Forecasting the Future for SW Florida Housing in the New Year. Naples, Ft. Myers, Bonita Springs, Estero, Golden Gate, Sanibel Island. It does seem to be time for an in-depth forecast about SW Florida’s housing outlook for 2015. The prediction game is going strong everywhere else this week, with print and online journalists and TV talking heads interviewing experts and each other about what to expect in the coming year. Some make noteworthy predictions—but more seem to be doing their best to sound authoritative while remaining vague enough to avoid provably wrong calls.
I have to sympathize. Last year, after delving into the SW Florida housing outlook to come up with predictions, the one I put at the top of my list was a forecast that mortgage interest rates would soon be climbing. That was safe—rates had been so low for so long, history told us they had to rise, didn’t it? Besides, all the experts agreed.
What then happened in 2014 explains why financial prospectuses tend to footnote projections with sentences like “past performance is no guarantee of future results.” Rates did rise; but then sank again. So this year, it’s probably a better idea to shelve the crystal ball in favor of laying out some of the factors we do and don’t know—factors that should influence the direction of SW Florida housing trends for the coming year.
First, what we do know for sure. Since Baby Boomers make up the largest demographic in the country…
Uh-oh! No they don’t. The Census Bureau now says that the cohort of 23-year-old Americans has just become the largest in the country. Followed by 24- and 22-year olds, respectively. Probably why the chief economist at the NAR® projects that this generation will “drive two-thirds of household formations over the next five years.” He says 2015 will become the point at which the millennial generation’s presence in the housing market will be truly felt for the first time. So what we do know is that younger buyers have begun to join the ranks of homeowners in substantial numbers. That’s different; it has the look of a major trend.
And mortgage rates will rise (because they have to, right?) Again, this one only seems to be a reliable projection. At this point, a 30-year mortgage is actually lower than it was a year ago. It is thought that foreign influences (uncertainty in Europe; economic weakness in the Far East) are what have held down U.S. housing financing rates. If that’s true—and since no one can say with any certainty what to expect from events overseas—mortgage rates and their influence on SW Florida housing activity should more accurately be placed in the don’t know column.
So will SW Florida housing prices and sales activity rise in the coming year? We do know that the public opinion polling data supports that likelihood. Consumer confidence is building, possibly because of a brightening employment picture (not to mention last week’s record-breaking Santa Claus rally and other strong economic news). In fact, real estate mega site Trulia reports that their samples tell them “consumers expect 2015 to be better, especially for selling a home.”
Forecasting the Future for SW Florida Housing in the New Year. Naples, Ft. Myers, Bonita Springs, Estero, Golden Gate, Sanibel Island. Economists agree. Fortune.com says that economists are “nearly unanimous in predicting that home values would continue to rise” and that “surveys of homeowner sentiment suggest that more of them will look to sell their homes” in the coming year. If you are leaning in that direction yourself, there’s one factor we know for sure: I’ll be standing by in 2015, ready to put all of my resources and experience to work for your SW Florida home sale! Thank you.
SW Florida Homes for Sale Use Staging to Set the Mood. Naples, Ft. Myers, Bonita Springs, Isles Of Capri, Captiva Island. When you think about the importance of staging when a SW Florida home goes on the market, you might relate it to how department stores go about increasing sales during the holidays. You have only to stroll through the front door of any of the legendary department stores this time of year to experience what I mean: the most successful ones fairly assault your senses with the color, glitter, sounds (sometimes even the scents!) of the season. If you’ve ever strolled down 5th Avenue in Manhattan any time after Thanksgiving, you’ll have experienced a major jaw-dropping tourist attraction. It seems like the whole place is staged—and masterfully, at that!
