A new strategy to secure liquidity in your golf community home
If you’re like many people who have transitioned to Florida, you may have purchased a home with a view of a beautifully manicured golf course. Why not? You love to golf and plan to hit the links as much as possible while enjoying the Sunshine State.
However as the younger Baby Boomer and Generation X begin to migrate south, they do not appreciate the game of golf as much as older generations. Many members of these generations are opting to purchase homes in communities that do not have a golf course. In addition, many luxury housing developments with a focus on golf home values have plateaued and even have begun to lose value.
Recently, I had a conversation with a client who was contemplating purchasing a home in a high-end golf community in Naples. In our discussion, I asked him to describe the demographic that will likely buy his home from him 15-20 years from now when he wants to sell. He replied likely a member from Generation X or an older Millennial. I then asked him if majority of members of these generations are non-golfer, what will happen to the value of his property?
Golf is Falling Off in Naples
And this trend isn’t an isolated one. Golf courses right here in Naples, Florida, are floundering with fewer people out on the green each month. Naples Daily News columnist, Brent Batten reported on this phenomenon in January 2016:
Brothers Robert and Mario Vocisano, who purchased the Golden Gate Country Club in 1972, have put in an application to convert the course into a housing development. The brothers say ‘the nature of golf is changing’. The change amounts to a waning interest in the game. Officials in and around Naples say that this rezoning application is just one of many they expect to see in the next few years.
“The thing is, golf is falling off. Young people aren’t taking to it,” Robert Vocisano said. “To spend four hours hitting a ball around is just not their thing.”
And while it’s millennials who show the biggest lack of interest in the game, even Gen-Xers and younger baby boomers have plans that don’t include golf for their retirement years. I certainly don’t plan on engaging in the “sport” of golf. Like many Gen-Xers, I plan to stay active with true sports like cycling, Crossfit, running, and swimming – and watching NASCAR on my sofa.
HECM Can Alleviate Property Value Risk
If you’ve already bought a home in a luxury golf community, you may already see housing values in your neighborhood declining. If not, you may likely to see a drop in your home value over the next 10 to 15 years.
Here is a strategy you might consider to ensure liquidity for your home in the future. Apply for a standby expanding home equity line of credit also known as a Home Equity Conversion Mortgage (HECM). The HECM is superior to a traditional Home Equity Line of Credit (HELOC) offered through traditional lending institutions (link article 1). The amount of credit available on a HECM grows at 6-7% annually; although, the borrower is unlikely ever to use it, they have peace of mind that they can access it at any time. The way the recent HECM rules are structured protects the borrower if the credit available is actually greater than the value of their home.
Bill and Karen purchased a home in a golf community for $500,000 and immediately applied for a HECM. Their initial line of credit available was $221,500 which will grow at 7.1% each year. They are not accessing this credit line but allowing it to expand in the event they need liquidity.
When they turn 75, they want to move out of the golf community to a Continued Care Retirement Community (link article 2). Unfortunately, the value of their golf community home fell to $400,000 due to the decline in interest in golfing; however, the credit line available on their HECM grew to $540,378. Instead of selling their home at a deep discount, Bill and Karen can take their credit line, tax free, and walk away from their home without lender recourse. Effectively the HECM operates like a liquidity insurance policy to a primary residence.
Hedge Against Declining Value of Golf Property
|Age||Home Value||HECM Line of Credit||Loan Balance|
What’s the catch, you might be thinking. How can they just walk away from their home and not have it affect their credit scores or harm their lending institution? The answer is the Housing of Urban Development (HUD) Insurance Fund. Those who access their line of credit during the term of the loan must pay a premium to the HUD Insurance Fund. In the event where the loan becomes greater than the value of the home, the HUD Insurance Fund makes the lender whole.
Enjoy your golf community lifestyle without worrying about property values
What more could you want? A HECM can help you hedge the negative consequences of a housing market decline while allowing you to continue to golf throughout your retirement. A HECM might be appropriate for a variety of different planning needs, but it is not right for everyone.
Here are some more posts from Rob on HECM’s
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For more information about how a reverse mortgage may benefit you as you plan for retirement, contact Rob about Coyle’s TransformingWealth Preview Meeting. Our process is not for everyone, and this complimentary consultation will help you determine if we should be your partner so you can live the Good Life Managed Well™.
At Coyle Financial Counsel, a fee-only firm, we utilize a team of experienced advisors to develop a comprehensive financial plan. Our proprietary approach, TransformingWealth™, is designed to get your arms around the big picture so you can make informed financial decisions with conviction.
Rob O’Dell, CFP®, serves clients in our Naples, FL office. With more than 20 years of personal financial planning experience, Rob knows that successful financial planning involves a distinct process, not a one-time event.
Rob has been featured in the Wall Street Journal, Financial Planning Magazine, The Daily Herald and Money Magazine. He was a contributing author on the Third Edition of the Florida Domicile Handbook. Learn more about Rob O’Dell.
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