1	Is This You?
2	Real Estate for the Mature Market By Fran Rudd Associate Broker, ABR, CRS, GRI, SRES® Providing “YOU”nique Real Estate Service
3	Credentials
4	What is an SRES®?
5	What an SRES® is NOT
6	Population Source Census Data Released March 2005
7	Population - Virginia Source Census Data Released March 2005
8	Population – District of Columbia Source Census Data Released March 2005
9	Population - Maryland Source Census Data Released March 2005
10	Population – West Virginia Source Census Data Released March 2005
11	Senior Housing Statistics Between 1998 and 2000, over 8 million seniors changed residences Approximately 30% of seniors have lived in the same home for 30 years or longer 83% of seniors are property owners and 63% own their own home free and clear Over 80% of mature Americans over 75 live in and own their properties Less then 25% of older sellers will move to a “senior specific” community
12	Senior’s Decisions/Questions/Issues Can I AFFORD to keep my home? How should I decide when to sell? If I sell, should I rent or buy? Should I move into my vacation home? Should I relocate to another state? Should I pay cash for my next home or obtain a mortgage? Is now the time to buy a second/resort home? Should I invest in real estate? How does real estate I own affect my estate planning? How does selling my home or investing in real estate affect my taxes?
13	Senior’s Decision…. Can I Afford to Keep My Home?
14	Senior’s Decision…. Can I Afford to Keep My Home?
15	Senior’s Decision – How Should I Decide When to Sell? Questions to consider before you decide to sell Are you over-housed? Do you need the equity from your home? Is the home’s upkeep manageable? Does your home style match your physical ability? Have friends and neighbors moved? Do you want to be closer to family? Would a move improve your lifestyle?
16	Senior’s Decision – If I Sell, Should I Rent or Buy Another Home? NOT just an emotional decision … the most important financial factor is determining the HIGHEST AND BEST USE of the cash you receive from selling your home See Can I Afford to Keep My Home … Determining the True Cost of Housing
17	Senior’s Decision – Should I Move Into My Vacation Home? Should I Consider Relocation to Another State? MAYBE, but first Live in your vacation home for an extended period of time Consider where your trusted family members are living Consider the logistics of a long distance move Think about renting before buying
18	Senior’s Decision – Should I Pay Cash for my Next Home or Obtain a Mortgage? Financial Leverage of a Mortgage Consider Bundling a Reverse Mortgage into the Home Purchase Mortgage
19	Senior’s Decision – Is Now the Time to Buy a Second/Resort Home? Only 7% of Americans currently own a second home Demand is expected to skyrocket Buy wisely by considering … How do you spend your free time now? How often will you visit? How much travel time and cost is acceptable? Do you require a maintenance free second home? Do you enjoy all seasons? Does the area have a stable growth history?
20	Second Home Tax Breaks What’s Deductible Mortgage Interest and Property Taxes (depending upon 2^nd home use) Interest on a Home Equity Loan (or second mortgage) Convert your second residence to a principal residence for two years and shield capital gains tax
21	Vacation Home or Second Home? Vacation Home – Personal use is 14 days or less, or less than 10% of the days it is rented Rental expenses, including depreciation are deductible Second Home – Personal use is more than 14 days or at least 10% of the days it is rented Mortgage interest and property taxes are deductible
22	Senior’s Decision – Investing In Real Estate … How You Can Profit Lower Taxes As an investor, you can claim deductions for actual costs incurred for financing, managing and operating the rental property Positive Cash Flow Pre-tax positive cash flow translates into current income After-tax cash flow can come from a negative pre-tax cash flow Use Leverage Use borrowed money to increase equity and thus magnify your investment return Benefit from Growing Equity Making a mortgage principal payments is making a payment to yourself – you build equity as your mortgage principal shrinks Real estate has traditionally enjoyed growth through appreciation
23	Senior’s Decision – How Does Real Estate I Own Affect My Estate Planning? Goals of Estate Planning Ensure assets of the estate to the heirs Reduce the “tax” bite Eliminate probate costs Ensure family harmony Control who gets what Eliminate the need for a conservator So, Think About … How title is held on owned property Whether you have a will Whether you have a living trust
24	How Does Selling My Home or Investing In Real Estate Affect My Taxes? Selling Your Principal Residence Tax Payer Relief Act of 1997 Qualifications for Tax Exclusion Borrowing on Your Home For Property Acquired from a Decedent For the Investor Short-Term Gains Long-Term Gains Long, Long-Term Gains
25	Tax Implications… Selling Your Principal Residence
26	Tax Payer Relief Act of 1997
27	Qualifications for Tax Exclusion
28	Qualifications for Tax Exclusion Special Circumstances If one spouse dies, the surviving spouse is entitled to the full $500,000 exclusion only if the residence is sold and closed during the same calendar year of the spouse’s death. This means that if the husband dies in November, the wife only has until the 31^st of December to sell and close the property if she wants to utilize the full $500,000 exclusion. Under the new law, there is no “roll over” provision. The taxpayer doesn’t have to purchase a more expensive home after the sale of the residence in order to obtain the exclusion. There is no need to purchase a replacement property either. If either one of the taxpayers has taken the old “one time” exclusion of $125,000 in years prior to the 1997 tax relief act, they call still use the new $250,000/$500,000 exclusion on the sale of their residence provided they meet the test Each state has its own tax code in addition to the Federal. Make sure you know what is appropriate in your state and inform your clients of this additional information.
