Getting Your Money Out Of Real Estate As Retirement Nears

The wife (no pics) and I debate this topic all the time. I submit this is one of the most complex financial questions one faces as retirement nears. And one frankly I don't see any great answers to.

For grins, let's say the context is your home has had significant appreciation over the course of ownership. Maybe you own some rental property. Maybe you're tired of the constant upkeep and want to downsize. But now you want to do things like travel. Or maybe there's a big capital call like you need a new car, a new roof. Whatever it may be. But you want to get that money just sitting there. It's yours. To use while you still can. The kids will get theirs anyway when you're dead and gone.

So you go through the decision tree:

Why not just sell the rental property? Maybe it produces enough net monthly income. But you need to keep adequate reserves for contingencies such as a new roof, plumbing issues. It always happens. You can't just live off the profits. But, if you sell, you owe capital gains tax on the profit. You may have to pay depreciation recapture tax when you sell. Takes such a big bite out of it you say Nah.

Well sell your home and downsize. Like to where? Basis is so low there's nothing in the area as nice (and we ain't movin' from it, church, friends, family all here etc.), so there's nothing better. So you won't sell. You'll live in it until you can't.

So, you could look at some alternatives such as using things like a Home Equity Line of Credit (HELOC) or a Reverse Morgage to pay for things and protect the equity, but the rates are near prohibitive these days and then that increases monthly outflows. (We actually have some retired friends that we discussed this with for a porch redo and roof repair. They have a lot more money on paper than us, but same issue. Drawing it down. Fear of not having enough. So, after much debate, they used a HELOC to fund these improvements and are just paying it off. They'd rather have these things while they're alive and know their kids will get much when they're gone).

I tell ya, there's not a great answer to this question that I can see, one many of us will be facing in the coming years. A worthy debate topic. What do you think?