Organizing Your Home- Tips
Parents Supporting Adult Kids Risk Their Retirement Security
If you’re helping your adult kids financially, you’re not alone.
A new Bankrate (https://bit.ly/3oEZVH6) survey found that most parents (68%) are providing support for their adult kids. But in doing so, many may be compromising their financial futures by putting emergency and retirement savings on the back burner. .
Parents with children 18 or older have made a financial sacrifice to help them, and nearly a third of that group (31%) say they have sacrificed “significantly,” and 37% said they have sacrificed “somewhat.”
For instance, 51% say they’ve sacrificed their emergency savings, with 20% saying they’ve done so significantly. They’ve also impacted debt payoff (49% total; 18% significantly) and retirement savings (43% total; 18% significantly), and 55% report missing out on reaching other financial milestones.
Savings.com research (https://bit.ly/441HH2u) also found that parents are footing many adult kids’ bills, with 45% providing financial support for at least one grown offspring.
Groceries, cell phones, housing, and student loan payments are common parent-funded expenses, and their average monthly contribution is more than $1,400.
Parents also said they’d go to extraordinary lengths—even emerging from retirement—to support kids, even if it meant compromising their retirement.
Savings.com asked, “Which of these would you be willing to do to support your adult child(ren)? Select all that apply.”
|Live a more frugal lifestyle||58%|
|Pull money from my savings or retirement account||44%|
|Take on debt||25%|
|Come out of retirement||16%|
|Refinance my home||10%|
|None of the above||19%|
Bankrate’s tips for cutting your kids loose:
Bankrate Senior Industry Analyst Ted Rossman says, “Offering financial assistance can backfire if it puts your own savings, investments, and financial well-being at risk. It can be a vicious cycle. Young adults are wrestling with student loans and high household formation costs. Still, if parents overextend themselves to help, they might jeopardize their financial security.”
Not long ago, many homeowners renovated with an eye toward selling. That’s changed, according to the 2023 U.S. Houzz & Home Study, which found that 61% of homeowners intend to stay in their homes for 11 years.
It found that this year, just 6% of homeowners are renovating with the intention of selling, compared to 12% in 2018.
In addition, among all the generations, baby boomers are leading the renovation activity (59%), and during 2022 spent a median of $24,000.
Much of that renovation activity in 2022 was done to bring aging homes up to date with projects that included upgrades to plumbing (29%), electrical (28%), and home automation (25%). Also, one in five homeowners made cooling and heating system upgrades, spending a median of $5,500 and $5,000, respectively.
Still, renovation of interior spaces is the most popular area for upgrades (72%), with kitchen and bathroom, remodels being the top projects.
In 2022, 28% of homeowners upgraded their kitchen, spending a median of $20,000, while 25% chose to renovate their primary bathroom, spending a median of $13,500.
Houzz says such renovations come with challenges, including finding the right service providers (33%) and products (28%), staying on budget (27%), and staying on schedule (21%).
During 2023, 53% of homeowners plan to continue renovating their homes, with a median planned spend of $15,000. Additionally, 35% of homeowners plan to make repairs during the same period.
See the complete report at https://st.hzcdn.com/static/econ/2023-US-Houzz&Home-Study.pdf.
Sales in March 2023 were down 2.4% month over month and still down 22.0% year over year according to the NAR Housing Snapshot. The median sales price dipped 0.9% to $375,700 and there are 2.6 months supply of homes on the market compared to 2 months a year ago.
“Inventory levels are still at historic lows, and consequently, multiple offers are returning on 28% of properties.” According to Lawrence Yun, Chief Economist for the National Association of REALTORS®.
It is still important to have a strategy for potentially competing with other buyers on the house you want to buy. The plan should include several available provisions and options, so that at the time of drafting the sales offer, you can consider exactly what to include based on the situation.
Unless a person is paying cash, you need to be pre-approved by a trusted mortgage professional long before you start looking at homes. Include the written pre-approval letter along with the offer. When you are making an offer on a home, have the mortgage professional available to reassure the listing agent by phone who will convey assurance to the seller.
