Unlocking value of a house you won’t be using makes sense

By April 13, 2019 Retirement & Work

Here is some sage advice from an experienced financial planner. If there is an asset of decent value that you won’t be using or needing going forward, it may be better to dispose it off and use the proceeds in a way that best suits you and yours, all in your lifetime. Look at the good reasons she provides for making that move in the article below. Team RetyrSmart

Unlocking value of a house you won’t be using makes sense

Shanti looked at the basket of mangoes. Every year, for 65 years, these summer goodies had brought joy. But this year was the last. She had just signed the sale deed for her house. Memories of walking into the yard as a bride lingered. It was here the children were born and brought up, before they left for cities to study and work. They visited with the grandchildren sometimes. Shanti knew they would not live here. Their lives were in faraway lands that had become their own, where they were making their own memories.

It was not easy for Shanti to sell the house. The neighbours told her how new developments will enhance the price of her property. The broker told her that if she waited longer she would get a better price. The tenants told her that if she spends a few lakhs to modernise the house, she could charge higher rent. All lures that hold an owner back.

Shanti wanted to focus on what was important to her. She received a widow’s pension that was adequate for her simple needs. She lived with her son and enjoyed a cordial relationship with her daughter-in-law. She did not need the house because neither she nor her children lived there anymore. She only made the annual trip for the mangoes.

The decision to sell was based on the fact that the house was no longer being used by the family. There was no likelihood of anyone using it in future either. The asset had served its purpose. It was no longer needed in its current form, and emotions and sentiments should not cloud that fact. She told me that it was tough for a nomad like me to imagine what it was like to live in the same place for 45 years. But that bond had now truly ended.

The sale required effort. It took her over five years to complete it. She was too old to travel to the village frequently to negotiate with potential buyers. Her sons made those trips by turn, despite their full time jobs. The distance and the lack of air connectivity made the logistics difficult. Not every buyer was willing to finalise without meeting the owners. Some deals fell through just as they seemed ripe. Shanti tells me that when it comes to property, it is the buyer’s market. The seller is at their mercy and has limited bargaining powers as they have fewer choices compared to the buyers who can change their minds on a whim.

Shanti insisted she would only accept cheque payment and the deal would be above board in all respects. She was fine with paying the capital gain taxes as required. The broker told her she was naïve. Despite all the recent noise about driving cash out, the devil haunted the system, especially in the property market. Most buyers were investors, who had the money to buy, hold, turnaround and sell the property. They wanted to deal in cash and pay lower stamp duties. Other buyers had to do the paperwork of applying for and getting loans, or selling something else to fund this. All these activities took time.

Shanti decided she will distribute the sale proceeds among her three children. Her children asked her if she wanted to keep the money invested during her time. It could be bequeathed later. She told them she wanted to make it simpler for everyone. She wrote out cheques, dividing the money equally among her three children. What her husband bought for a few thousand in the 1950s was sold for many lakhs, and she felt a great sense of accomplishment passing that money on. The family went to the village to celebrate the deal and enjoy the mangoes from the garden. What were the personal finance lessons in Shanti’s story?

First, recognise assets you do not use and realise their value. The money locked into them can be put to many other uses in more efficient ways. Shanti’s house will now fund higher education, entrepreneurial ventures, house expansion and modernisation, jewellery for the family wedding, long-term saving for grandchildren and so on. Several uses are funded by unlocking the value of one property. Don’t glorify idle assets.

Second, complete difficult tasks that involve paperwork in your life time. Leaving a house behind in a remote village is not a great bequest. Your children won’t have the time and energy to chase buyers and complete a deal. Everyone lives on with mental comfort of a property lying somewhere, without doing anything about it. Make it easy for your heirs.

Third, bequest need not mean writing a will. If Shanti had willed her property to the children, they would have to go through a very long process before accessing the money. In eight out of 10 cases, family relationships are cordial. Children are not preying on elderly parents to rip off money and orphan them. Except for those sad exceptions where worth is determined by wealth, most bequests can be completed in one’s life time, especially when one is 85 years old like Shanti.

Fourth, wealth transfers are easy and efficient if they are financial assets. Shanti’s cheques to her children are gifts that are not taxable in the hands of her children, available to use freely. If she gifted the property, the deeds would have had to be registered and duties paid. A single property is not divisible easily among three children. Don’t overdo property in your wealth portfolio.

Fifth, greed for money can bring out the ugly side of humans. In our society, we still cherish values such as being deferential to the elders in the family, not bringing up unpleasant arguments in a family gathering and so on. Distribution by the elder, when they are alive, holds a great merit in sweeping possible unpleasantness about money matters under the carpet. Then everyone moves on and accepts the distribution as the right of the elder.

Shanti leads a simple life, but her wise decisions about her wealth hold precious lessons for us.

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