29	Tax Implications – Borrowing on Your Home What’s Deductible? Interest on home equity loans up to $100,000 (regardless of how the proceeds are used) Interest on home equity loans in excess of $100,000 if the excess loan proceeds are used for home improvements
30	Tax Implications – For Property Acquired from a Decedent Every inherited asset receives a “free step-up in basis”. For future income tax purposes, it is treated as if it cost the recipient its value on the date of death of the decedent. All pre-death capital gains are forgiven. If you and your spouse hold title as Joint Tenants, as the death of one spouse, only one-half is inherited and receives a step-up in basis; the other half retains its historical basis.
31	Tax Implications – For the Investor Short-Term Capital Gains Owned for 12 months or less Taxed at ordinary income rates Long-Term Capital Gains Owned more than 12 months Taxed at a flat rate of 20% unless the investor is in the 15% bracket in which case a 10% rate applies Long, Long-Term Capital Gains Held for at least five years and purchased after December 31, 2000 Investor in the 15% Federal tax bracket will pay capital gains at 8% (rather than 10%) Investor in the 28% Federal tax bracket will pay capital gains at 18% (rather than 20%)
32	Financing Options Reverse Mortgage Tax Deferred Exchange Installment Sale
33	Your Home’s Equity and Reverse Mortgages A special type of mortgage that enables a senior to convert a portion of their existing home equity into cash A “loan” against your home (collateral for cash flow) No repayment required for as long as you live there Works like an annuity
34	Reverse Mortgages – Common Uses of Funds In home care Health care expenses Daily living expenses Back taxes Home repairs or modifications Pay off credit cards Large purchases – car Life style enhancements – vacations, trips Supplemental monthly income Purchase a second home
35	Reverse Mortgages - Benefits No monthly payments (so cannot lose your home by failing to make payments!) You never owe more than the value of the home at the time the loan is paid off Your heirs are entitled to the balance of the equity position If you elect a monthly payment option, payments will continue even if you outlive the expectancy tables Not considered as taxable income Loan proceeds do not affect Social Security benefits
36	Reverse Mortgages – Borrower Eligibility You and any co-borrowers (spouse or others) must be at least 62 years old House must be owner-occupied and be your primary residence Your home must be free and clear or with an existing mortgage that can be repaid from the proceeds of the new Reverse Mortgage
37	Reverse Mortgages – Methods for Obtaining Funds Lump Sum Term option where you receive monthly payments for a specific time period A line of credit A combination of methods
38	Tax Deferred Exchanges – Basic Rules All properties must be held for investment and exchanged for “like-kind” property Day requirements for identifying and purchasing replacement property 0 ------------ --------------------- Seller cannot receive the cash proceeds of a sale; a neutral third party know as a Qualified Intermediary must be used Title holders must be the same on both properties The new property must be equal to or greater than the value of the relinquished property
39	Tax Deferred Exchanges - Benefits Increased equity Increased appreciation Consolidate assets Diversity holdings Relocate or increase investment holdings Dispose of poorly performing property Increase net cash flow Increase cash flow and financing opportunities Increase depreciable property basis Estate planning Conserve and compound an estate
40	Installment Sales – What is It? Seller assumes the role of a banker and carries back the loan Buyer makes regular payments, typically monthly
41	Installment Sale May increase your pool of buyers Good interest earnings Relatively safe investment and is protected by real property Can reduce taxes by spreading the gain over time
42	Resources www.FranRudd.com www.reversemortgage.com www.ncoa.org (The National Council on the Aging) www.naela.org (National Association of Elder Law Attorneys) www.factfinder.census.gov www.iami.org/narea.htm (National Association of Real Estate Appraisers)