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There But For The Grace Of God...

2/17/2019

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Today an elderly woman Sara, called me wanting a second reverse mortgage - she had previously taken a reverse mortgage on her house but spent all the money. She is in her 70’s, has no savings, has to pay off debts and get some money for her ongoing expenses.

Luckily, Sara had inherited a 2 unit property from her mother in Santa Monica California and she owes only $350,000 on the property that is worth $1,700,000. She lives in the front unit and is renting the back unit as much as she can.

Sara and I spoke for about an hour and much of that time was her lamenting about her life without social security. I guess she never worked a regular job that was on the books and she never married so she doesn’t receive social security but she has a small job that pays her under the table and she gets rent from her back unit when she is able to rent it. Sara confessed that many times a week she “dumpster dives” behind a local grocery store to feed herself. Sara isn’t able to pay her bills, her phone has been shut off and soon her electricity would be cut off.

​Sara was upset that the United States doesn’t have a program to pay retirement income to the elderly even if you never worked. Some countries have programs like this but we don’t…here in the US it’s pretty much every man for him/herself. No one is coming to save us…we MUST have a plan so we don’t end up like Sara or the millions of other elderly people living in poverty.

Imagine if Sara didn’t own her property with over $1,000,000 in equity in it…she would be homeless….she has no income. Even if she were receiving social security the average payout as of January 2019 is $1461. Rent in Los Angeles is more than $1461 so Sara is very lucky she owns a property it gives her a place to live. Thank God Sara’s mother had the foresight to buy a 2 unit property and leave it to her without a mortgage…the second unit gives Sara income. I suggested that she rent out the larger main house and move into the smaller back house then she would earn about $4000 a month. That should be enough to cover her expenses. She won’t have a big life on $4000 a month but she can pay her bills and not have to dig her groceries out of a  dumpster. Sara will have to be careful with her money every month but she lives in one of the nicest places in the country with great public transportation and a beach close by…it could be worse!

As I listened to the upset in Sara’s voice during our conversation all I could think of was there but for the grace of God go I. This woman’s plight is not unusual and she is better off than many retirees since she owns a property that generates income. Over 7 million elderly Americans fall below the Supplemental Poverty Measure. Millions more eek out an existence. Many are relying on help from family.

You must decide today how you want to live when you are older. If you want a secure, fun retirement you must save and invest your money today. There are many ways to do this but real estate investing is my area of expertise. If Sara had just one more 2 unit property she would most likely be collecting another $6000 a month. Imagine how great her life would be if she was collecting $10,000 a month from all of her units…one unit on her property and two from another property.

This is not hard to do and the time to do it is NOW! Put your money into a property, not into costly drinks after work or Starbucks Macchiatos. Live in one unit and rent out the other. Then save some more money and buy another property…two is all you need to have a secure financial future. Don't worry about the market or interest rates…the sooner you buy the sooner it will be paid off. Then when you’re older you can drown yourself in all the drinks or Macchiatos that your tenant’s money can buy!




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Super Sad

3/27/2018

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 I hate to keep posting these kinds of stories but they are  abundant. For every one person you read about in a pickle in their retirement years there are thousands more just like them you never hear about. They are living lives of quiet desperation. 

I've had this article saved for a while and seeing it is  from November 2016,  most likely the situation has only gotten worse for this  woman.    Article Here  She was earning about $80,000 a year and when she moved into her apartment in 2012 the rent was   $2,397 but it rose to to about $3,200 by  2016 which is  over a 33% increase in 4 years. Did her salary go up 33% in 4 years?  I doubt it.   At the time of the article she was living in cheap motel rooms....at 67 years old.

In Los Angeles where I live, the homeless population  increased 23%  in 2017  from 46,874 to 57,794 - Study Here    This is due to many factors some of it drug use but some of it due to  unmanageable  rent increases.  Can you absorb a 10%  , 20% or 30% increase in your rent over the next few years?  

As I am in the mortgage business in Southern California I talk daily to potential home buyers and it pains me when young people, who are earning a good salary, opt to continue to rent rather than buy. Yes their rent is usually lower than what it will cost them to own however...they have no control when they rent.  Despite "rent control" there are events that take place that end up displacing people from rent controlled apartments.  And over time that 3% increase a year adds up . Rent control prevents mobility....people want to move but they can't or don't since  rents for similar vacant apartments are usually higher.  Living in a rent controlled apartment is a dead end  future....it's limiting and not expansive.

Now imagine you suck it up and give up your rent controlled apartment for $1400 a month and end up buying and it costs you $2500 a month.   On a fixed rate your payment will not change in the next 30 years! Then after 30 years it will be gone.  Disclaimer - your property tax and insurance can and most likely will go up but your mortgage principle and interest payment will not move one inch.

If you continue renting, your rent will go from $1400 to $3398 over 30 years. In 30 years do you think you will be retiring? Will you be able to afford $3398 a month for rent on your retirement savings or social security income? If it still exists my social  security income won't be $3398 a month.  But since I own and have a rental unit on my property my mortgage will be $0, the income from my rental unit will be minimum $2500 a month.  I will be better off than anyone renting even if they are sitting in a rent controlled apartment right now.  Plus with my property paid off I will have $0 in a mortgage payment, income from my rental unit and I will own an asset worth hundreds of thousands of dollars.

Please, please reevaluate renting vs buying. Yes you will most likely need to scale back something in your life when you buy in California...the money you spend at Starbucks or going out to eat but now you can throw fabulous dinner parties in your garden, make your own Caramel Macchiato  on your fancy new  Cappuccino Machine in the kitchen you own.   You will adjust and over time you will  be richer and more secure for  taking the plunge!

I'll bet the woman in the article is looking back, thinking about how different her life would be now if she had bought  a 2-4 unit property when she was  37. I feel for her.




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Here We go...

12/1/2017

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 It looks like the Republicans are going to pass major tax legislation and today Senator Marco Rubio admitted they will have to cut Social Security and Medicare to  help fill in the gap (article here).  So for anyone who  thinks that Social Security was going support them in retirement is looking at a dismal future. The maximum amount you can receive even before these cuts will barely  cover the cost of rent today in many places in California let alone all of the other items you will need in retirement like food,  medicine, doctors appointments etc. 

Now is the time to tighten your belt straps and save some money to buy a 2-4 unit property. As I have said may times on this site...one 2-4 unit building will save your life when you are older. All you need to save is 3.5% for the down payment. You can get a credit that will pay for your closing costs from the lender by taking a slightly higher rate. The 3.5% can also be a gift from parents or another family member if you don't have the cash. There is no reason not to do this  sooner rather than later if you do not own a property yet.

The beauty of a 2-4 unit property is that the tenants will pay for a good portion of your mortgage every month. Then when the building is paid off in 20-30 years you will have a free place to live and also income from the other units.  You will not have this if you plan on relying on Social Security.  You won't have much if you plan on relying on Social Security. And after they get done with their cuts  you might not have anything.

Better to be safe not sorry. So what do ya say? Let's put down the Starbucks,  put away the credit cards and  start making plans to be rich in real estate.
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    Sandy Shaud, Licensed Mortgage Loan Originator, Licensed Real Estate Agent, Rental Property Owner  and M.A. In Spiritual
    ​Psychology.

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