Paid for Home

[LivingAlmostLarge]

My mom likes to keep telling me I own my home outright! I can do what I want. I keep trying to explain to her that a paid for home is good, but it still is tying up liquidity and costing more to maintain than a smaller home.

Why don't people understand this?

She only focuses on her "profit" from buying a house 30 years ago for $30k and selling it for $250k. Wow, I made a huge profit! She refuses to acknowledge what she paid to maintain, property taxes, etc.

My mom is horrible at personal finance. Simply awful. So is my dad. The amount of money they've wasted would make people on this board shudder. Thankfully they've always outearned their stupidity. So it's not so bad. They would be really well off if they hadn't done a lot of stupid financial mistakes.

But how to explain that it's not the amount you bought the home for and sold it for? What about interest? The fact other costs?

Have you found that people only understand I bought the house for X, and sold it for Y? Gee it was a great profit, but when actually calculated it wasn't? But they get angry when you point it out? Or show it's less than 3% a year?

I get a paid for home is nice, but I'm trying to get my mom to understand a paid for 5000 sq ft home is not necessary for 1 person. That living in a smaller paid for place will save her money. And that if she does it now, she doesn't have to rush in the future. But she keeps saying "it's paid for."

What arguments are there about downsizing and paid for homes? Maybe people should have mortgages so they are forced to rethink things....arrgh.

[Broken Arrow]

Uh, yeah, blissful ignorance is easier to live with than inconvenient truths.

My mom likes big houses too. I've mentioned the possibility of down-sizing as well, but she won't have it. Likes it too much. She's very frugal though, and knows enough about personal financing, so I'm not that worried about it.

But that's also when I realized that, sometimes, people don't want to do the financially correct thing to do. They like what they have, and nothing short of foreclosure will get them to change their minds.

I know that's not much of an answer, but I just try not to worry about it. You can make all the sense in the world, but that still doesn't mean they will listen....

[Seeker]

My mom likes to keep telling me I own my home outright! I can do what I want. I keep trying to explain to her that a paid for home is good, but it still is tying up liquidity and costing more to maintain than a smaller home.

Why don't people understand this?

Pretty much because they don't want to understand this.

Memories of you children growing up are probably tied into that home.

She only focuses on her "profit" from buying a house 30 years ago for $30k and selling it for $250k. Wow, I made a huge profit! She refuses to acknowledge what she paid to maintain, property taxes, etc.

house price + property tax + maintenance + repair - rent that would have been paid = real cost

IMO anyway. Over time we all pay, either rent or mortgage. If you stay over a long period of time, generally you do make money by owning.... but people are more mobile now. Jobs aren't always available nearby; and other realities force changing locations as well.

My mom is horrible at personal finance. Simply awful. So is my dad. The amount of money they've wasted would make people on this board shudder. Thankfully they've always outearned their stupidity. So it's not so bad. They would be really well off if they hadn't done a lot of stupid financial mistakes.

But how to explain that it's not the amount you bought the home for and sold it for? What about interest? The fact other costs?

Have you found that people only understand I bought the house for X, and sold it for Y? Gee it was a great profit, but when actually calculated it wasn't? But they get angry when you point it out? Or show it's less than 3% a year?

I get a paid for home is nice, but I'm trying to get my mom to understand a paid for 5000 sq ft home is not necessary for 1 person. That living in a smaller paid for place will save her money. And that if she does it now, she doesn't have to rush in the future. But she keeps saying "it's paid for."

What arguments are there about downsizing and paid for homes? Maybe people should have mortgages so they are forced to rethink things....arrgh.

RE: bolded part above:

If this is the real reason that she stays, then you can take another approach, if you have time....

Go out and explore smaller homes with her. Show her how nice and cozy and less work it'd be to maintain, clean, etc. Point out to her that she can sell her home and fully pay the house on this property as well.

It, too, can and would be fully paid off once the huge house is sold.

Help her into thinking about it as a possibility; don't just talk about it.

The greatest problem when I kept being told to go out an get a larger place, is that I just plain simply did not think there'd be anything worth my time in doing so. In 10-15 years, I'd be retired and without children, we'd not need a larger place for that small period of time.

Your Mom, is really not thinking that there's anything she'd like outside of what she already has. If there's nicer places out there, than show her. Go explore!

[wincrasher]

Alot of people still equate their social status with the size of their house, neighborhood, etc.. We are all conditioned to think this way. Its alot to overcome.

We've all dreamed of owning that "paid for" house. It's a huge accomplishment for most people. But it may not be a good move now. Liquidity is king right now. Also, with declining home values, you could be invested in a depreciating asset.

There is alot of peace of mind owning outright. There is the perception that nobody can "take it away" from you. The truth is, they can - it's an attachable asset by creditors. Don't pay your property taxes and find out.

So it's not really an easy decision. Especially for someone older who as always lived a certain way. I'd recommend that if you want your mom to downsize, that you look more for community than for house. There are lots of gated communities with activity centers, etc and lots of neighbors her own age. That could appeal to her more than the fact it may be smaller and easier to manage. Or, god forbid, an attached home!

[EEinNJ]

LAL, I think you're judging your parents choices about housing pretty harshly. A home is one of those basic human needs that doesn't necessarily correlate rationally to your idea of good personal finance. Perhaps what your mom is trying to communicate to you is that owning her home makes her feel more secure than money in the bank. If she's been there 30 years, she probably is quite comfortable there, not just with the house but with the community. The idea of moving just to save money probably doesn't seem worth it. That doesn't make her stupid.

Something to consider about getting and managing money- it's not an end in itself. What you do with it once you have it is important to think about, and for many people, their home is one of the most rewarding places to put their money.