Why so many veteran merchants put that kind of effort (and budget) into holiday decorating is proof of how cost-effective staging is for merchandising. It’s not that different when a town home is being prepared to be offered to the public. Effective staging for an SW Florida property performs the same function that Macy’s and Neiman Marcus hope to achieve: to indirectly alter their visitor’s mood to one more receptive to the designer’s goal. Department store holiday décor is more than just eye-candy created to instill a jolly mood. By transporting us into the spirit of the season, it gently cues us into recreating how we feel at the moment of gift-giving (i.e., generous gift giving!). Sometimes that might take 50 or more fully-decorated Christmas trees—all for the sole purpose of creating an atmosphere that Scrooge himself couldn’t resist!
In the same way, staging a SW Florida home effectively can put prospective buyers into in a receptive frame of mind. The goal is to create an instant impression that does two things.
First, it immediately establishes trust. By presenting a well-designed and smartly maintained environment, it acts to dispel one major element of buyer resistance—the fear of the unknown, which in the case of a SW Florida home sale translates into lurking suspicions about the condition of “somebody else’s” house. Good staging envelops visitors in spaces that just feel substantial.
Second (just as important), staging an SW Florida home effectively creates a welcoming feeling. If visitors feel comfortable—at ease enough that they can easily picture themselves at home there—they are much more likely to consider the next steps. Not every home can appeal to every prospective buyer, of course, but good staging does away with idiosyncratic artifacts that would narrow the field.
SW Florida Homes for Sale Use Staging to Set the Mood. Naples, Ft. Myers, Bonita Springs, Isles Of Capri, Captiva Island. National studies show time and again that, staged correctly, homes are more likely to garner higher offers—and more quickly. Of course, staging is only one step in the process of listing and selling a home, and it isn’t even the first: that one is giving me a call!
What’s the First Question a Real Estate Investor Should Ask? Naples, Ft. Myers, Bonita Springs, Estero, Golden Gate Estates. It happens: an all-but-irresistible SW Florida real estate investment crops up when you’re least expecting it. You may have been actively searching for your next family home when you happen across a particularly good bargain—but it’s not a good fit for your own family. “Holy cow,” you think to yourself, “that’s a ridiculously great property at an absurdly low price!”
That can start the wheels turning. If you have the financial resources (or enough experience to know how to corral them), it can be the genesis of a lucrative real estate investment in SW Florida. There is, however, one question to be asked before taking the idea to the next level.
It’s a question familiar to experienced investors in all walks of life. Whenever a phenomenal opportunity presents itself, it’s the first question that venture capitalists, stock market analysts, even small business entrepreneurs automatically pose. There are scores of ways this question might be worded, but they all boil down to pretty much the same kernel of an idea—which is to question the assumptions that make this new venture so seemingly irresistible. In short, at its core the question is simply, “What’s wrong with this picture?”
Applied to any real estate investment in SW Florida, it’s a valuable opening question. Finding a great property at an unbelievable price—one that unmistakably flashes ‘profit!’ for either renting or reselling—does happen, of course. But it’s never wrong to take a step back for a reality check. Remember, there are alert competitive forces at play in the local market. Other real estate investors are constantly on the lookout for the next promising SW Florida real estate investment opportunity.
You may well be among the first to notice a prime offering, but even so, you’ll be well served to look hard for a reason why it hasn’t already been snapped up. The fact is, there is a well-developed, reliable mechanism at play that should lead a seller to have a good idea of what his property is worth—and therefore, what to ask for it. The comparable property value numbers—the ‘comps’—make the market fairly well ‘regularized.’ They make greatly underpriced offerings rare.
Asking yourself what’s wrong here? is a shorthand way of reminding yourself to curb your enthusiasm as you exercise all the due diligence steps: verifying the condition of the property inside and out and spelling out title and lien issues and location, neighbor, neighborhood and historical matters. The curbed enthusiasm should last until those inquiries come up with the right answers…at which point, even the most jaded real estate investors tend to put the pedal to the metal. When everything begins to check out, they know a crowd will soon be forming!
What’s the First Question a Real Estate Investor Should Ask? Naples, Ft. Myers, Bonita Springs, Estero, Golden Gate Estates. It’s my job to help facilitate every phase of a good SW Florida real estate investment—from discovery and investigation through offer, negotiation and all the documentation steps. It’s what happens when the answer to, “What’s wrong with this picture?” turns out to be, “Absolutely nothing!” If you’re looking to buy an investment property in SW Florida this winter, call me today!
