Life Events – The Good and the Sad

Life Events 2

Effective Real Estate investing is about preparing for the next life event – WELL before it happens.  The common passages of time are marked by life events that help define the people we chose to become and the path we choose on our life journey.  Earlier this year I met with a friend who described to me that she was living a life that anyone would envy.  A happy marriage, financial stability, large cash balances in her savings accounts, million dollar real estate holdings for a retirement nest egg, a comfortable income from a good paying stable job with the city – she and her spouse were comfortable on every level.  At least – until it wasn’t.  In overnight fashion, the sudden passing of my friend’s spouse caused her world to turn upside down.  My friend, who held a good paying job used all of her income in which to live and pay monthly bills.  HOWEVER, all of the  couples real estate holdings were held in the name of an irrevocable trust.  For my friend, this was bad.  The irrevocable trust only named my friends spouse as the trustee and the spouses child (from a previous marriage) as the beneficiary.  My friend was not named in the trust anywhere!!! 

While my friend’s spouse was alive they were fine.  The income from the real estate was accessible for any purposes that they chose.  But a minute after her spouse passed away, NONE of the real estate money could be accessed by my friend.  To make matters worse, the spouse had large quantities of unpaid credit card balances and taxes.  Any cash the trust owned disappeared to pay off debt.  Once the cash was used, and ALL of it was used, my friend was now on the hook to help pay off these expenses.  Within 30 days my friend found herself broke.  Fifteen days later she filed bankruptcy.

How could this happen?  Simple.  My friend was not listed as a Trustee or a Beneficiary in the irrevocable trust.  While my friend and her spouse were together life was very good.  The real estate was pouring out large amounts of cash flow in which to pay down the remaining real estate loans over their near 25 year marriage.  THESE HOLDINGS would be their nest egg.   And the day my spouse passed away, she would be blocked from ever accessing that money ever again.  As her family attorney explained it, this single life event triggered the ownership of the real estate holdings to revert to her spouses child.  Nothing in California law could give my friend access to that money.  IT ALL WENT TO ONE CHILD BENEFICIARY.  $$ MILLIONS $$.  A child that my friend had never developed a close and personal relationship with.  And as my friend found out at the reading of the will, and now an adult, cared about one thing only:  what was in it for them?   My friend was ordered at one point to leave the apartment that her spouse and she had shared throughout their marriage but an argument ensued and was eventually resolved.  The resolution created a lease that would allow my friend to remain in the apartment building, or at least until the day it might be sold.   Given the immense value of the apartment building and windfall the beneficiary stands to gain, that could happen any day now.  Worse, my friend is now on her own with no savings to fall back on.

To say this is a sad story is an understatement in so many ways.  My friend cold have never foreseen the untimely death of her spouse.  But it happened.  She also couldn’t foresee having to pay creditors for her spouses debts, but it happened.  She also couldn’t see being cut off from the income the trust was generating the apartment buildings, but it happened.

This is why it is SO IMPORTANT to understand at every point in life, if the unexpected were to happen, what would happen next?  We invest in real estate because we want to be ready for the next life event BEFORE it arrives.

What life events have you planned for, or failed to?

Do you have a plan for the unexpected?

Questions about your situation?

I’m happy to address your questions or concerns at 310-850-5178 or buyorrentmyhomes@hotmail.com!

The Biggest Home Buying Mistake – Timing versus Planning

SoCal median home prices

The headline read “U.S. stocks plunged to their lowest levels in nearly three years Monday, and the Dow Jones industrial average suffered its worst point-loss in history…”  That day in history was September 17th, 2001 (http://money.cnn.com/2001/09/17/markets/markets_newyork/).  Imagine trying to market time a stock investment the week before?  Whether your investing in stocks or real estate, planning is the process that prepares consumers for the possibility that timing works against them.  If you look at the chart above you can see how home prices in southern California topped out in July of 2007.  County wide, prices lost as much as HALF their values by April 2009 with the median home price finally recovering by 2017.  Good planning is how you get through the tough times so that your not forced to sell if the market sells off.  For example, imagine if you had purchased a house in June 2007 and then one of the following happened to you:

  1. Loss of a job/income
  2. Health emergency not covered by insurance
  3. Auto accident not covered by insurance
  4. Home repair not planned that drains savings
  5. Tax levy from the IRS or State taxing board
  6. Legal settlement not covered by insurance or savings
  7. Family emergency not covered by savings or insurance

I could go on with this list but each of these items can severely impact a homeowners ability to pay the mortgage.  And consider this, NONE of these factors are market related!   They are all issues that happen in LIFE.  It goes to say “Plan for the worst, hope for the best.”  Homeowners who carefully plan out the monthly payment including taxes and insurance are less likely to struggle during the tough times because they have “plans” in place to take care of such emergencies.   For example, private disability insurance can protect a homeowner from the possibility of becoming unemployed from a disability.  Drafting a will and living trust can make the process of losing a loved one a little more manageable to deal with a families daily affairs.  An umbrella insurance policy can cover owner liability and certain potential lawsuits claims.  Hiring a qualified CPA who is also designated as an enrolled agent(EA) can protect a homeowner from the potential conflict of filing a frivolous tax return.  Home warranty programs can cover home repairs that are costly and unforeseen.  The same goes with product warranties that are sold as “extended warranties” from resellers.  Boosting an auto policy coverage can ensure that an unforeseen accident doesn’t leave a homeowner in massive debt from health care bills.  This is just a short list of plans are designed to address unforeseen emergencies, not market pricing.  Yes it’s still possible to buy a home at the top of the market.  But, by working with a professional you can structure a plan to ensure that if the market turns, you still have a roof over your head, enough money to pay your mortgage and avoid being forced to sell your home.  Need a plan?  Contact me and I can help you get started!