If you’re concerned about multiple offers, make your best offer first because you may not get to counter and simply lose out to another buyer. Starting with a low offer and gradually coming up doesn’t work in highly competitive situations. In some cases, a low-ball offer could cast a pall on any consideration of your purchase contract altogether.
The listing agent will calculate the expenses on the different offers for the seller to show them what their net proceeds will be on each contract. Some types of financing have more costs incurred to the seller. Asking the seller to make repairs or other financial concessions could lower their net even though your offer may be higher.
From a buyer’s standpoint, contingencies provide options for things that may be uncertain like qualifying for a mortgage, discovery of major impediments to the condition of the home, and other things. To the seller, they are obstacles that may invalidate the contract causing the home to go back on the market. If the contingencies are necessary, try to make them as palatable to the seller as possible.
Instead of waiving your rights to make inspections, consider a very short inspection period to minimize the time the property is in limbo. Instead of asking for repairs, provide a simple “accept or reject” once the inspections have been made.
Try to accommodate the seller’s desired closing and possession dates. Sometimes an earlier date may be more desirable for a seller and other times, it might be a later date based on the home they’ll be moving into. Your agent can do some research and find a flexible alternative that may appeal to the seller.
Increase your earnest money deposit more than the minimum. It is a pecuniary indication that you are serious. Your agent can tell you what the amount should be and alternatives like increasing the earnest money after certain contingencies have been met.
Escalation clauses state that you are willing to increase your offer by a certain amount up to a specified maximum, subject to another bona fide offer being received before yours is accepted. Your agent will be able to further explain how these might work in your situation as well as share their experience with them in other similar negotiations.
You as a buyer and your offer to purchase need to be seen as the solution to the seller’s situation in price, terms, and reliability to close. Working with an experienced agent with seasoned negotiation skills is key to your success in buying a home in a competitive environment.
Spruce Up Your Outdoor Space, Find Some Joy
As you prepare to spruce up your home this spring and summer, two pieces of research can help you pick the upgrades that will bring you the greatest return on investment.
Some projects may also bring you joy.
The 2023 Remodeling Impact Report: Outdoor Features (https://bit.ly/2GJCMrm) from the National Association of REALTORS® looks at the typical cost of 11 outdoor projects, the money homeowners can recover on upgrades when they sell, and the joy score – how much happiness each project brings.
Here are the top five outdoor remodeling projects that brought homeowners the greatest joy and the joy score (on a scale of 1-10) for each.
1. In-ground pool addition (10)
2. Landscape lighting (10)
3. New patio (9.9)
4. New wood deck (9.8)
5. Fire feature (9.7)
The top five outdoor projects that brought the greatest cost recovery were:
1. Standard lawn care service (217%)
2. Landscape maintenance (104%)
3. Overall landscape upgrade (100%)
4. Outdoor kitchen (100%)
5. New patio (95%)
Though some projects may bring homeowners joy, it doesn’t mean that REALTORS® recommend doing them before selling a home. In-ground pools and outdoor kitchens are two examples; just 1% of REALTORS® recommend putting in those features before selling.
With 75% of REALTORS® rating curb appeal as very important in attracting a buyer, it’s not surprising that their top project picks reflect that belief.
Projects with the highest share of REALTORS® recommending them before selling include:
· Landscape maintenance (74%)
· Standard lawn care service (53%)
· Tree care (44%)
Another study, the annual “Remodeling 2023 Cost vs. Value Report” (https://bit.ly/3G2LX7M), gives you a look at the remodeling projects that provide the greatest return on investment.
This year, the report compares the average costs for 23 remodeling projects with the value those projects retain at resale in 150 U.S. markets.
The project that grabbed the top spot was an HVAC conversion (electrification), meaning swapping an oil or gas furnace for an electric heat pump. With a project cost of $17,747 and a value at sale of $18,366, it delivers the highest ROI: 104%.
Learn more about heat pumps at Energy Star (https://bit.ly/3nvA3wA), MIT Technology Review (https://bit.ly/3JPPojm), and the U.S. Department of Energy (https://bit.ly/40F4yi3).