Who, What to Tip: Holiday Guidance for SW Florida Homeowners. Naples, Ft. Myers, Bonita Springs, Estero, Lehigh Acres. At holiday time, SW Florida homeowners can count on being flooded with decisions. For everything from the extent of front yard decorations to the menu decisions for family gatherings, more than anything, ‘tis the season for organization and planning. Homeowners have done their best to minimize the likelihood of travel-related scheduling emergencies—never mind the weird weather patterns that make that a coin-toss. They’ve either succeeded or failed in syncing their gift-shopping to take advantage of sales—although this year, 1-day sale announcements seem to be popping up and disappearing as fast as Whack-a-Moles. 2014’s calendar also reduced the number of days between Thanksgiving and Christmas, so there’s been less time to get everything done…
Given all that, SW Florida homeowners can scarcely be faulted if they haven’t given a lot of thought to holiday tip giving: who, how much…the usual conundrum. I thought I would do some current research and offer everyone some guidance, but I should warn you: I didn’t find much.
I thought the answer would lie with Dr. Wm. Michael Lynn, the tipping universe’s reigning academic expert. In case you never suspected there was such a field, you should know that Dr. Lynn is the Burton M. Sack Professor at Cornell University. Although, technically, Dr. Lynn’s professorship is in “Food & Beverage Management” (and before the holidays are over, some SW Florida homeowners may wish they’d paid more heed to their own personal beverage management), his most important work has been on the subject of tipping.
Unfortunately, when I delved into some of his thoughts so I could share them with SW Florida homeowners, what I found turned out to be a little more technical than expected. I’d hoped to find something like “hairdresser: cost of a session” or “babysitter: hourly rate x 4” — some cut-and-dried guidance like that. Instead, I found research papers on topics like the relationship of tips to waiters’ and waitresses’ shirt colors (wearing a black and white shirt gets better tips than red); whether religious people are poor tippers compared with less religious people (not really, unless the service is really bad); and how the desire for social approval motivates tipping of car guards in South Africa (I’m still not sure what a ‘car guard’ is).
Undoubtedly these insights are valid, but don’t provide SW Florida homeowners with much useful guidance. With time running out, I turned for help elsewhere, and did eventually emerge with some vague but welcome suggestions, mostly from Emily Post and the Chicago Tribune:
• Grade school teacher: holiday gift (something thoughtful; a nice card will do)
• Doctor, lawyer, accountant: skip entirely
• Newspaper deliverer: $15-$30 (remember, this comes from the Trib)
• Housekeeper/Cleaner: Up to amount of one week’s pay and/or small gift
• Gardeners, Trash collectors, all the rest: advice varies from $10-$50!
• Babysitter: One evening’s pay and a small gift from the child/ren
• Butler: pay close attention to reruns of Downtown Abbey
But finally there was truly useful advice offered by a psychologist in the Midwest. She pointed out that holiday gratuities are never mandatory; they’re appropriate when you find them to be so, and gift or cash, the size is what makes you (and the recipient) feel comfortable.
Who, What to Tip: Holiday Guidance for SW Florida Homeowners. Naples, Ft. Myers, Bonita Springs, Estero, Lehigh Acres. I like that advice…and what a great time of year for us to hear it! In the same spirit, I hope you and your family find in 2014 the warmest, most wonderful holiday season ever!
Okay, granted: a new family home won’t fit under the tree…
SW Florida Home Sales during the Holidays Happen for a Reason. Naples, Ft. Myers, Bonita Springs, Estero, Golden Gate, Lehigh Acres. This year, SW Florida TVs have been filled with commercials that mix Santa with new automobiles. If you believe the ads, a number of automakers apparently offer models that will fly like reindeer onto driveways for big boys and girls who are sufficiently nice. One do-gooder is portrayed stitching up Santa’s ripped tunic in an act of selfless un-naughtiness that earns him a new sedan on the big day.
