Real Estate News
Stock declines hit senior hard
Be careful using HELOC to fund retirement living
By Ilyce Glink
11/4/2008 8:00:00 AM
Q: My 84-year-old father (who is not in great health) bought into a senior living community several weeks ago, just before the market crash. He must pay the balance of what he owes, about $200,000 dollars, by the end of his first month, which is within the week.
He has all of his investments and IRA in the stock market. They were worth about $1 million, but they're now worth 40 percent less. He also has a condo in Florida that is on the market for $90,000, but is not likely to sell anytime soon.
He is reluctant to draw from his portfolio now, at its lowest ever, but needs to come up with this cash.
I have asked him if he thinks it's a good idea for me to use my existing home equity line to help with the buy into the senior living community, to bide some time to hopefully wait for the market to recover. I have a $100,000 line of credit that I would probably draw about $50,000 on for his purchase. He would then pay down my line of credit monthly. Is this a bad idea?
A: It's a generous offer, but before you tap into your existing home equity line of credit, I think your father should go back to the senior living community and ask them if they can give him more time to come up with the balance of what he owes. Surely, he will not be the only retiree who has watched his net worth decrease by 40 percent. Liquidating his investments this week probably wouldn't be a great idea.
He should see if the senior living community can be more flexible and create payment terms that work better for him.
If the senior living community cannot be flexible, then he should tap whatever resources he has. If you can draw down $50,000 or more on your HELOC, that would help. But it would also put your credit in danger if your father doesn't pay this bill on time each month and you can't afford to make the payments.
As long as your father can afford the payments and is willing to make them than that would be fine.
He will need to adjust his will, however, so that if the debt is not repaid before he dies, his estate will pay off your HELOC as part of the bills that are owed before funds are distributed to his heirs. You should talk to him about how to document this loan so that it makes sense to his future executor and his other heirs.
Q: We are going to purchase four acres plus a double-wide mobile home in a rural area of Louisiana. This is a second home for retirement near family. I live out of state now. I intend to sell the mobile home down the line and build a home on the property.
My family knows and trusts the couple selling the property. It's an elderly couple who has lived there for years, who are moving to be near their children in Texas. We've verbally agreed on the price and I will get a loan to pay for the property. Is it necessary for me to have an attorney present at the closing? I won't be able to be there myself.
A: If this were me, I'd hire an attorney to represent my interests, draw up the legal documents, and make sure that the money flows properly at the closing. This isn't about the people who are selling you the property. I'm sure they're perfectly lovely folks. It's about making sure that there are no mistakes, especially since you can't be there yourself.
It won't cost that much to hire an attorney, but if you find a good one, he or she should certainly be well worth the money to make sure it all goes accordingly.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.