Chapter One: Tough Times Ahead for Boomers!
The Great Generation has entered the final chapter of life.
Their children, the post war Baby Boomers, are beginning to arrive at the threshold of that same chapter, becoming intimately familiar with the their future as they observe their parent’s experience.
They arrive with vast financial resources estimated to be approximately $11 trillion dollars, the majority of which is locked away in home equity.
They had approached with expectations that the final years would be the ‘golden years’ promised and invested for during the previous 4 decades.
Instead they find themselves the sandwich generation, caring for aging parents as well as their adult children and grandchildren as record numbers of young adults remain at home or return home from failed marriages or, most recently, lost employment.
They find themselves facing the threshold of post-employment living, having arrived during a time of economic upheaval as the country struggles under the weight of the worst recession since the Great Depression.
The Result?
Financial pressure from their parents to provide a safe, secure and comfortable end-of-life experience on limited resources with serious concerns about the care provided by the assisted living industry.
Financial pressure from their children & grandchildren to secure the opportunity for a financially secure life while their own parents age.
Financial pressure to provide for their own retirement needs, hoping to receive some assistance from their parents’ estate, hopefully not spent on years, perhaps decades, of assisted living expenses.
A growing, and novel, aversion to debt as the realities of living on a fixed income are introduced first thru their parents and then thru their own circumstances.
A growing realization that the financial resources carefully put away into their homes are both losing value and becoming increasingly difficult to access without incurring more debt at a time when borrowing expenses are onerous and the hope of qualifying for affordable payments is disappearing into the realities of living on a fixed income during a time of escalating inflation.
A ‘silver bullet’ solution to this complex and seemingly irresolvable Boomer dilemma would be the ability to convert the equity tied up in both their parents and their own homes into cash and to do so without the burdens of debt in order to postpone, if not altogether avoid, the debilitating expenses of institutional living.
Prior to the development of HECS (Home Equity Conversion Sales), this opportunity was not available. The only means was a HECM (Home Equity Conversion Mortgage) marketed as a “Reverse Mortgage”, an expensive proposition soaking up already scarce cash resources in order to originate a new debt while greatly increasing the risk that the entire home’s contribution to the estate would be consumed by the ARM (adjustable rate mortgage) terms and the monthly maintenance fees.
Using a HECS agreement to sell an undivided fractional interest of the home enables residential owner-occupied property equity to be converted to cash without resorting to new debt. It also provides profitable, inflation adjusting and secure investment opportunities to investors that purchase the resulting HECS providing investors a uniquely profitable and scalable investment opportunity in an economy thrashing around for a way to recapitalize itself without additional debt feeding the specter of out-of-control inflation.
Foot Notes:
Sources cited are media based rather than academic or industry based in order to illustrate that cultural familiarity with the economic situation and demographic trends that create an optimal climate for introduction of HECS investing is becoming common knowledge and hence familiar to stakeholders, both seniors and investors. HECS investing is unique only in the creative deployment of existing solutions to existing needs.
According to the University of California at San Diego’s Boomer Generation research, 70 % of Boomers have at least one parent alive.
New York Times News Service, “Investigators Find Violations at Majority of Nursing Homes”, subtitled ‘17% of facilities had deficiencies causing ‘actual harm or immediate jeopardy’ by Robert Pear, September 30, 2008
Idaho Senior News, “Boomers Admit Retirement Savings Not Enough” September, 2008, “The survey (The 2008 American Retirement Study) shows a trend of extreme stress for many Boomers.”
As of June of 2009, American Public Media’s “Marketplace” reports that the American economy is struggling under $1 trillion in credit card debt and $11 trillion in mortgage debt
Chapter Two: But Seniors Have a Plan, Kind of…
Retire, pay off the mortgage, remodel the home, play with the grandchildren, travel and enjoy the interlude between retirement & institutional living, all the while dreading a future of being moved to institutional living. Health and aging issues will reach a point where the existing house is no longer a safe, secure and comfortable home and the senior is forced to dispose of almost all of their personal belongings, sell their home and move in with strangers in an institution, usually referred to as a nursing home whether it is an apartment in a ‘Senior’ building or assisted living. They would much rather remain in their home but, unless the house is modified, prudence does not allow them to. However, living on a fixed income makes borrowing money to modify the house a hardship if not prohibitive. And spending existing liquid assets leaves Seniors feeling vulnerable to the exigencies of aging while not having the necessary resources readily available. Typically, then, the Senior remains home in spite of the growing distance from its ability to provide a home and carefully husbands the remaining financial resources against that seemingly inevitable day when forced to abandon all that is familiar and take a few significant personal possessions with them to assisted living. In the interim, in order to postpone being moved as long as possible, Seniors, or their guardians, will hire ‘in-home’ care givers and find creative ways to compensate for the losses of aging until their home simply becomes too inadequate or dangerous to continue.
Financially life for Seniors is a tight rope…
Their home is typically fully paid for and they have significant equity. However, except for a small fortunate few, they now live on a fixed income with no prospect of income growth. This makes adding the financial obligation of debt service daunting if not untenable. They generally have savings and annuities they hope will be enough to provide for the remainder of their lives but, not knowing how long to plan for, they use them very cautiously, if at all… Many Boomers suffered serious financial setback during this recession due to loss of a job, loss of equity value, loss of the employer’s contribution to retirement or some combination of these. Very few will ever financially recover from the losses and know that they must make do with what remains and with what few earning opportunities they have left. This is already resulting in ‘cash flow caution’ and makes home equity conversion more appealing, even more so with a HECS since it does not result in indebtedness.
