mold tests in every room of your home.

The results reveal that, although the problem is not severe, it requires three days’ worth of work in your home to rectify it, and you have to vacate your home while they do the work.

Can This Get Any Worse?

It was hard enough to arrive at a decision to sell your home.  Now this!

Paying for all of this was certainly not in your plans, but that’s not the worst part.

As each new piece of information was revealed, the buyers began to question everything.  At first, they were very anxious, and you could tell they really wanted the house.

But, as time went on, the exchanges became less friendly as their demands increased.

Not only did they want all of these issues rectified on your dime, but they also wanted to reduce their offer price.

Finally, after two days of back and forth negotiating, they withdrew their offer and walked away.

Now, you have to start all over again.

The Lesson and Strategy

What’s the lesson in all of this?  And how could it all have been avoided?

While there’s no way to avoid the issues that were discovered with your home, you can control who discovers them and when they’re discovered?

The solution is to hire your own independent home inspector prior to putting your home on the market. I’m very happy to report that several of our members recently did this!

What this allows you to do is discover and rectify any issues before showing your home with full confidence that everything is under control.

Yes, you would still have had to face the costs to rectify everything.  But, it wouldn’t have killed the deal with your buyer, and your home would be sold which is your goal in the first place.

(This is exactly what Colleen and I did prior to selling our home in Chatham and moving to a new one a few years ago.  While it slowed the process down a few days before hitting the market, we went into the transaction with complete confidence that we would not be hit with any surprises.)

Selling and purchasing a home is such an emotional experience.  When purchasing, you want everything to be perfect.  The reason you make an offer is the home appears to be exactly what you want.

When “issues” and “problems” keep popping up little by little, your confidence in your decision begins to erode, even though the problems get rectified.

It places seeds of doubt which, ultimately, kill the deal.

Don’t allow this to happen to you.  Hire an independent home inspector prior to placing your home on the market.

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Once You Retire, Should You Buy or Lease Your Cars?

One of the questions I’m most asked is if you should buy or lease your cars once you transition to retirement.

A statistic that every car dealer and manufacturer knows that most outsiders don’t is that a car is purchased every three years (on average) in every household.  Yet, in spite of this high level of frequency, purchasing a car remains one of the most stressful activities we all participate in.

I don’t know anyone who likes it which is why I get so many questions.  I hate it as well, but it’s a necessary evil.

In my view, given the enormous cost of cars these days, it’s a very good idea to take the time to evaluate the most cost-effective way for you to purchase your cars both now and in the future.

With all the “financing” options you now have available to you, you really have to do your homework.

New vs. Pre-Owned

Before we begin with how you should pay for your next car, let’s talk briefly about buying a new car vs. pre-owned (formerly known as “used”).

In our home, we have typically purchased new cars.  However, after test driving a new Land Cruiser SUV a couple years ago, the salesperson informed me the dealer wanted me to know that he also had the Lexus version of the same SUV.

The dealer had been driving it and it only had 1,200 miles on it.  Most importantly, he would sell it to me at a deep discount.

After test driving that car and evaluating the numbers, I would have been a fool not to buy the Lexus.  It’s a better car and the price reduction was too great to pass up.

This all worked out so well that we did the exact same thing with the same model four months later!  However, this time, I had to do a little research to find one with very low mileage.  I found another great option through another dealership.

I mention all of this because, depending on the model of car you want, buying a low mileage, pre-owned car may be a good option for you as well.

Appreciating vs. Depreciating Assets

Assuming for a moment that you’re considering the purchase of a “new” car, the first factor I believe you have to think about is purely financial.

Most of us have been conditioned over our lifetime to “own” everything.  And, I believe that’s a worthy goal.

However, if you stop and think about that, what you want to own is “appreciating” assets.  So, for example, owning your home makes the most sense for the overwhelming majority of individuals.

And, it makes sense because house values have traditionally appreciated throughout history, although not always as we all learned during the financial crisis in 2008-2009.

A car, on the other hand, is a “depreciating” asset.   In fact, it depreciates rapidly, so you have to really question your desire to own it for “pride of ownership” reasons.

The exception to this, of course, is the individual who “really” likes cars and spends a lot of time working on them and maintaining them as a hobby.  And, we have some Relaxing Retirement members who fall into this category.

Simply an “Expense”

If you really stop and think about it, purchasing and owning a car is simply another expense, much like many other expenses you have in your life.

It’s really not a very good “asset” from an ownership standpoint.

So, for the sake of our discussion, I consider and equate all money that goes into the purchase and ownership of a car as an “expense”.  For example:

  • buying the car for cash,
  • making a down payment,
  • making loan payments,
  • making lease payments,
  • paying sales and annual excise taxes, and
  • repairs and maintenance

These are all “expenses” and have to be considered in your overall analysis of “how” you’re going to pay for your new car.

When you break it all down, it’s all a matter of “how much” you will pay and “when” you will pay it.

I recognize that most individuals give no thought whatsoever to how they’re going to buy their cars.  However, I recommend having your own personal “long term” car buying strategy.  And, that strategy should govern your car purchases.

Mileage

Before we get into analyzing what would make the most economic sense for you, the question of buying vs. leasing a new car comes down to a few factors:

  • your anticipated annual mileage, and
  • the make and model of the car (and, in turn, its residual value)

Let’s start with mileage.  If you know that you will be driving in excess of 12-15,000 miles per year, leasing gets pricey because they have to charge you up-front for excess mileage on the car.

Given this, leasing rarely makes sense if you’ll drive in excess of 15,000 miles per year.

On the flip side, if you don’t drive very much, leasing doesn’t make sense either.  If you turn in a leased car after three years and you only drove it for 18,000 of the 36,000 miles you were allotted, the dealer got the better end of the deal.

Given this, the sweet spot for leasing is driving between 10-12,000 miles per year (and possibly 15,000 depending on the model).

Car Make and Model

Depending on the make and model car you wish to buy, two $40,000 cars can have monthly lease payments that are $150 per month different.

How can that be?  Well, there are only three components to the monthly lease cost:

  • price of the car,
  • the leasing rate (interest rate), and
  • the “residual value”. (The residual value is based on the price the leasing company believes they can sell the car for after you turn it in 3 or 4 years down the road)

Some cars have terrific residual values: Toyota (Lexus), Honda (Acura), to name a few.  Others, unfortunately, do not.

So, for example, leasing a Toyota or Lexus that costs $40,000 is typically cheaper than leasing a Chevrolet or a Ford that have the same sticker price.

Now that we’ve laid this groundwork, we’re going to analyze the pros and cons of buying vs. leasing a new $40,000 car in the next edition.

Stay tuned!

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