[LuxLiving]

I just posted about this topic this morning over on the blogs.

Where you and your Mom differ LAL appears to be on use value vs. exchange value. These are not the same for everyone as EEinNJ pointed out.

Hotel de'Frugalis - It Costs How Much??: Lux Living Frugalis

Equate it to a pricey new coat vs. pricey new glasses. Numbers of uses on the glasses that you wear 18 hours per day makes cost per use very low. On the coat it would likely be just the opposite unless you lived/worked in an extremely cold climate.

Resale value on the glasses might be very low. While you might redeem more for a used coat. Thus the exchange value might not be all that high, while use value, in being able to see and not being cold, would conceivably make that the more important factor to consider.

Looks as if your parent is getting great use value out of her current living arrangements. If she can afford to stay? Let her enjoy it.

[LivingAlmostLarge]

Except the house is in such bad shape what started a huge fight was when my dad fell trippin on broken tile that they didn't bother to fix. Why bother living in a home if you don't take care of it?

It's flushing money down the toilet. They'd be better off renting for the past 30 years since they hate doing home repairs. That way when the roof falls in on their heads they can blame someone else instead of themselves.

I hate the fact that people assume a paid for home is owned free and clear, until somethin ghappens.

[Inkstain82]

People who count how "low" the profits are generally don't account for the rent they would have paid living elsewhere.

[PrincessPerky]

You can lead a horse to water.....

We can all agree with you if you like, but it wont change your mom.

Some folk who are 'set in their ways' are poor debaters, they can't quite explain why they do what they do, but they sure are not taking advice, nor changing their minds one iota.

Speaking of advice from children, you are the child who didn't even know how to use a potty once....Not all parents ever quite get over their kids being 'kids' and therefor automatically wrong.

Oh and if I had a chance to own my grandmothers home I would JUMP at it, yeah fine poor insulation, lousy heating, and huge rooms, but...it is Grandmas house! (My husband feels the same about his childhood home..in a crappy town) Smart? no, but neither is my daily chocolate break.

[LivingAlmostLarge]

Rent right now inkstain rent is running only $1k/month for the same kind of home. So it hasn't been expensive. It would have been very cheap to have rented.

After the day I had I need some serious chocolate.

[myrdale]

From what I gather from your post, your mother has a large house that is fully paid for, and you are suggesting that she should down grade to a smaller house.

If your parents are retired, and living on a fixed income, and having a difficult time making ends meet, down grading would be better. Lower expenses, less maintenance, etc. If they can afford the house though, I personally don't believe I would down grade specifically to free up money from the house.

I am confused over your mothers point of buying the house for $30k then selling for $250k. This is really a mute point, where is she living now? She had to put that money onto her current residence no?

I do agree with you over the fact of people not considering all the cost of a house, most of all not considering interest. My $100k house would cost me $250k in the 30 years it would take to pay off.

[PrincessPerky]

After the day I had I need some serious chocolate.

That is advice I can agree with! Put your feet up while you are at it!

[jIM_Ohio]

My mom likes to keep telling me I own my home outright! I can do what I want. I keep trying to explain to her that a paid for home is good, but it still is tying up liquidity and costing more to maintain than a smaller home.

Why don't people understand this?

She only focuses on her "profit" from buying a house 30 years ago for $30k and selling it for $250k. Wow, I made a huge profit! She refuses to acknowledge what she paid to maintain, property taxes, etc.

My mom is horrible at personal finance. Simply awful. So is my dad. The amount of money they've wasted would make people on this board shudder. Thankfully they've always outearned their stupidity. So it's not so bad. They would be really well off if they hadn't done a lot of stupid financial mistakes.

But how to explain that it's not the amount you bought the home for and sold it for? What about interest? The fact other costs?

Have you found that people only understand I bought the house for X, and sold it for Y? Gee it was a great profit, but when actually calculated it wasn't? But they get angry when you point it out? Or show it's less than 3% a year?

I get a paid for home is nice, but I'm trying to get my mom to understand a paid for 5000 sq ft home is not necessary for 1 person. That living in a smaller paid for place will save her money. And that if she does it now, she doesn't have to rush in the future. But she keeps saying "it's paid for."

What arguments are there about downsizing and paid for homes? Maybe people should have mortgages so they are forced to rethink things....arrgh.

There are lots of issues at play in the one post quoted above.

First, paying 30k 30 years ago for a house now worth 250k. What is inflation over same 30 year time period. That alone might wipe out 2/3 of the profit or more (in general a house keeps up with inflation, but does not exceed inflation).

Second, understanding "costs of ownership" which includes maintenance and interest paid on the mortgage. This would need to be compared while owning the house and paying down the mortgage.

Third- there needs to be a "spending plan" and "asset allocation" along with "net worth" discussion wrapped into one conversation which stays on point.

If you do each of the above as a separate issue (different conversation) you might get somewhere. More than likely first issue is a "moot point" relative to second or third issues, but on forums like this, that is where I would start.

Know what you need to sell (your mother's peace of mind) and try doing these backwards. #3 is the primary issue, you need to sell #3 with a peace of mind focus on her retirement spending.

So start with basics:
1) does she know her spending
2) does she know her net worth?
3) does she understand LIQUIDITY?
4) does she understand INFLATION?
5) the tough part will be explaining withdraw rates. For example I speak about spending with a cousin's retired step grandfather (follow that) he withdraws 8% which is "living on twice the edge" of my 4% plan which I read about all over (including the trinity study).

If 1-4 above all make sense, then discussing the trinity study (which shows withdraw rates and life spans) might help. Or discussing how much money your mother expects to have around when she dies might help. Or something along those lines...

[LivingAlmostLarge]

Excellent Jim, I'm printing your post out to talk about it with my mom.