Feb 17, 2009

Your House As a Piggy Bank

In my last entry, I discussed money and perspective. If we can agree that money isn't as important to a good life as having compelling interests, good health, and a rich family and friendship network, why not focus on improving the things that really count? And in a year where the world economy is in free-fall and obsessing about money is guaranteed to make us miserable, shouldn't this be doubly true?

Okay, even assuming you agree that striving for more money shouldn't be anyone's first life priority, I'm happy to concede that financial comfort is nevertheless something that most of us would love to achieve. Or as Sophie Tucker put it, "I've been rich and I've been poor: Rich is better."

So the question becomes: If you suddenly don't have enough money to comfortably support yourself, how do you get more?

For those of us who own houses, home is a good place to look. Though you may not choose to treat your house as a piggy bank in prosperous times, there are, nevertheless, a number of ways to shake cash out of this major asset. Here are the big ones:

  • Sell and move to a less expensive place. In a down real estate market, many people believe that this is a poor time to cash in equity. But that's not necessarily true, since any place you buy will have similarly dropped in value. And especially if you live in an area where real estate values have held up reasonably well and you plan to relocate to a place where the bottom has fallen out of the market, you have a huge opportunity to both change houses and top off your bank account.
  • Rent a room or two. I can already feel many readers saying, "No, no, a thousand times no!" Hold the hyperbole and think of it like this: The problem isn't having another person around (especially one who will pay), but the possibility that the person might be obnoxious, slovenly -- or even dangerous. But instead of imagining a parade of horrible renters, why not do the work to find someone you'll like? Fortunately, by taking advantage of the great filing cabinet that is the Internet, you can do a majority of the necessary research from your easy chair, only bestirring yourself to interview likely candidates. Or, put another way, if you would prefer a studious, religious female who goes to bed at 10:00 PM and hates hamsters, she's no more than a few clicks away. Plus, in many urban centers, there are even services available to match seniors with appropriate tenants.
  • Share with a relative. When times are tough, parents may no longer be able to afford pricey assisted living, siblings may need a place to roost after losing a job, and kids may benefit from a temporary trip back to the homestead. Fine, welcome them -- but, especially if you need money to help finance you current life or retirement plans, be sure to charge them. And don't feel guilty! As long as the rent is slightly below market rate -- and everyone commits themselves to some basic rules of sensible living -- everyone wins.
  • Get a reverse mortgage. If selling the family home and moving to a smaller place is unpalatable and you want to stay in your own house until the day you die, sharing it with no one, you may want to consider a "reverse mortgage". As discussed in more detail in my book Get a Life: You Don't Need a Million to Retire Well, the idea is simple: An older homeowner trades some or all of her equity in her house in exchange for a monthly payment from a bank or other lender. The payment can be in cash or in the form of a line of credit that can be drawn on as needed. After the homeowner's death (or if she voluntarily moves out), the house is sold and the lender repaid (plus interest, of course). Whatever is left over goes to the homeowner's inheritors. When first introduced two decades ago, reverse mortgages were largely a scam. But today they are more closely regulated and reliable. But as with any financial product, you'll want to do careful homework to make sure that you are purchasing a mortgage that truly fits your needs and you're paying a reasonable price. To get basic questions answered, check out the HUD and AARP websites.