I’m pleased to say we haven’t seen a National Association of REALTORS® commercial with Santa and elves flying a new home onto a surprised family’s driveway, but the idea is no more divorced from reality than Santa’s barnful of vintage Mercedes (it looks like he loves the red gull-wing best). If you’ve never thought about shopping for a home during the year-end holiday season, you might be surprised to consider that in some cases this is a very fortuitous time of year for home sales. Aside from the few who can actually give such a fantastic gift (it actually happens!), there are a couple of other reasons why holiday SW Florida home sales do take place:
First of all, nothing typifies the holiday spirit quite like the spirit of generosity—and at this time of year, there are some SW Florida home sellers who are predisposed to be more generous than usual. The possibility of their accepting lower offers doesn’t necessarily owe to holiday altruism decking their halls. Fewer visits and fewer offers are made over the holidays, while at the same time there are a number of circumstances that could materially benefit sellers who can close out the Old and usher in the New before calendar year’s end. In some cases, as Forbes points out, home sales may be a matter of the seller wanting to complete the transaction before year’s end for tax purposes—or simply to get the sale out-of-the-way.
When you buy in part determines how much you’ll pay, and the waning days of 2014 still offer historically low home loan interest rates. Whether home sales in SW Florida during the coming year will long be able to boast the same advantage is a matter of conjecture, but certainly this is one year when beneficial rates are in place. Last-minute year-end shoppers may reap a happier holiday if they’ve locked in the kind of rates currently available.
SW Florida Home Sales during the Holidays Happen for a Reason. Naples, Ft. Myers, Bonita Springs, Estero, Golden Gate, Lehigh Acres. Asking Santa for a new home may sound like a bit of an overreach, but for those who make this year’s holiday buying benefits work in their favor, it can be a most memorable season! And for the rest of us who will be leaving a chocolate chip cookie and milk by the fireplace…it couldn’t hurt, could it?
SW Florida Foreclosure Watchers Note Last Month’s Trend Change. Naples, Ft. Myers, Bonita Springs, Marco Island, Cape Coral. SW Florida foreclosure watchers keep their eyes trained on the local market filings, but also stay aware of the national trends as a signal of what might be coming down the pike. Across the U.S., by the end of November there were nearly 112,500 foreclosure filings, which amounts to one out of every 1,170 homes.
The company that keeps an eye on such things, real-estate data source RealtyTrac, just offered a bar chart showing historical trends, which highlighted something that would be lost in the raw numbers alone. It showed about 27 (it looked like 27; the bars were tiny) little bars hanging underneath the “0% foreclosure start” line, meaning months in which foreclosure starts had declined compared with the same month a year earlier. Twenty-seven months is more than two straight years of fewer foreclosure starts (including default notice filings, scheduled auctions and bank repossession). But the standout was one little line that stood bravely alone above the line—and it was for this November!
That doesn’t mean SW Florida foreclosure rates are now destined to explode, but it is the first reversal RealtyTrac has registered in years. For potential home bargain-hunters, it might be a heads-up to keep their powder dry—and perhaps a reasonable idea to once more go over some of the basics that veteran SW Florida foreclosure buyers generally agree upon:
Get pre-approved: For anyone who wouldn’t be ready with cash in hand, when foreclosed homes are in the cross-hairs, it’s really imperative to have advance bank approval. When a good SW Florida foreclosure value comes up, you need to be ready to act immediately. About 60% of foreclosed homes are financed—and pre-approval is the way to prevent a cash buyer from swooping in ahead of you.
Find a qualified real estate agent: A competent agent—one experienced in dealing with SW Florida foreclosures—does more than just put you ahead when it comes to the underlying values of homes in the area. Your agent can point out issues others may have overlooked with certain properties, help you navigate local procedures and red tape, aid with inspections, etc.
