Many seniors or their caregivers sell a home in order to pay for senior living. In fact, older adults looking to make this transition accounted for half of all home sellers in 2019, according to the National Association of Realtors.
Though selling a home is among the most common approaches to financing senior care, using the home as an investment property — or renting it out for short-term or long-term stays — stands out as a growing and beneficial alternative. A 2015 study from the U.S. Department of Housing and Urban Development found that 7% of Americans owned investment properties as part of their retirement plan.
“Many seniors own their homes outright or have little debt,” says David Friedman, co-founder and CEO of Knox Financial, a national real estate investment company headquartered in Boston. “This means that they’re in a position to turn that home into an investment. Holding onto the home is, for a majority of Americans, far and away the better financial decision.”
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Through the Knox Financial process, seniors can see large, dependable returns on their homes without taking on any of the associated labor. Currently, about 25% of Knox Financial clients are older adults.
Friedman urges seniors to consider renting their homes because it eliminates large taxes, real estate commissions, and legal fees, which can add up to 25% of the home’s selling price. Maintaining ownership of a family home can also benefit seniors emotionally, as well as set up future generations for success.
Whether you’re considering independent living, assisted living, or memory care for yourself or your senior loved one, learn how using the family home as an investment can help with retirement and estate planning.
Americans see real estate as the best long-term investment, according to a 2019 Gallup survey. This confidence comes from rising home values and a strong housing market. It’s also an ideal investment for seniors, since a Harvard University study found that 78% of adults 65 and older own a home. Here’s how using a family home as an investment property can benefit seniors financially, along with a few costs to keep in mind.
Using your home as an investment property is more than just a way to avoid selling your home to pay for care. It can also come with significant profits for seniors and their families. While the revenue you can expect depends on details like the location of your home, its features, and its size, meeting with an investment specialist can help predict more exact figures.
Each potential client who meets with Knox Financial will see a detailed “wealth forecasting,” as well as talk through this analysis with a financial expert. The wealth forecast shows homeowners how much they can expect to earn from their property over one year, five years, 10 years, and 25 years.
“We’ve found that investment property owners make more money when they put their properties on the Knox platform than when they choose to handle the properties themselves,” says Friedman. “That’s because our technology platform, coupled with our team of financial and real estate experts, makes sure all the details are done right.”
To see how much you or your senior loved one could make from renting your home as an investment property, use Knox Financial’s wealth property calculator. The tool takes your area and other details about your home into account.
While Joline White and Bob Burnett originally bought their beach vacation home for fun, they now see it as a way to build wealth and plan for the future after two years of renting.
“Our friends had a rental property and we went on vacation with them. The first thought I had was ‘I could do this,’” says White. “At that point, the thought was that it would pay for itself. But now that retirement is on the horizon, we’re thinking about sources of income. Ten or 15 years from now, this will be a significant source of income for us.”
When considering using your home as an investment property, it’s important to consider whether renting out your home or selling your home will help better cover care costs. Talk with an expert, and compare potential earnings to these figures:
While using your home as an investment property can result in a big profit for seniors, it also comes with costs. Saving 10% of the home’s value per year is a good way to pay for these expenses, which include basic maintenance and repairs.
Anyone with an investment property must report income from the home on their tax return, according to the International Revenue Service (IRS). A homeowner renting their property can also deduct the following expenses:
Homeowners renting their property can’t deduct the cost of improvements and upgrades, such as renovating a home or putting in a pool.
Renting out your home isn’t just a key step in your or your senior loved one’s retirement planning. It’s a wise investment that can benefit entire generations and offer peace of mind for the future.
“For a majority of the population, when real estate is inherited, taxable gains are erased upon inheritance,” explains Friedman. “So, keeping your home is a fantastic way to preserve wealth for future generations.”
In other words, if you’d like to pass a family home down to an adult child or another relative, they’re unlikely to be hit with a hefty tax bill. Using your home as an investment is a popular, effective way to provide for beloved children and grandchildren.
Maintaining ownership of a house so that it can be passed down later can also have a strong emotional benefit for seniors. Oftentimes, older adults may prefer to avoid selling their home to pay for care due to the many personal and family memories associated with their home.
If you’re wondering how to avoid selling your home to pay for care, renting a family home is an increasingly popular solution. These questions can help you determine if this is the right step for your family.
Seniors and their caregivers have an opportunity to preserve their family home and build wealth by renting the home in a short-term or long-term capacity, to either one or multiple tenants. To decide which is right for them, seniors and families should consider the following options:
Our advisors help 300,000 families each year find the right senior care for their loved ones.
Insurance for rental properties differs from the standard policy. In some cases, a short-term rental may be allowed under an existing policy if the homeowner notifies the company. Typically, renting out your home as investment property requires different insurance:
These costs and requirements can vary based on the location, size, and features of the home. Seniors and families can find a real estate attorney in their state to guide them through the process.
Repairs and upgrades play a crucial role in making your property competitive with other rentals and ensuring residents’ safety.
When using a home as an investment property, avoiding “over upgrades” — like designer appliances and granite countertops — can help maximize earnings.
For many seniors and their families, hiring a property management company marks a necessary step. In most cases, property managers will take on nearly all responsibilities and tasks in exchange for a fee, resulting in a low-effort investment for seniors. Generally, homeowners can rely on property management companies to handle some of the basic responsibilities of being a landlord:
Like other property management companies, Knox Financial takes care of everything associated with the renting process, making their services ideal for seniors. In fact, 25% of Knox Financial clients are seniors who are downsizing or transitioning to senior living.
“You hand us the keys, and Knox takes care of finding proper insurance, banking and bill pay, optimizing for tax deductions, finding and placing a tenant, legal and leasing, maintenance, and literally everything else that it takes to make the investment perform,” says Friedman. “Your profits can be directly deposited into any bank account you choose.”
For Joline White and Bob Burnett, a couple using their Panama City Beach, Florida, home as an investment property, hiring a property management company was an easy choice. Now, they say it’s their top advice for other homeowners wanting to rent out their house or condo.
“Have a 100% solid management company,” advises White. “Have a management company you can trust, one that has reach, and one that you have faith in.”
A property manager can be especially important if your senior loved one is relocating to a community closer to their adult children or other family.
“Even though the property is by Panama City Beach, we’re in Kansas City,” says Burnett. “It’s important to have someone who, for example, puts in a new dishwasher if the old one breaks. We don’t have the time to deal with people calling us about renting the property or to worry about all the different things that can go wrong. Our management company is basically the second owner.”
Property management fees can vary significantly, and homeowners should ask about costs when considering a company’s services.
For seniors wanting to protect and preserve their homes, the lease stands out as an important document. Seniors and families can talk through their preferences with a property manager or real estate attorney. Will you allow tenants to smoke in the home, have pets, or paint the walls? A lease is the place to lay out these expectations for peace of mind.
If you’re choosing to keep landlord responsibilities within the family, rather than finding a property manager, you’ll need to find tenants. Rental sites, Craigslist, and online ads can help. When listing a home, make sure to include key details:
The process of finding a renter usually involves a rental application. On this application, request key information you’ll need for a background and reference check:
Insurance Information Institute. “Coverage for Renting Out Your Home.”
International Revenue Service. “Tips on Real Estate Income, Deductions and Recordkeeping.”
Joint Center for Housing Studies of Harvard University. “Housing America’s Older Adults.”
Jones, Jeffrey M. “In U.S., Real Estate Still Leads Stocks as Best Investment.”
U.S. Department of Housing and Urban Development. “Landlords.”