How to make money at home for extra income


Financial planner Milo Benningfield says he had a client who did the unthinkable by renting a room in his San Francisco home.

An additional $15,000 to $20,000 a year in income and part-time work have allowed women to avoid withdrawing money from their retirement savings, Benningfield says. And she loved being with her boarders.

“The house became a more utilitarian asset for her,” says San Francisco-based Benningfield.

Homes are the biggest financial asset for millions of retirees and vacant homes, many mismanaged, experts say of Baron. Some people live in homes that are too big and too expensive for their current lifestyle, and can increase their disposable income by moving to another area where taxes and housing costs are lower, or by moving to a smaller house nearby. can be increased significantly.

Even those who don’t want to move or downsize can take steps to make their home a more practical asset. Renting a room isn’t the only way. They can rent the whole house when they go on vacation. Alternatively, you can take advantage of a reverse mortgage to acquire a stake in your home without selling it.

Ads – scroll to continue

“For many people, a home is a financial waste,” says Lawrence Kotlikoff, an economics professor at Boston University. “It’s not just about having too many bedrooms. But you might be away from home most of the time because you’re at work, visiting the kids, or on vacation.

Here are some tips for freeing up money trapped at home.

move to a cheaper area

If you live in an expensive area like the Northeast or West Coast, moving to a cheaper area can save you a lot of money.

Ads – scroll to continue

Kotlikoff, who also sells financial planning software, did a hypothetical calculation for a couple living in a $1.5 million house in Connecticut with $30,000 annual property taxes. He assumed the couple’s retirement account had his $2 million and social security income he had $5,000 a month.

Moving to a $500,000 home in Tennessee with no state income tax and $3,000 annual property tax increases their disposable income by $61,000 annually. That’s nearly double what you’ll spend after taxes, housing, future Medicare premiums, and other important expenses.

You don’t have to travel far to get big profits. Kotlikoff made another hypothetical calculation for a single woman living in her $500,000 house in Nebraska. He assumes that the woman has $750,000 in her retirement account and that she receives $1,750 a month from Social Security. Moving into her tiny $250,000 home in Omaha allowed her to increase her discretionary income from $11,000 to her $42,000.

Ads – scroll to continue

“This is all safe money. This is not earned by investing in the market.”

Or moving can be painful, especially if you grew up in the area or have lived there for a long time. Financial in Frederick, Md. Greg Will, his planner and CPA, agrees that moving can make a big difference to people’s financial lives, but they still need money for a comfortable retirement. We recommend moving only if

“It’s not about dying with the money left over,” he says. “It’s about using the assets you have to enjoy life while not running out of money for the rest of your life.”

become a landlord

If you own a home that is too big for you to move, another solution is renting. It’s a way of miniaturizing and staying in place.

In the past, renting out a home for short periods was often difficult and has become much easier

Ads – scroll to continue

Airbnb and its siblings.

Another option is to rent part of the house permanently. This is especially meaningful for widows or widowers who may benefit from having young people stay at home. Some organizations like Nesterly help connect seniors and college students. Students who occasionally help with household chores can obtain relatively cheap housing. The owner gets an income and sometimes a little company.

According to H&R Block, if you become an Airbnb host or similar, you may be subject to rental housing income tax rules.

The rules can get a little complicated, but generally any money you receive from renting a property must be reported on Form 1040 along with all other income.

borrow against your equity

According to the National Reverse Lenders Association, an industry group, seniors own about $11.8 trillion in home equity after a long period of rising home prices. Many of these seniors have inadequate retirement savings, and Reverse Her Mortgage allows them to continue living in the same home while leveraging their assets.

Ads – scroll to continue

“Millions of seniors are retiring without pensions or other savings beyond Social Security,” said Steve Irwin, president of the association.

A reserve mortgage can also be used to mitigate a series of earnings risks in a retirement portfolio. Sequence risk occurs when the stock market crashes early in retirement, forcing retirees to sell tattered stocks to cover their living expenses. When the market recovers, that stock is gone, and your portfolio could be permanently hit, impacting your retirement.

“Reverse mortgages are just a way to generate liquidity, so you can use your home equity the same way you would use your investment portfolio.” retirement planning guidebook.

One remedy for return-of-return risk is to finance a reverse mortgage when stock prices are plummeting. This will give you time to bounce back before selling the stock. A study was conducted on this subject, concluding that retirees can safely withdraw 6% or 7% annually from their portfolios during market downturns, as long as they reverse mortgage instead of selling stocks.

Another way to protect against sequence risk is to use a reverse mortgage to permanently reduce the distribution rate from your investment portfolio, says Pfau. Suppose he has a $1 million retirement portfolio and he has a $1 million paid off home. Instead of receiving $40,000 a year from her portfolio, she receives $20,000 a year from her portfolio and the rest of her $20,000 from her reverse mortgage. Your portfolio should now be able to weather almost any market crisis, says Pfau.

One caveat about reverse mortgages: they aren’t cheap. By Irwin’s calculations, Reverse would have to pay about $32,000 in initiation fees, mortgage fees, and mortgage insurance to get his mortgage on a $1 million home. (These fees can be carried forward to the loan.)

Home Equity Credit Lines or Heloc have more minimal fees. The downside of home equity lines of credit is that banks can freeze or reduce them in certain circumstances. By contrast, the most popular reverse mortgage, the federally insured Home Equity Conversion Mortgage (HECM), insures the borrower for the rest of their life. Reverse mortgages are structured so that untapped borrowing capacity increases each year, even if the housing market falls.

For various reasons, including high fees, reverse mortgages have never really taken off. What’s more, people who have paid off their mortgage hate going into debt again. Last year, only 60,000 were issued. Mark Warshawsky, now at the American Enterprise Institute, conducted a study in 2017 and found that 14% of seniors could benefit from a reverse mortgage.

Write to Neal Templin at

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *