Shedding Extra Homes

One way to raise your living standard is to sell extra homes, assuming you are rich enough to own more than one home. Take Earnest Hammokway and his wife, Ilsa. Both are currently age 60 and make $100K each. Collectively, they have $150k in regular assets and $800K in retirement accounts. Their primary home is valued at 750K and their vacation home on the Two Hearted River in Newberry, Michigan is valued at 300K. They have 10 years left on the primary home’s mortgage and 15 years left on the vacation home’s.

Earnest and Ilsa want to retire in five years and are trying to decide whether to sell their primary home when they do and move into their vacation home, making it their new primary home.
We used ESPlanner to help the Hammokways understand how such a move will change their lifetime living standard.

We took 15 minutes to enter their data inputs. Then, with a click of the mouse, we generated a set of reports that include the annual recommendations shown in the first table. Consumption represents the amount of money the couple has available to spend after paying their off-the-top expenses, including housing and taxes.

The per-adult living standard is consumption scaled to reflect the assumption that two adults live as cheaply as 1.6. In this case, the Hammokways can achieve a living standard of $35,545 if they retain both homes and keep to their mortgage payoff schedule. However, if they sell their primary home and move into their vacation home, their living standard will rise to $51,049 as shown in the second table. That’s a 43.62 percent increase in the Hammokways’ annual living standard!

The housing report at right shows the couple’s annual housing expenses if they sell their primary home. In particular, the report shows, under Net Home Purchase, the proceeds from the sale of the primary home net of the mortgage payoff and net of an assumed 6 percent sales commission. The program incorporates user-specified real appreciation in house values and also calculates any capital gains taxes that are due on the sale of the primary home taking into account the available exemption on capital gains arising from the sale of primary homes.

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