Other exterior projects with a high ROI include:
· Garage door replacement (102.7%)
· Manufactured stone veneer (102.3%)
· Steel entry door replacement (100.9%)
· Vinyl siding replacement (94.7%)
The ROI on a sample of interior projects includes:
· Minor kitchen remodel/midrange (85.7%)
· Bath remodel/midrange (66.7%)
· Bathroom remodel/Universal Design (46%)
· Bath remodel/upscale (36.7%)
· Major kitchen remodel/upscale (31.7%)
Fraud prevention toolkit provides tips for combatting scammers
A recent FBI report (https://bit.ly/42RFBly) found that Americans lost $10.3 billion to various internet scams and that call center scams also are rampant. “Call centers
overwhelmingly target the elderly, with devastating effect,” the FBI says. “Almost half the victims report to be over 60 (46%) and experience 69% of the losses (over $724 million).”
By familiarizing yourself with criminals’ tactics, you can better shield yourself.
The Canadian Bankers Association recently launched three fraud prevention toolkits to raise awareness about common scams. Though some information is specific to Canada, the bulk of the insight is also helpful to U.S. residents.
The kits focus on three audiences: older adults (https://bit.ly/40EoFNl), individuals (https://bit.ly/3KbOdvV), and small businesses (https://bit.ly/3FVOG2A).
The kit for older adults walks through some of the ways you’re vulnerable to scammers, how to recognize fraud, and ways to shield yourself with things such as solid passwords and understanding common scams that target older adults. They include email fraud, the grandparent scam, tech support scams, and ransomware.
In addition, so you can better spot when someone is trying to victimize you, the toolkit discusses common techniques fraudsters use, including scaring and threatening you or making too-good-to-be-true offers.
But keep in mind that it’s not just strangers who commit financial abuse. Even trusted relatives and caretakers can take advantage of you by pressuring you to give or lend them money, forging your signature on checks, or suggesting changes to your Will, Power of Attorney, or property title.
Some basic steps to protect yourself include:
· Creating unique, strong passwords
· Not sharing personal information with random callers.
· Strengthening social media security and privacy settings on your accounts
· Immediately reporting lost or stolen credit and debit cards, your driver’s license, social insurance number card, passports, and so forth.
· Being wary about downloading free apps, files, programs, or software
· Shredding papers with sensitive personal information
· Never providing your credit card number over the telephone or the Internet unless you’re sure about who you’re giving it to
If you run a small business, the business toolkit addresses everything from identifying common scams and protecting customer information to setting up a virtual private network (VPN) and combatting ransomware attacks.
If you become a scam victim, you can report cybercrime to the Federal Trade Commission (https://bit.ly/40s4pyJ).
Learn more at the SRES blog
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The concern about inflation is the sustained upward movement in the overall price of goods and services while the purchasing value of money decreases. Tangible assets like your home consistently become more valuable over time. In inflationary periods, your home is a good investment and a hedge against inflation.
Money in the bank loses purchasing power due to inflation and the interest you may be earning is almost always less than inflation.
Home prices are going up but so is rent. With mortgage rates near historic lows, the interest is, generally, less than the appreciation the property is enjoying. Combine this with the leverage that occurs using borrowed funds to control an asset and your equity is most likely, growing at a faster rate than inflation.
A 90% mortgage at 3.5% for 30-years on a $400,000 home that appreciates at 4% a year will have an estimated equity of $220,000 in seven years due to appreciation and amortization. That is a 27.5% annual rate of return on the down payment. That is a significant hedge against a current inflation of 4%.
If a person were to put that same $40,000 in a certificate of deposit that earned 2%, it would be worth only $45,947 in seven years. If it was invested in the stock market that earned 7% annually, the $40,000 would grow to $64,231. The equity in the example for the home would be almost 3.5 times larger.
The assets that are considered to be good bets against inflation include some bonds, gold and other commodities and real estate. Another distinct advantage of investing in a home is that you would be able to live there with your family and enjoy it which is not possible with bonds and commodities.
