Is It Time to Sell the House? - By Emerson Hartzler
I’m not sure exactly when the ownership of single-family dwellings became part of the “American Dream,” but no doubt it was a key part of the dream by the time I was born in 1941. And I’m pretty sure there is a cause-and-effect relationship between that part of the dream and the development of the Continuing Care Retirement Community (CCRC) industry in this country.
Back in the middle of the 20th century, some very enterprising people got the bright idea that the average homeowner might be willing to trade the asset value “trapped” in his or her home for the promise of a lifetime of community living, especially if the community provided a continuum of care, from independent living through long-term care. After all, a paid-for house is a good thing, but, unlike other “investments,” it doesn’t pay interest or dividends, so the appreciated value can only be cashed in when you sell the house. But then where would you live? You could buy another house, which would likely cost even more (funny how that always seems to be the case), but then the appreciated value is still “locked up” in the property.
So it is no accident that CCRCs typically structure the pricing of their entry fees around the average value of single-family homes sold in their market area. And because, in this country, at least, home ownership is commonplace (had the Hartzler family stayed in Europe seven generations ago we would probably be renting a “flat” today!), the potential market for CCRCs is enormous. And while I had no problem trading my home equity for a CCRC contract, if I were a renter and had to sell $300,000 of appreciating, dividend-paying securities to finance that transaction, I would have had second (and maybe third) thoughts!
While there is often an initial “sticker shock” when seniors see the entry fee pricing for a CCRC, upon further reflection (assuming the home equity is more or less equal to the entry fee), that “trade” of equity for the entrance fee may not have any measurable financial impact, either now or anytime in your lifetime. Your need for housing isn’t going away this side of the Pearly Gates, so from a financial perspective, it matters little whether you have equity in your home or a lifetime membership in a CCRC community.
Of course, to be fair, your family home may be a treasured possession for both you and your children. In my case, when Marge and I offered to sell our perfectly good house to our children, all we got was that “Are you stark-raving mad?” look. I suspect that attitude is more the norm in these times of dream homes in the suburbs and luxury urban loft living. So unless your heirs are looking forward to moving in when you check out, trading your home equity for a CCRC contract can be done guilt-free!
Now, you may be thinking that even if your heirs don’t want your house, the value of the house would be nice to pass on to them, and you would forfeit that ability if you moved to a CCRC. But here is where the CCRC has a real advantage: providing unlimited long-term care. Even if you have a good long-term care insurance policy, it probably won’t cover all of the potential expense of an extended stay in a care facility, which could very easily wipe out your home equity and other assets you intend to pass on to your heirs. At my community, long-term care costs are covered by my monthly fee, so I do not need to worry about being hit with those higher market rates for care. A CCRC contract protects against a big risk you cannot afford to take, thus preserving the balance of your assets for future generations or charitable causes you might wish to support with your legacy.
The “bottom line” is that the “trade” of your home equity for a CCRC lifetime contract doesn’t really harm your financial position. You are merely trading one non-earning asset for another. And at the same time you are protecting the balance of your estate from the devastating cost of long-term care, a very real risk all seniors face.
So go ahead and call your real estate agent.
About the Author
Emerson Hartzler is an experienced financial planner who is dedicated to helping people improve their lives through better financial decisions. After a career in Executive Management, Emerson developed the pro-bono service division of Triune Financial Partners LLC, and he continues to provide his expert budgeting and financial planning services at no charge to his clients. Emerson’s financial philosophy is summed up this way: Live within your means, spend less than you earn, save money systematically, set goals, give generously, and track your progress. Emerson and his Marge are residents of Lakeview Village.