Anthony and his wife found themselves in a Catch-22 when he was diagnosed with Parkinson’s disease. They needed to move into an assisted living facility, but had no cash to pay for the transition. They did have one important asset, though: the house value.
This is an increasingly common scenario. The average American over age 65 has about $800 in the bank, according to the U.S. Census Bureau. But while many seniors may be “cash poor,” that doesn’t mean they don’t have assets, it’s just that nearly 85% of their net worth is tied up in the house value, or equity. Of course, building that equity is an important factor in creating wealth, but tapping into it when you need the money quickly can be challenging, especially when there is little or no cash to help bridge the gap.
Cash poor but asset rich
This new reality underscores an important distinction between cash and assets.
Cash is very “liquid,” which means it can be accessed and spent immediately. Cash is typically the money kept in a bank account, hidden or stored in the house or safety deposit box. Another bonus of cash: You always know its value.
Assets, such as a house or an investment account, need to be converted to cash and are only worth what the market will bear at the time you need to sell them. More importantly, it usually takes quite a bit of time to turn assets into cash. To get the best price for an asset, you must clean it up, present it in its best light, and, ideally, sell it to the highest bidder or when the market is hot.
Investment accounts are a slightly more liquid asset, since it takes only a few days for the sale of stocks or bonds to clear. With a house or other real estate property, the process can take weeks or months. The more time it takes to make the sale, the less profit you will probably receive because you continue to pay taxes, insurance and other expenses while waiting.
Sell quickly for higher profits
So the key to funding a move or house cleanout is to find a way to convert that one big asset - the house value - into cash.
For example, when we met Anthony and his wife, they had been offered $475,000 for their house, and the sale was contingent on the house being completely cleaned out. Although Anthony’s wife hoped to be able to clean out the house herself, she realized that would easily take months, postponing the move while they still had to continue paying a mortgage, taxes and insurance.
Because the couple had equity in the house, we were able to finance a house cleanout with our crew that took only a few days. We sold the house shortly afterward, and the clients paid us only after the house was sold. Their house value meant they were able to finance their move with the proceeds from the house sale.
Find the hidden assets
Even when owners are able to move quickly to empty a house, as when family members are available to help, there is the risk of overlooking valuable assets. With cluttered or hoarded houses, families may go through the house to pick out a few personal items they want to keep or deem valuable, and then hire a trash company to come haul away the rest - overlooking potentially valuable documents.
For example, when Nina’s mother died suddenly, she thought all she had been left was a house full of junk. Still, she hired us to go through the property and create an asset summary report to find out just what was in there before we emptied it out. We uncovered valuable documents that Nina had no idea existed, including bank accounts and the deed to a farm that her mother owned in another state. All told we found more than $700,000 in assets Nina didn’t know about.
In both of these examples, emptying the house quickly and staging it to look its best commanded top price for the property. So never assume that you’ve been left with nothing but a house to clean out. It’s important to manage this transition carefully to ensure that you or your loved ones get the most value from this important asset.