FAR expert urges consideration of the home when planning for retirement

Key Takeaways:

– Many people overlook the value of their home when creating retirement plans
– Comparing the potential ROI of home ownership to a 401(k) investment highlights the investment potential of a home purchase
– The home should be treated as both an investment asset and a necessary expenditure
– Homes and 401(k) accounts are both long-term investments with systematic contribution options
– Financial advisers should consider holding a home to the same performance standards as a 401(k)
– Both homes and 401(k) accounts offer tax benefits
– Home equity can serve as a source of cash flow through a reverse mortgage
– Selling a home to access equity can come with costs and emotional tolls
– Steve Resch emphasizes the importance of financial planners as referral partners in the reverse mortgage industry.

HousingWire:

When creating retirement plans, people often consider their investments and other financial assets when determining the future course to take, but they rarely consider what is often their most valuable asset: their home.

This is according to Steve Resch, vice president of retirement strategies at Finance of America Reverse (FAR), in a new column published by The Street.

“[C]omparing the potential for return on investment (ROI) on home ownership to a surprisingly similar and well-accepted investment vehicle, the 401(k), illuminates the less-explored investment potential inherent in a home purchase,” Resch said.

While costs associated with homeownership tend to dwarf expenses that are often associated with other kinds of investments, the necessity for having a roof over one’s head also makes the home a more invaluable asset that should be maintained, Resch explained. This requires the separation of the home’s value from its cost, and treating it as both “an investment asset as well as a necessary expenditure makes sense,” he said.

Steve Resch

There are also some notable similarities between the home as an asset and a 401(k) retirement account, he explained. Both assets “are long-term investments,” and while “an individual may work for multiple employers or purchase several homes throughout their lifetimes, they will likely pay into each investment for 30 years or more.”

They also both have “systematic contribution options,” including payroll deductions for a 401(k) account and monthly mortgage payments for a home.

Financial advisers would be wise to consider these similarities, and “holding a home to the same performance standards normally applied to a 401k can help illuminate why looking at a home as an investment not only makes sense, but offers an opportunity that would be foolish for any financial advisor to overlook,” Resch said.

Homes and 401(k) accounts alike also offer their own tax benefits, and while a 401(k) is designed to serve as an instrument to generate cash flow, home equity could also serve such a purpose if an eligible homeowner considered a reverse mortgage, he explained.

“The standard protocol for accessing equity has been to sell the property,” Resch said. “However, while selling a home does offer access to cash, it also could exact multiple tolls on the seller, including the costs and emotional impact of the sale and moving.”

Resch has explained in the past why reverse mortgages can be used as retirement planning tools. He has also advocated for the industry to develop firmer ties with financial planners as referral partners.

“I was a referral partner for many, many years,” Resch explained during a 2022 virtual event hosted by HousingWire. “I gave my loan professional probably three to four reverse mortgages every single year, for many years.

“As financial advisers, we trust our referral partners, our trust attorneys, our CPAs and our loan originators. Once you have that relationship, I’m not going to shop for anyone else because I trust you. So, referral partners are very, very important.”

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Property Chomp’s Take:

In today’s world, retirement planning often revolves around investments and financial assets. However, one often overlooked asset that holds significant value is our homes. Steve Resch, the vice president of retirement strategies at Finance of America Reverse, highlights the importance of considering our homes as a valuable asset when planning for retirement.

Resch compares the potential return on investment (ROI) of homeownership to that of a 401(k) retirement account. By doing so, he sheds light on the untapped investment potential inherent in owning a home. While the costs associated with homeownership may seem significant compared to other investments, the necessity of having a roof over our heads makes our homes an invaluable asset that should not be neglected.

To fully appreciate the value of our homes, Resch suggests separating the home’s value from its cost. By treating it as both an investment asset and a necessary expenditure, we can make more informed decisions about our financial future. Additionally, there are notable similarities between our homes and 401(k) accounts. Both are long-term investments that require consistent contributions over many years.

Financial advisors should take note of these similarities and consider holding homes to the same performance standards as 401(k) accounts. Viewing homes as investments opens up opportunities that should not be overlooked. Furthermore, homes and 401(k) accounts offer their own tax benefits, and homeowners can even tap into their home equity through a reverse mortgage to generate cash flow during retirement.

Traditionally, accessing equity meant selling the property. However, this process comes with its own costs and emotional tolls. Resch advocates for considering reverse mortgages as retirement planning tools, as they provide an alternative way to access home equity without the need to sell the property.

Resch believes that the reverse mortgage industry should develop stronger ties with financial planners as referral partners. As a former referral partner himself, he understands the value of trust and long-term relationships in the financial industry. Once trust is established, there is no need to shop around for other options.

In conclusion, our homes are often our most valuable asset, and they should not be overlooked when planning for retirement. By considering the investment potential of homeownership and exploring options like reverse mortgages, we can make the most of this asset and secure a comfortable retirement. Financial advisors play a crucial role in guiding individuals towards incorporating their homes into their retirement plans, ensuring a well-rounded and comprehensive approach to financial security.

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