Sunday, February 10, 2019

House Trap, Mouse Trap

Is it possible to be stuck in a house?

A reader writes suggesting a potential blog entry. I'm always suspicious of people suggesting blog entries as outside forces in this world are always trying to influence the way we think.  I get a lot of suggestions from companies wanting me to promote their products, for example. And I have promoted some products on this blog that I like, but only because I like them and think they're outstanding values.  No money changes hands, and no one suggested that I write about those products.

For example, you can go out and buy a Yeti drinking cup for $20 each, or by the Chinese knockoff at Walmart for $5 a piece. You can guess which one I bought.  And damn, those socks are great.  I am wearing them now.  The don't slide down my ankles like the brand-X I used to buy.  And they are warm, too.   It's like an orgasm for your feet.  But I digress.

The reader wasn't pushing a product.  Rather, he pointed out that downsizing from a larger home to a smaller one as you get older can be very difficult to do.  And in that regard, he has a point.

While we enjoy our present home, I can envision a time when it will be too much for us to keep up. And I say this because I see that my neighbors, as they get older, let their house sort of slip away from them, until they reach a point where they are forced into a retirement community or have to move back home to be near their children.

There seem to be phases in one's retirement, and I will write a blog entry about that later.  One of the early phases is what I call "house polishing" - which I am finding myself subject to at the present time.  Some people have written to me saying that once I retire I'll go crazy not having enough to do with my time.  But actually the opposite is true - you wonder where the day goes, and it seems there is more than enough things to keep you busy every day.  In fact, you wonder how you were able to get anything done at all when you were working full-time.

I noted before that anxiety is like a gas.  It expands to fill the container it is placed into.  And when you retire, your level of anxiety doesn't necessarily go down, it just expands in other areas.  Maybe you no longer have to worry about getting to work on time or whether the boss likes you, but now smaller and more trivial things seem to fill up your day.  And this is one reason why the ladies in the Parcheesi Club are always causing trouble for each other - stirring up a shitstorm over trivial nonsense because they had nothing else to do.

Others engage in volunteer work, still others obsess about a hobby or sport such as golf which is particularly popular with the elderly set.  And many people, particularly men, start to obsess about their houses - polishing them up to make them perfect, now that they have the time and money. Maintaining the perfect lawn becomes an obsession for many men, such as my recently deceased neighbor who built an almost flawless lawn from property line to property line and even beyond.

He got very distressed that the lawn looked ratty on my side of the property line, and he started mowing, fertilizing, and watering the narrow section between the property line and my driveway.  Of course, I didn't object to this.  If somebody wants to mow my lawn that's fine with me.  I did have issues when his sprinkler system sprayed the side of my house and turned it brown from the brackish water.  But some re-aimed sprinkler heads solve that problem, and a little lime-away and a scrub brush took away the brown stains.

But getting back to our topic, sometimes it can be hard to leave a larger house, not only because you're comfortable in it, but because changing to a different location could actually cost you more money.  For example, back in the day in Florida, many older people were stuck in their homes due to the homestead law.  So long as they stayed in their home, their property taxes remained low.  For example, Mark's mother-in-law passed away a couple years back and we inherited her house, along with Mark's siblings.

She only paid $3,000 a year in property taxes on that house.  The new owner would have to paid close to $10,000 a year in property taxes once it was reassessed.  That along with the staggering cost of hurricane insurance forced us to sell the property, as nobody in the family could afford to live there.  And that is a story being repeated time and time again in this country.  People are inheriting property from their parents that they can't afford, even if there is no mortgage on the property.

But getting back to the homestead exemption, before they changed the law about a decade ago, you couldn't transfer your homestead exemption to a new property.  Thus, if you lived in a half-million dollar home on the water in Pompano Beach and were paying $2,000 a year in property taxes, and decided you needed to downsize, the property taxes on your new condominium would be double or triple that easily.  As a result, many older people stayed in large homes they could not maintain rather than downsizing to a condo.  Fortunately, Florida changed that law, making it possible to transfer your homestead exemption to a smaller property and us unchaining you from the house you had bought decades ago.

But there are other factors that make moving to a newer property more expensive.  For example, here on our island they are building some new townhomes and condominiums which would cost less to purchase then our current house.  Theoretically, we could sell our home and buy one of these condominiums or townhomes - before the prices went up - and pocket $100,000 or more in the process.  The problem is, those properties being condominiums and townhomes have a monthly condo fee or homeowners association fee that needs to be paid.

As a result, our monthly carrying costs would be a few hundred dollars higher than what we are paying now to live on this property.   We will be going to a smaller and less expensive property, but paying more in monthly carrying cost in order to live there.

There are also duplexes on the island, which were built as beach rentals or housing for island employees.   They can cost about half of what our house is worth, and theoretically, we could downsize to one of those (and just might) and cash out $200,000 from our current house.   Of course, the neighborhood isn't as nice.  Being closer to the beach, you get more transient people - weekend warriors and whatnot, renting out places and stuffing four families in them for a yee-haw vacation.   So there are tradeoffs.

And that was the point our reader was making.  If you live in a neighborhood of $500,000 homes, if you move to a neighborhood of $250,000 homes, odds are, it isn't going to be as nice a neighborhood.  The crime rate may be higher.  There may be more eyesores like cars parked on the lawn and whatnot.  It may be noisier and less attractive.   The schools might not be as nice.

And while that is true, there are often, in the same areas, dwellings in different price ranges.   There may be an apartment or condominium nearby the house you live in.   It all depends on where you live.