The Heirs Are Feeling Vulnerable as Well
$40 trillion in the estates of the Great Generation will be passed on to Boomers if not consumed by aging expenses.
The heirs of Seniors today have three understandable concerns:
1. Will my parents’ financial resources be sufficient for their needs?
2. Will there be an estate to supplement our financial well being?
3. How does the equity in my parent’s home contribute?
HECS makes the equity in their parent’s home available without debt. This means that interest on borrowed money is neither a burdensome monthly payment nor an accruing diminishment on the estate’s value. A HECS liquidation of an undivided fraction of the Senior’s residential property converts equity into cash without debt and leaves the balance of the equity securely in the estate while assuring that the Senior will not be forced to relocate to institutional living unless it becomes medically necessary or a safety issue.
Foot Notes
Parade Magazine, May 31, 2009, “Where to Live as We Age” by Susan Fine
AARP Bulletin June 2009 “The Law” column by attorney Emily Sachar: “The nursing home admission process is so difficult and emotional that (critical) issues…are usually not understood, if even noticed.”
Idaho Statesman, June 30, 2009, “Reverse Mortgage Scams on the Rise” by Tony Pugh, McClatchy Newspapers
American Public Media, Market Place report, June 29, 2009 by Steven Smith, American Radio Works
Chapter Three: Fractional Equities Brings Hope to Seniors and a Unique Opportunity to Real Estate Investors!
In-home Service Providers Also Have a Plan
Health and aging issues slowly accumulate until help is needed from an in-home personal and/or health care provider. Small in-home care businesses, serving from a handful to hundreds of Seniors, enable their clients to remain in their homes by assisting with both medical and everyday-living needs making life difficult, if not impossible, by the increasing deficiencies brought on by aging. However, when the home itself becomes uncomfortable, insecure and even dangerous, the care provider faces the prospect of losing the client to institutional care and must replace that client. While an expected cost of doing business, any diminishment of the expense of client replacement moves directly to the bottom line, making client retention very appealing. Home modification that allows Seniors to remain at home unless and until medical issues require institutional living is a market-need poorly served currently not only locally but nationally. Due to the expense of obtaining new clients, client retention thru home modification is a very attractive business strategy. ROOF™ financing enables home modification on a fixed income for typical Seniors with lien free homes thus providing marketing partners (in-home care providers and home modification providers) with a serious vested interest in Fractional Equities, llc success in deploying ROOF™ financing in the expansive Senior’s market.
Hope from (and for) the Home Modification Industry
Financial resources made available to pay for their services will breathe life into a gasping construction industry segment: home modification and improvement. As an industry, home modification for aging-in-place has matured to the point where almost all seniors can remain in their home for many additional years and a significant percentage can remain in their homes for the remainder of their lives surrounded by the comfort, security and familiarity of home. The in-home care industry, intimately aware of and involved in the housing needs of Seniors, are beginning to understand the important role that home modification plays in their business planning.
And, by the way…
Equity Markets Need an Infusion of Consumer Spending
Home equity, accessible to date only thru homes sales or debt, is converted to cash and then redeployed into the marketplace as consumer spending by Seniors fueling the engine that drives our economy from a source not previously available: home owning seniors living on a fixed income.
Current Market Solution
For the vast majority of aging Seniors, the marketplace provides very limited solutions:
Remain at home and consume what limited liquid resources are available in paying for a hodge-podge of housing compensations and limited in-home care. This is normal but dangerous, unpleasant and tense with the anxiety that the Senior will ‘break a hip’ and the money will run out long before life ends.
Sell the home and use the equity in the home to pay for a suite in an assisted living facility and hope that the money doesn’t run out before the end of life knowing that, if it does, they will have lost their home and may still be forced to leave the facility for failure to pay.
Borrow against the equity in their home with a reverse mortgage and use it to modify the house and to pay for in-home care. This can be much less expensive than assisted living and make their accumulated equity last longer. However, the cost of the money is high with the expenses of mortgage insurance, monthly maintenance fees and interest that adjusts upward with inflation. It is therefore unlikely that any equity will remain in their estate for their heirs.
Fractional Equities, llc brings to the growing Seniors market an alternative to the reverse mortgage that provides significant improvements for all of the interested parties, excluding, of course, reverse mortgage providers and assisted living institutions. ROOF™ purchases of undivided interests in Senior residential property align with the interests of the Senior homeowner, the residential property investor, the Senior’s heirs and the home modification and in-home care industries. Enabling Senior homeowners to remain in their homes with home modification financed by home equity converted to cash without indebtedness endorses a socially responsive culture of encouraging Senior aging in the safety and comfort of their own home.
Foot Notes
Idaho Senior News, “Aging in Place By Holding On To Your Home” by NAPS, April 2009: “Even in an uncertain economy and housing market, the door is open for seniors to hold on to their home by modifying it so it is safer during their golden years.”
Idaho Business Review’s ‘Idaho Construction Supplement’ article “Remodelers Gear Up for ‘Aging in Place’ Need” by Dani Grigg, October 2008.
70% of the American economy is consumer spending making its restoration indispensible to economic recovery.
King 5 News, Seattle, WA, “98 Year Old Woman Kicked Out of Assisted Living Facility” by Deborah Feldman, Feb. 20, 2008