Focus on REO properties: SW Florida REO properties are foreclosed homes that have already gone through the foreclosure process completely, and are now owned by the lender. They are typically vacant, and are sometimes priced to sell since banks are incented to get them ‘off the books.’ It’s not universally the case, but REOs can be more straightforward to deal with than auctions, pending foreclosures, or short sales.
Check things out thoroughly: Foreclosed homes often are in need of repair. Since lenders sell them “as is,” prudent buyers know to identify any major faults before making a buying decision. Good foreclosure inspectors will have a generator and other equipment available so they can test all of a property’s major systems.
Check for liens: A foreclosed home can be burdened by pre-existing liens from utility companies, municipalities, and unpaid contractors. Knowing about them early helps estimate the total true value (and ensure they won’t cause your deal to fall apart).
SW Florida Foreclosure Watchers Note Last Month’s Trend Change. Naples, Ft. Myers, Bonita Springs, Marco Island, Cape Coral. Buying an SW Florida foreclosed home can offer immediate value and equity to those who are prepared to make sophisticated inquiries. I offer my clients the kind of experienced teamwork that makes that happen!
When (and When Not) to Tap Your SW Florida Home Equity. Naples, Ft. Myers, Cape Coral, Bonita Springs, Golden Gate. Your SW Florida home is your castle, sure—but it’s also a great deal more than that. In addition to being the place where you relax after work, spend time with family, and generally live your life, it’s also the most substantial investment most people ever make. Much of its prominence is due to the many advantages homeownership brings in the personal financial realm.
In addition to the ongoing tax savings its mortgage provides, it’s the home equity—the difference between market value and the amount owed—that’s such a valuable contribution. An SW Florida property’s equity adds considerable financial flexibility in the form of easily obtainable home equity loans.
That’s how your SW Florida home can be the enabler for financing key life events—important undertakings like college, home improvements, or major debt consolidation. It’s a mainstream activity, and one that’s growing in popularity. Credit reporting firm Equifax tells us that the number of home equity loans have increased by 16.1% over last year; home equity lines of credit, 21.4%.
But at the same time, it’s the ease with which home equity financing can be arranged that should be cause for caution. Before anyone takes advantage of this kind of financing, they should clearly consider what they are getting into, the better to decide when and when not to make use of it.
There are two forms of home equity credit—the home equity loan (HEL), and the home equity line of credit (HELOC). HELs are straightforward loans, created and retired when you take a one-time, lump-sum of cash, then pay it back, with interest, over time. HELOCs work more like credit card accounts. You are approved for a line of credit with a top limit, and you can spend as much as you want until you reach the limit. You may use it or not as you wish. In fact, with most HELOCs, you’re actually issued a credit card or checkbook to use as you see fit.
Deciding when home equity financing is appropriate is an individual decision, but a conventional rule of thumb is that it is usually best reserved for single events. One good use is for home improvements, since they actually add equity to the underlying collateral. Another is for debt consolidation when it has the effect of lowering monthly interest outlays.
When are SW Florida home equity loans not a good idea? For one, if you don’t need a lot of money, since opening a HEL or HELOC might involve closing costs and other fees, make sure it makes financial sense. And always look to the future. Since failing to make timely payments can actually force the sale of your home, any time you are less than certain your cash flow will support repayment, better look for other forms of financing. When (and When Not) to Tap Your SW Florida Home Equity. Naples, Ft. Myers, Cape Coral, Bonita Springs, Golden Gate. Your SW Florida home is a castle worth protecting; you want to be sure that you are the single voice to say if and when a move is in order.
And of course, whenever you are contemplating a major move, give me a call!
SW Florida Economy Boost Foreshadowed by Latest Confidence Rise. Naples, Ft. Myers, Captiva island, Golden Gate Estates, Isles of Capri. SW Florida’s economy, like all others, is largely dependent upon consumers doing what consumers are supposed to do: buy! Why they make their decision to behave or not is every bit as complicated as you would suppose. It’s the product of how their own careers are faring; how the greater economy (and the economy in SW Florida) are doing; even how the world economy is behaving—or seems likely to behave anytime soon.
