Real Estate & Retirement

While we are in the earning phase, many of us tend to get carried away and end up buying properties & land in multiple places. However, managing properties across the country (and sometimes abroad) is not easy at all – along with a demanding career.

Manageability – While one moves towards retirement, one needs to evaluate the property portfolio carefully. Retirement is a time when one may want to enjoy the time one has pursuing various interests.

That would not be a time when one would want to handle calls regarding leakages in the flat, electrical problems, maintenance issues in the properties they own etc. But all these have to be contended with, if one has properties.

Along with this, one needs to deal with brokers, society, tenents for collecting rents etc. Why should one do that especially when residential rentals are as low as 3% of prevailing prices and what they get to retain is half of that? Even in case of commercial properties, many of the hassles remain and periods of non-occupancy will very much be there, though rental yields in good properties post all expenses and taxes can be 3-5%.

It does not make any sense at all – both in terms of the nuisance value of a property and the low rental yields that it offers.

Also, the current fancy is for very big properties. Many people who have just three people have 3-to-5-bedroom homes. While one is young, it may be somewhat easy to handle. But as one ages, maintaining such homes becomes difficult even with domestic staff, as one needs to be behind them to get work done. People get tired of walking inside such big homes that they start confining themselves to a couple of rooms. That means the whole property does not get used and a couple of rooms just remain closed & unused.

The other thing to consider is the maintenance bills, which can be quite high for big sized properties. We know properties where the outgoes can be between Rs.20-40,000 pm now. For very high-end properties, it can run into over a lakh of rupees every month. While maintenance expenses may have been easy to handle while one is working, it becomes a millstone around the neck after retirement.

Hence, due to the difficulties one may face in maintaining big properties and for monetary reasons, one needs to consider right sizing properties one stays in. The key operative word is that it should be manageable.

Moving to another place at retirement – Many people want to relocate to smaller towns or their own hometown.  Some people want to consider a retirement home as they do not want the hassle of maintaining a homestead after retirement.

When one has been living for a very long period in a big city, moving to a small town can prove to be a shock for some, though it may appear romantic on the face of it. This includes moving to one’s own hometown, for one’s liking might have changed significantly as compared when we lived earlier!

Moving to retirement homes is also a decision which one needs to approach with caution – especially buying a retirement home to live in before it is validated whether one will be happy there or not.

The best way to find out is to rent out a place in whichever place on likes to move and live -for a year. That way one gets to see all seasons, check out people, amenities, places etc. and would have a better sense of whether it will work or not.

We would suggest the same with retirement homes. One will know the pleasure and privations only when one does a stretch there!

Simple advice – If you want to move to another town or retirement home, rent out a place for one year and check out if it works. The decision will be self-evident at the end of the year!

Developing a property – Some people get all excited about developing an ancestral home they have inherited or a land parcel they own. They feel that they would have the time to do that in retirement.

Developing properties and selling them is not as easy as it is made out to be. In fact, it is one of the toughest. There can be a thousand impediments that can come in the way. Finally, the developed property may not get sold. Even very established builders find it tough to offload their inventory.

Even joint development with a builder is a proposition fraught with danger as one may find oneself in a no-win agreement. Even if the builder is good, the delays, uncertainties, money getting stuck are all real possibilities. Getting into such an enterprise is fool-hardy and a strict no-no for most people.

The best way out for most is to sell the property on an as-is-where-is basis or to develop and use it for self-consumption.

Streamlining property portfolios – Many people have multiple properties and parcels of land all over the place. Managing them is difficult, especially as one ages.

Hence, one needs to decide which property is needed and which others need to be disposed. This decision should ideally be taken nearer retirement or at least at retirement and action should be taken to this end.

The property retained should be based on well-reasoned thought rather than on notions that the property will appreciate in 3-5 years because a flyover will be built nearby, a metro line would pass through that area, a new arterial road is expected to come up etc. Most people count the chickens before they hatch and are disappointed later.

One needs to look at properties as investments and need to prune them and invest them in right assets based on liquidity & income needs, simplicity, ease of management of the portfolio and other considerations.

Many people do not find the time to dispose the properties they have due to their time constraints & career obligations. They could involve others who may be able to help by giving them a special power of attorney for disposing a property and handle all the relevant paperwork.

Sensible succession planning – The fundamental tenet in succession planning is that it should be easy for the intended beneficiary to receive the property and start enjoying the benefits. It is incumbent on the person passing on the legacy to make this process simple, easy and smooth.

The first thing in making the succession easy is to clearly earmark the assets for the intended beneficiaries.

The second major thing to consider is the simplicity & manageability of the portfolio.  The smaller the portfolio the better it is. The leaner the real estate portfolio, the lower the complexities.

With the busy lives that people lead, it will be very difficult for beneficiaries to go through the motions of transferring the property and maybe selling it when they get it. It is far more difficult if the beneficiaries are staying abroad.

An even better solution would be to liquidate the property and gift it to intended beneficiaries (say their children) earlier in their lives, when they may require that help. Of course, this will be contingent upon the fact that the properties sought to be liquidated and the amounts to be distributed are surplus assets/ funds.

There is a love affair with real estate, worldwide. But one needs to be sensible and should know what & how much to retain and what to dispose. This is even more true in retirement phase if one values peace and quiet during this time.