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Take advantage of your home when you retire

Tu casa puede ser solo el lugar donde vives o una herramienta para generar ingresos que te ayuden a complementar la pensión pública.

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Did you know that your home can help you have a better retirement? Your home could simply be the place where you live or it could be a tool to generate income that helps you supplement your state pension.

The key to achieving this is to stop seeing your home as a place full of memories, which it also is, and see it as a financial asset. That will help you figure out how to monetize your home when you retire. In other words, use it as another resource so that you can have the retirement you dream of.

These are 4 ways to do this:

Change your house for the one you really need

In Spain it is common to buy a house for the family and then live in it all your life, something that is very rare in other countries like the United States. The reason for this is simple: The house you need for a family of four is not the same as the one that is most suitable for you when you are retired with your partner.

Even with grandchildren in mind, your three- or four-bedroom house may have become too big, and that brings nothing but inconvenience:

  • More cleaning and maintenance work.

  • More space to store your children’s things and be the junk room for their youth.

  • More money spent on renovation and taxes.

The solution? Adapt where you live to your new needs. There are several ways to do this, each with its pros and cons:

Rent your house out and go live in a rental

The first option is to rent out that three-bedroom house and move into a two-bedroom home. This alternative allows you to change neighborhoods or even cities, if you want to retire near the sea, for example.

The key to the change is that the rent you charge is higher than that which you pay. Typically this is because you are renting out a larger home than the one you will be living in. This provides additional income during your retirement and you will have less home maintenance work to do.

Sell your house

The second alternative is a little more extreme, depending on how you look at it. It consists of making money with your house and, from that point you can decide what to do.

You could buy another home wherever you want, rent a property, buy one house in your town and another at the beach or even buy a couple of homes to rent out and generate income.

There are endless possibilities with this option. The only thing you need to do is to make sure that you solve the question of where you are going to live and that the process generates a profit. In other words, you don’t spend all the money from the sale.

Rent out rooms in your house

An intermediate solution between the previous two is to rent out the empty rooms in your house.

This option can help you earn money and keep your mind sharp if you choose your tenants well. You could, for example, rent the rooms to students, or even foreign students, which will help you stay younger and more open-minded.

In fact, since you are already thinking of renting out the house, you could also do it when you are not using it in summer or winter, if you are one of those who prefer to spend time on the coast. You could even rent it out for events or filming.

Reverse mortgage

This is a solution that lets you monetize your home without having to abandon it. A reverse mortgage is like a traditional mortgage, but in reverse. It is a loan with a mortgage guarantee through which a bank gives you money for your house under special conditions.

And what are these conditions?

  • You can continue using the house because it is, in fact, yours. There is no transfer of ownership.

  • It is a loan that does not generate fees. In other words, you will not have any monthly payments to repay the loan. However, that doesn’t mean you don’t have to give the money back.

  • With a reverse mortgage, the loan money plus interest is paid at the end, when the owner dies. In fact, it is most often the heirs who must choose between repaying the loan to keep the house or selling it to pay off the debt.

Most reverse mortgages leave enough room so that the heirs have options when it is time to pay the money back.

From a retirement point of view, it is a way in which the house can help you to have a better retirement without losing the ownership of it and still being able to use it for whatever you want.

One of the winners of the fourth edition of the Fundación MAPFRE Awards specializes in this area and in the following two formulas that you are about to see. We are talking about

Sell the bare ownership of the house

This solution is similar to the previous one, only in this case we are talking about equity dilution. In other words, your assets will decrease because you are selling part of them. When you die, the house will belong to the buyer in its entirety.

The sale of bare ownership involves selling the ownership of the home and retaining the usufruct right to use it, normally for life. For practical purposes this means that the house will not be yours, but that you will be able to use it as you wish until you die.

For example, you could rent your home out, if you wanted to. What you can’t do is sell it, because the property belongs to the person you have already sold it to.

The sale of bare property has two disadvantages:

  • You do not maintain the ownership of the home, only its use. This means that your relatives will not inherit the house.

  • You have to pay taxes on your capital gains (with a reverse mortgage you wouldn’t have to do this). In most cases, this disadvantage would not apply, since people over 65 years of age do not have to pay capital gains tax as a result of the transfer of ownership of their primary residence.

Reverse housing

This option consists of selling the full ownership of the house (bare ownership plus usufruct) and signing a life lease so that you can continue living in it. This way you get immediate money for the house and, depending on the type of contract, a supplement for your pension.

You can set a price according to the market value of the rental or a lower price. Of course, in the latter case you will also normally receive less money for the house.

Finally, it is worth remembering that it is always possible to sell the house and take out an annuity with the capital obtained, but in this case you would have to solve the problem of where to live afterwards. By using the above options, you can take advantage of your home as the asset that it is to help you improve your retirement.