In all of this, the hard facts about how the economy is actually doing are not just backward-looking, they’re also slow to arrive. Worse yet to those who think numbers should mean something definite, the numbers are frequently recalculated later. The latest ‘jobs’ numbers or the ‘housing starts’ numbers, when they are announced, are often accompanied by a statement that the previous quarters number has been “revised to” x. If you are a local business person who makes projections based on the best information available, that wouldn’t be the new number—it would be the previous, now revised number: very old information.
There is one way around this, though, and that’s fortunate. Everybody has the same reliability and timeliness problems, yet have to have some basis for making discretionary spending decisions. The usual solution is to rely upon measurements not of the actual economy’s activity now or in the past, but of what most people expect that activity to be in the future.
Yes, that kind of measurement is ‘soft’—opinion, rather than hard data. But if those expectations are widely publicized, they affect what actually comes to pass. If consumers are bullish on the future, well, that’s reassuring news! SW Florida businesses are encouraged to stock their shelves. People are more likely to list their SW Florida homes for sale. The local economy looks better and better! On the other hand, if consumers are depressed about the future, caution will prevail. Businesses will hold off on new hires and trim their inventories. You can’t be too careful, after all. To some degree, consumer expectations often become self-fulfilling prophesies.
That’s why December’s latest consumer confidence reports are the best news for the future of the economy we’ve heard for some time. Last week, Reuters ran the headline, “U.S. Consumer Sentiment at Eight-Year High”; the Business Insider, “Consumer Confidence Crushes Expectations.” Reuters attributed the burst of citizen optimism to “improved prospects for jobs and wages, and on lower gasoline prices…”
The University of Michigan co-sponsors the index upon which the numbers are based, which showed December’s reading of consumer sentiment at 93.8, “the highest reading since January 2007.” That was a full 4 points above the median that had been previously forecast by 70 economists. It was also 5 points higher than the final reading for November.
SW Florida Economy Boost Foreshadowed by Latest Confidence Rise. Naples, Ft. Myers, Captiva island, Golden Gate Estates, Isles of Capri. If the SW Florida economy perks up as anticipated, area real estate watchers should expect a noticeable uptick in activity—particularly if mortgage interest rates stay low, and inflation remains a non-factor (the same survey pegged consumer inflation expectations at 2.9%). If you are an SW Florida homeowner or prospective buyer with an equally upbeat outlook, it’s good reason to give me a call to discuss how your plans dovetail with a rebounding market!
What Single Standout Factor Makes a SW Florida Luxury Home? Naples, Ft. Myers, Bonita Springs, Estero, Sanibel Island. When you are selling your SW Florida luxury home, you are marketing to a narrow niche of the home-buying public. They’re high-end customers, certain to be very smart, business-savvy—and they will know their own mind. They will be hunting for value, of course, because the asking price warrants it. But they will also be looking for a property that has elements that are unique—that appeal to buyers who hope to find a residence not duplicated elsewhere.
Because of that characteristic of the market, there can be no one-size-fits-all, cookie-cutter approach that will be uniformly effective as a sales approach. There are, however, a few hallmarks that the most successful REALTORs® have discovered are shared by the most appealing luxury homes. They boil down to value, exclusivity…and to story-telling.
The exposure element is the more straightforward. It used to be that the only important element was to be had in print media: magazine, newspaper, brochure and flyer. Still important, today the much wider reach is had through internet and social media. Like all SW Florida real estate prospects, buyers interested in the current crop of luxury homes are most likely to investigate using at least some online research before scheduling an in-person visit. And what they experience on the web will be influential in how eager they will be to make time for that visit.
It goes without saying that for every SW Florida luxury home web presentation, the quality of the imagery has to be first-rate—Professional real estate photographers do more than highlight key room features shot from eye-pleasing angles. The best know how to paint with light—to shape viewer experience by selecting the time of day and color of light and shadow that will convey mood. Sometimes a true online video tour, complete with well-produced music and narration tracks, can also be the most effective tool—as long as the online viewing experience is brief, intuitive and easy to navigate. But no matter which medium and format is pressed into service, the goal is always to create a viewer experience that is unique and memorable.