There are certainly other considerations in a comparison like this such as maintenance, but it could be offset, at least partially, by the cost of housing being less than you would be paying for comparable rent. And with the shortage of rental units available, the rent will certainly continue to increase annually where your housing costs are fixed with the exceptions of increases in property taxes and insurance.
Doing nothing may be a lot more costly than doing something. With rates twice what they were in 2021 and the first half of 2022, many buyers are sitting on the sideline. For some, it has to do with not being able to afford the home they want at today’s mortgage rates and for others, it is not willing to accept that the low rates that were available are not only gone, but may never be available again.
In the late 70’s, rates were around 10% and in the early 80’s went up to 18%. Interestingly, many buyers went ahead and purchased at those record level highs and refinanced a few years later when rates came down. By the end of the decade, prices had continued to increase so that buyers had a significant equity in their home.
Tenants who waited for the rates to go down didn’t see savings because the price of homes had gone up. More importantly, they missed the opportunity to build equity in their home through amortization and appreciation.
If you purchased a $400,000 home today on an FHA loan at 6.3% for 30 years, your total payment with taxes, insurance, and mortgage insurance premium would be about $3,459 a month.
That payment could save you a little bit if you were paying $3,500 for rent. However, when you consider the monthly appreciation, assuming a 3% annual rate, and the monthly principal reduction due to amortization, the net cost of housing would be $2,229. You would be paying $1,270 more each month to continue to rent which would amount to over $15,000 in one year alone.
That loss would be about twice the amount of the down payment to get into the home. Furthermore, in seven years, at the same 3% appreciation, your $7,500 investment in a down payment would grow to $138,000 in equity in seven years. If the appreciation is greater than that, the equity would be much more.
You’re going to be paying rent to live in a home; you might as well benefit from the equity buildup from amortization and appreciation that is only available to the owner.
The benefit of acting now is that sales are down which are affecting prices, although not dramatically. When the Fed gets a handle on inflation, and interest rates do moderate some, more buyers will be in the market and supply and demand will again cause prices to rise. Then, you can refinance to a lower rate but your investment in the home will be at a lower basis.
To run your own numbers, use our Rent vs. Own. If you have questions, call me and I’ll explain how to use it and what to expect for the home you’d like to have.
Like opening and closing a faucet increases and decreases the water flow, lowering interest rates increases home sales and raising interest rates decreases home sales.
When home sales increase during periods of limited inventory, demand increases and prices go up. Contrarily, when home sales decrease, demand could lessen and prices moderate.
There is opportunity with higher rates because it affects sales and demand, which in turn keeps prices in check. By waiting for rates to come down, and no one knows by how much but certainly not to the 3-4% range, buyers’ pent-up demand will affect the already low supply and cause prices to increase.
Let’s look at a scenario where you could buy a home today for $400,000 with a 90% loan at 6.5% for 30-years with P&I payments of $2,275.44. If interest rates drop to 5.5% in one year but in that same period, the price goes up by 10%, the price would be $440,000 with a 90% loan at 5.5% for 30-years with P&I payments of $2,248.44.
The payment would go down by $27 a month but the price would have risen by $40,000 which would be equity of twice the down payment for the person who purchased a year earlier with a higher rate.
|Purchase Price||Mortgage||P& I Payment||Equity EOY1|
|$400,000||$360,000 @ 6.5%/30 yr||$2,275.44||$84,023|
|$440,000||$396,000 @ 5.5%/30 yr||$2,248.44||$44,000|
The takeaway in this example is that a person may experience more loss from unrealized equity during periods of high appreciation than waiting for a nominal drop in the interest rate. With rates being a deterrent to buyers that have led to sales slipping 22% year over year in March 2023, sellers may be willing to negotiate.
It seems counterintuitive but higher interest rates may be the help you need to buy a home.
Senior dogs are often ignored when people adopt, but they make great experienced companions for people of any age. Rescue a senior dog and let ’em teach you a few new tricks. For more information on adopting a senior fellow visit www.topdogfoundation.org or call 952-353-2122.
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