The real savings, though, often occur when you move somewhere else instead of just moving across town.   In days gone by, moving to Florida was seen as the ultimate way to cash-out of an expensive home in the Northeast.   You could sell your overpriced tract home in New Jersey, New York, or Connecticut, and buy a place in Florida for less than half of what you sold your house "up North" for.  And the taxes - back then - were very low.   So not only are you cashing out and moving to where the weather is nicer, your monthly carrying costs were lower.

A lot of that has changed as more and more people move to Florida.   Houses which were cheap to buy are once again being speculated into the stratosphere.   The boom and bust of 2008 flipped the whole Florida narrative - suddenly a retirement home in the South cost more than a home up North, and the property taxes were staggering, thanks to a homestead exemption that kept taxes artificially low for people who had been there a long time, but socked it to newcomers.

There are still places to live in Florida that are fairly cheap.  You can buy a two-bedroom home in The Villages for under $200,000 and the taxes there are fairly low (not many kids in that school district!).  but places like Miami and Ft. Lauderdale are often far too expensive to downsize to.  Or if the places are inexpensive, you really don't want to live there.

Oddly enough, there are cheaper places to live "up North" these days, and if you don't mind the crappy weather, they could be affordable.   In fact, I suspect we may see a reverse-migration from the South as housing prices here become excessive.   One reason we are in Georgia is that it was less expensive (and less crowded and less crime-ridden) than Florida.  They call people like us "half-backs" - people who moved to Florida and then moved halfway back - to Georgia or the Carolinas.

One friend of ours moved back to Elmira, New York.  Elmira is a depressed former factory town where they used to make typewriters.  But that went away a long time ago, and today, the best that could be said about Elmira was that it is nicer than Utica.   Elmira boasts that it is the soaring capital of the world, a title it used to have in the early days of gliding.  Today, not so much.  They also tout that Mark Twain once lived there - at least in the summer months - but I am not sure that is really a claim to fame.  Chittenango, New York, where I lived briefly, touts itself as the home of L. Fank Baum, the author of the Oz books.   They even put in yellow brick sidewalks and have an Oz-themed casino and events.   But I think he only lived there from age two to five - hardly an imprint on the community.

The point is, and I did have one, they bought a sturdy two-bedroom house only a few blocks from the hospital (and their grandchildren) for under $100,000.   Granted, the weather sucks for about 8 months of the year, but it is cheap living, particularly for the elderly, who do get some tax breaks.

For us, our search to downsize is continuous.  One reason we like to travel to different parts of the country is to see different places and wonder whether they would make good "next step" places to live.   So far nothing has jumped out at us.  We are fortunate to live in a low-cost area that is relatively crime-free and quiet.   There is not a lot of support for elderly living here, nor are there a lot of cultural attractions or good restaurants.    Life is about trade-offs, I'm afraid.

But all that could change.  Sadly or fortunately, our little island is being "discovered" after being overlooked for so many years.   Not everyone likes "creepy and quiet" as Mark described it nearly two decades ago, but with new construction of new homes (replacing hotels that were torn down nearly a decade ago) the fixed population of the island may increase.   This could lead to horrific things like traffic and maybe even a stop light!   The horror!

It may also mean some good restaurants, but I am not holding my breath about that.   Getting good service in rural areas is hard - the locals seem to have no idea how the tipping system works.  But that's neither here nor there.

But again, I digress.

There is one other point to be made about downsizing and that is transaction costs.    Don't be in a hurry to dump your current home and downsize to a smaller one, unless you truly cannot afford the home you are living in.   Expect to pay at least 5% in real estate agent fees, as well as other closing costs (closing company or attorney's fees, recording fees, document fees, and so forth).   If you are selling a $500,000 home, it could easily cost you $25,000 in transaction fees.   And this is why it doesn't pay to "churn" houses.

When we lived in Northern Virginia, we knew people who moved from house to house more often than they traded-in cars.   We're talking moving every three to five years.  It made no sense, really, as the transaction costs ate up whatever equity they were building in their home.

Probably the best way to avoid this problem is to not buy a monster house to begin with.   The huge mini-mansion or oversized house (for your needs) is something than younger people buy into, based on status alone.   I know childless couples living in four-bedroom homes - some rooms blocked off and never used.    I know other folks with children, who buy monster homes with six bedrooms or more - most unfurnished or furnished with crap furniture and milk crates.   They are paying huge taxes, utilities, insurance, and maintenance and space they aren't using.

Often such folks are sold oversized houses like these on status - and promises by the real estate agent that they will "make more money" on their home by "buying as much home as you can afford!"    A better plan, in my opinion, is to buy the home you need, and if you have money left over, then invest this in something - maybe a rental property (with a positive cash-flow) or a mutual fund.   Because a house you live in is not an investment, even if it may be an asset.

Maybe downsizing is just a daydream.   The idea of having an inexpensive apartment or condo with little maintenance and upkeep, only "steps away" from shopping and restaurants and cultural attractions is, well, perhaps overstated.   Sure, there are such places - but not inexpensive places.  They might be easier to keep clean, but the monthly condo fees and taxes (or rent) are likely to be more than we are paying right now (about $1000 a month for taxes, insurance, utilities and basic maintenance).  Maybe the best place of all is where we already are.

Of course, that doesn't factor in other costs - like roof replacement, HVAC replacement, appliance replacement, routine painting, new driveway, new flooring, new windows - all things we will have to do (or have already done) on the house, over time.   These sort of things can double the cost of owning a home for any one given year.   But more about that in another posting.