Six Ways to Monetize a Client’s Home

Most clients have a decent amount of their equity tied up in their home(s). But whether for want or need, clients may not know how to generate income or cash from these properties, without selling the place(s) sooner than they would like.

Here are some ways homeowners can use accumulated value in residential real estate to help cover regular or extraordinary expenses.

Home equity line of credit

The time to establish a home equity line of credit (HELOC) is before it is needed (especially if the client is retiring soon). The HELOC allows customers to borrow against the equity they have in the home, up to a pre-set limit. The cost of setting up a HELOC can range from nothing to a few thousand dollars, and may require an evaluation and review of the customer’s credit report (but not always).

The interest rate can fluctuate and is usually tied to a specific index. However, there is usually a cap in place on both the degree to which the rate can increase over a certain period (often a year) and an overall limit on the maximum interest rate. Borrowers only owe interest if they actually use the HELOC, and only on the amount they borrow. Initially, the minimum monthly payments are just the interest on the amount borrowed, but the lender may eventually require borrowers to convert the HELOC into a home equity loan.

Home Equity Loan

This mini-mortgage is ideal for customers who have a specific project/expense in mind, such as a larger home improvement project, but are not willing or able to pay for the project from their cash savings.

Like the HELOC, the home equity loan may require a credit score and check, and the origination fees are similar. Unlike HELOC, approved borrowers using a home equity loan will immediately obtain the requested amount and be obligated to make monthly principal and interest payments for the life of the loan (usually five to 20 years). As such, customers may want to take out the longest home equity loan they can afford, because even though there is a higher interest rate associated with that term, the monthly payment is likely to be lower (and longer affordable).

rent it

If customers have at least one useless and unoccupied property, they can rent it for one year at a time to qualified tenants.

Note that selecting, exposing, managing and maintaining a rental property can be more work than most retired clients are willing and able to do. That said, a property management company can take over most or all of the landlord’s responsibilities for a fee that’s usually between 10% and 15% of the total monthly rent.

Customers who live in non-rural areas may want to check with local health care organizations, large employers, and universities, all of which often have permanent or temporary employees or students looking for a home to live in who don’t can’t afford it or don’t have it. don’t want to buy one.

Vacation location

Customers who have a place on or near the water or in a prime recreational area have the opportunity to generate a significant amount of income, but with much more work.

Sites like Airbnb and Vrbo can give customers an idea of ​​the going rate for daily, weekly or monthly rentals of similar properties in the relevant area and also provide a platform of tools needed to manage reservations and booking processes. payment. And even if the client’s property isn’t in a prime vacation area, there’s still a chance to make money by renting it out for vacations, sporting events, or other large gatherings and festivals.

But a few words of warning: firstly, short stays mean more money per night, but also a lot more work, because every time a guest leaves the place has to be cleaned and laundry has to be done before the next customer registers. And, as with any type of home rental, customers should check local zoning laws to make sure the activity is permitted and to determine if they need to adjust their homeowners or liability insurance.

Reverse Mortgage

Customers over 62 can consider getting a reverse mortgage for some of the established equity in their home.

A reverse mortgage does not have the strict application standards required by a normal mortgage. And no monthly repayments are required (although the homeowner can choose to repay the amount borrowed). Instead, interest is added to the borrowed amount.

After the borrower dies or leaves the home for at least 12 months, the home is sold and the proceeds are used to pay off the reverse mortgage balance.

If the amount of the proceeds from the sale exceeds the balance of the reverse mortgage, the owners (or their heirs) receive the remaining amount. But if the sale proceeds do not exceed the balance of the reverse mortgage, the owners and heirs receive nothing but owe nothing.

sell it

Customers can ultimately still sell their home and use the proceeds to cover obligations or financial goals.

First, they can choose to move out of a single-family home and use the proceeds to buy a less labor-intensive condo (without having to get mortgage approval). Or they could pay for several years/decades the cost of renting an apartment. Assuming there is no other partner who needs to stay in the home, it can also be sold to pay for assisted living and retirement home expenses.

Finally, the proceeds from the sale of the house can be used to make a bequest to the heirs of the family or to a charity association. Moreover, knowing that these holidays will be planned after the client’s death can encourage the latter to derive more pleasure from spending their liquid savings during their lifetime.

Kevin McKinley is Director/Owner of McKinley Money LLC, an independent registered investment adviser. He is also the author of Make your child a millionaire (Simon & Schuster).

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