Tap a $1.1 trillion resource.

Senior's home equity impact on seniors housing

This is Part I of a two-part series involving the significant role home equity will play in seniors housing. Herewith we define the total potential, while Part II presents practical home equity strategies for seniors.

THE PENT-UP EQUITY IN A SENIOR'S HOME 15 PLAYING A DUAL but conflicting role in our industry today. For a typical senior, the home represents a difficult emotional and economic hurtle, sometimes even a sales and marketing deal-killer. But, properly positioned, this valuable asset can also be converted into a significant selling opportunity for seniors housing. As seniors contemplate moving into retirement communities, most must address the sale of their home. On one hand, most recognize their changing personal needs and the growing hassles and expense of home ownership. But seniors also have strong emotional and almost unbreakable ties to the home that most have lived in for perhaps 50 years.

Home equity represents a huge asset for many age 75+ seniors. Consider these startling statistics:

(1) The home ownership rates is approximately 77 percent for seniors 75 and older; most with mortgages paid off free and clear.

(2) The median value of their pent-up home equity in 2000 is approximately $110,000. In aggregate, we're talking about total pent-up assets worth more than $1.1 trillion!

Senior housing in the form of independent and assisted living primarily serves single or widowed seniors over age 75. And single-person homeowners vary as a function of age. For the 75+ age group, 70 percent are either widowed (60 percent), divorced (5 percent), or never married (5 percent). These statistics apply to 11.6 million seniors and combine to have a significant potential impact on our industry. And the $1.1 trillion in gross potential pent-up home equity is probably growing by at least $66 billion per year because of moderate annual home value appreciation coupled with the modest growth in the 75+ age cohort. This means that a large percentage of age 75+ seniors who have a seniors housing and health care affordability gap of about $1,000 per month could sell their home, thereby, increasing their savings portfolio. Many would now be able to afford to pay the market rate monthly service fee without spend-down!

Need versus want

In helping seniors put this asset to work, we must address two important and sometimes apparently conflicting issues; what seniors want and what they actually need.

Seniors want to stay at home--pure and simple. They are very attracted to their cherished home full of love and memories. Sure, it's now bigger than they really need and maintenance has become a bigger challenge as the years go by. But every nook and cranny of that home reminds them of a lifetime of experiences.

There is a significant opportunity to creatively and prudently unleash the tremendous economic clout of the senior's home equity asset while helping them to live their remaining life with dignity and optimum independence, and with physical and financial security. We can also assist them in leaving a financial legacy to their children; an important financial goal that for many may well have started as far back as the Great Depression era or World War II.

We have the service delivery systems to help many seniors avoid the steep nursing home cost spend-down ramp that has devastated many of their hopes and dreams of the past 20 years. Today 70 percent of all nursing census days are associated with Medicaid residents. Many seniors did not enter the nursing home as a low income Medicaid qualified patient, many had their financial legacy slip away as they had to spend down their lifetime savings.

Sure, asset shifting is still prevalent in many areas of the United States, but so is unnecessary and accelerated spend-down of assets. Preservation of assets is going to be the key sound bite and market-positioning platform for successful senior-living and health care sponsors in the new millennium.

Seniors and their families really need practical, credible guidance to satisfy several critical objectives and situations that they face in their later stages of life: expanded living and health care options; increased affordability, security, and peace of mind; preservation of assets (leaving that legacy); and a practical, time-phased plan to accomplish all of the above. For many, this can be accomplished by putting our seniors' biggest asset to work in innovative and prudent ways. Recent changes to capital gains tax laws allow seniors to sell their current home while not purchasing (owning) another one, yet paying essentially zero capital gains tax.

Properly executed, seniors can enjoy an expanded income stream (increased affordability), tax avoidance, preservation of assets (leaving a legacy), and estate liquidity as they face the inevitable challenges of later life.

Jim Moore is president of Moore Diversified Services, a Fort Worth, Texas-based senior housing and health care consulting firm, and author of Assisted Living 2000.

Tapping a $1.0 trillion resource held by seniors 75 and older

Median home value $110,000

Ownership rate 77%

Pent-up home equity $1.1 trillion asset value

Average annual growth....$66 billion of home equity

Source: Moore Diversified Services Inc.