And it should have a story.
That ‘story’ could be anything from an interesting history to a setting or view that is, literally, unique. It can be an overpowering constellation of luxury home features, or a history of owners that includes prominent community or cultural luminaries. It can be standout architectural innovations, landscaping worthy of a Homes and Gardens centerfold, or a layout that just happens to be perfectly well-matched to a particular client’s family—any and all can qualify. The single indispensable part of the mix is that the property’s unique character comprises a story worth retelling. It’s human nature, after all every SW Florida luxury home buyer, whether they realize it or not, would like to be able to tell friends and colleagues about their new luxury home!
What Single Standout Factor Makes a SW Florida Luxury Home? Naples, Ft. Myers, Bonita Springs, Estero, Sanibel Island. If you have an SW Florida home with its own luxury story waiting to be told—or if you’re in the hunt for one—I hope you will give me a call!
Reverse Mortgage Rule of Thumb—Look before You Leap! Naples, Ft. Myers, Golden Gate, Estero, Lehigh Acres. You’re at home in SW Florida, watching TV and trying to unwind, when all of a sudden here comes another baby boomer celebrity, looking into the camera, giving you his most sincere, trustworthy look, then assuring you that a “Reverse Mortgage” really isn’t too good to be true (even though it sounds like it is).
What could be better? Any SW Florida homeowner 62 or older can apply: then the bank pays you instead of the other way around! You could even use part of the tax-free proceeds to pay off the other mortgage! Or go to Monte Carlo and break the bank! (The trustworthy celebrity only hints at that one). You don’t have to pay back the loan until blah blah blah, the property remains yours, etc. etc. etc. What could go wrong?
Short answer: quite a lot, actually.
Long answer: if you don’t plan for the long term consequences, this can be a potentially disastrous maneuver. As a quick and painless way to raise cash, it often is too good to be true.
For openers, the actual name of this loan is not ‘reverse mortgage’— it’s an HECM, Home Equity Conversion Mortgage—a much more descriptive name. It allows 62+-year-olds to ‘cash out’ the equity they’ve built in their SW Florida home. Not all of the equity; just some. As soon as they no longer live in the home, the loan must be repaid in full. The problems are all in the details.
Detail 1: Payback
Suppose a husband and wife live in an SW Florida house owned by the husband. He applies for reverse mortgage, dies 11 years later, leaving the house to his wife. Because the reverse mortgage becomes payable when the mortgagee (the husband) “leaves” the property, the loan becomes due and payable. So the spouse may be forced to sell the home in order to repay the loan. But it’s also possible that the same thing occurs when the mortgagee is permanently relocated to a nursing home.
Detail 2 (and it’s one you really have to take into account): Interest
Most often, no payments are made on reverse mortgages. Unless the trip to Monte Carlo ended well, it’s likely that the balance owed remains. However, interest accrues on the loan at the “prevailing rate”—which may be a misnomer, because reverse mortgage interest rates are often high. Over the long run, the amount owed could eat up most of the value of the house. The spouse could be left with very little to live on.
While the fees charged for a reverse mortgage are capped by the government, they’re still much higher than those for traditional loans (possibly why the trustworthy boomer celebrity got involved in the first place). Because credit scores aren’t used to determine eligibility, higher fees are charged to help cover lender risk. Then there are requirements for keeping up the property (what if illness causes a temporary lack of attention?), paying taxes on time…and other circumstances that could cause the loan to be called in, forcing sale of the home.
Reverse Mortgage Rule of Thumb—Look before You Leap! Naples, Ft. Myers, Golden Gate, Estero, Lehigh Acres. Yes, a reverse mortgage can be a valuable resource for some SW Florida retirees on limited incomes. However, before even thinking about committing, it’s vital to sit down with a trusted financial adviser. If it turns out that selling or downsizing makes a lot more sense, calling me is the next step!