Retiring in Prescott

Dated: 12/30/2019

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Retiring in Prescott

Let’s get one thing settled first…

Why Prescott?

What’s so special about this little north-central town in Arizona—and why are retirees flocking to it with such enthusiasm?  

When topretirement.com voted Prescott #3 on their list of the 100 Best Places to Retire, the decision came down to more than just gorgeous year-round weather and majestic and mountainous surroundings.  At the end of the day, Prescott averages around 88 degrees in July and around 51 degrees in January, but you can find that in a number of other cities throughout the U.S. So what sets Prescott apart from those other cities?  

The fact is, retirees flock to Prescott for good reason—the charm, the sense of adventure, the consumer-friendly taxes, and the likelihood of a return on a property investment, be it personal or rental.

At an altitude of 5,400 feet, Prescott is an ideal place to find an outdoor adventure any day of the year—but better yet, it boasts a vibrant downtown with an inexplicable charm that will pull you in and will never let go.

For the outdoorsy retired folk, there may be no better place on Earth for outdoor recreation than Prescott, Arizona.  From hiking, biking, and equestrian trails to boating, swimming, and camping, the possibilities for outdoor activities are endless.  

The trail systems of Prescott are like nothing else.  With over 68 walkable miles, including Rails-to-Trails, Greenway Trails, and the Prescott Circle Trail system, the Mile-High Trail system of Prescott is perfect for novice and expert hikers alike!  If that isn’t enough, Prescott National Forest encompasses 450 miles of single-track bike trails.  

Nestled northeast of the city is the gorgeous Granite Dells and Watson Lake; a perfect hangout for locals and a lovely getaway for tourists.  The trail offers a host of activities including kayaking, boating, and fishing. The 5.5-mile-long trail showcases natural granite boulders along a maintained trail perfect for hiking, biking, or horseback riding.

The Highlands Center for Natural History is a delightful getaway for any retiree who loves the outdoors—providing an interactive educational experience that is not to be missed out on!  Explore nature. Walk the world around you. Find it all here, in Prescott.

If nature isn’t really your speed, Historic Downtown Prescott is rife with fabulous shopping, adorable boutiques, antique shops, and numerous contemporary retailers.  After a long day of fun check out the brilliant downtown nightlife with a walk down Whiskey Row.

Prescott is full of beautiful natural sights, magnificent walking and hiking trails, and is home to the mountainous and lush Prescott National Forest.  There’s no doubt that our residents love to venture into the great unknown to find a moment of connection to the world around them, but what happens when we yearn for more than earthly connection and want a dose of human connection too? Enter—Montezuma Street. 

Known as “Whiskey Row,” this unique stretch of old saloons and new bars in downtown Prescott act as an adult playground, where every few steps there is an entrance to a magical world of whiskey, bourbon, and “old west” authenticity.  

For those who lead a quieter lifestyle, Prescott is full of incredible examples of historic architecture that add so much to the charming ambiance—with 525 buildings on the National Register of Historic Places, Prescott is an architecture buff’s dream!

Investing in a Retirement Home/Property for Yourself

When thinking about relocating post-retirement, there are a number of factors that wrinkle up and need to be ironed out before just up and moving an entire life to a different part of the country.  Retiring to Prescott, or anywhere for that matter, will likely be a huge venture and deserves a high level of research before diving in.

For instance, if you’re planning to use an IRA, or use a cash down payment from a previous property, these are the three most vital things to consider:

  • Location
  • Maintenance 
  • Budget

Location

There is more to think about than simply scenery and weather when it comes to relocating.  Good weather is great, but with it can come unexpected concessions, like higher taxes and perhaps a differing lifestyle than what you had expected.  Climate is important, but it shouldn’t be the end all be all when it comes to deciding where to land.   

Proximity to friends and family is possibly the most vital thing to reflect upon.  Are you comfortable being away from your safety net? Just like leaving for college, retiring and leaving everything you know is a major choice and disruption in life, but it’s one that tends to be worth it in the end.  This choice does require some thought about some really important questions that come along with aging though—like how close the new home will be to vital things like doctors, shopping, pharmacies, and airports?

As the saying goes, “nothing in life is certain but death and taxes”—it’s obviously true no matter where you go.  Taxes change and fluctuate depending on where you are, but they are always there, so a little research can go a long way before making a decision to move permanently.  

Arizona is what most would consider a “tax friendly” state.  In fact, it is named one of the Top 10 Most Tax Friendly States for Retirees by Kiplinger!  

  • The personal tax rate in Arizona tops out around 4.54% but varies from county to county
  • Prescott sits at a cool 2.75%
  • There is no inheritance or estate tax in AZ and no tax on food or medication prescribed by a licensed doctor
  • Property tax on a home valued at $187,700 would average around $1,356  

Budget

Be cautious of what your financial situation is going to look like not just tomorrow, but years and years down the road.  What is your retirement plan, and does it allow for a purchase as major as a home? Working out a post-retirement budget allows you to know how much you can realistically afford.  If buying a home is really part of your plans once the 9-5 is over, you’ll need to know the answer to quite a few questions that you may not have thought about in a while. Like:

  • Will you finance?
  • Will you pay in cash?
  • Will you use an IRA?
  • Will you get a 15- or 30-year loan?
  • Will you be able to manage the maintenance?

While it may be tempting, tying up all your assets and money in a home can be detrimental to having a positive outcome.  Getting a 15-year mortgage can help you save your hard-earned cash for a rainy day—plus it will be paid off while you still get to truly enjoy it!  

It’s hard to think about, but it’s wise to have a small emergency fund stashed away in case the worst happens.  Life happens around us, and sometimes it costs money—it’s always better to be safe than sorry. Even harder to consider, but vitally important, is how will the home be paid for when you have passed?  Prepare to think about how the cost will be managed as a widow or widower. It can be a shock to go from paying the mortgage with two social security checks to one. Always be prepared for the worst.

Maintenance 

With a budget comes the burden of weighing maintenance costs.  The cost of owning your own retirement home comes with far more than just a mortgage, taxes, and insurance.  The cost of maintenance and upkeep can be unforeseen if not considered ahead of time.  

Often, buying a newer home can help cut down the cost of maintenance, as almost all the features and finishes are brand new and come with warranties—normally for the first ten years of the home’s life.  If buying new is an option for you, it might help to consider buying within an active adult community too. In that case, most of the maintenance and upkeep is included as a service within the HOA. 

Thinking about how you’ll age with the home is a must too.  Will the property be able to accommodate you as you age? Easy conversion into elderly living is a huge factor.  A multi-level home may be out of the question, if stairs are a concern—and wide hallways and doorways may be something to look more closely at when looking at homes.  

What About Buying an Investment Property for Post-Retirement Income?

Owning an investment property can be difficult and thrilling all at once.  There is a real excitement in own and managing properties, but there is an obvious substantial amount or work or monetary investment that needs to be made too.  There are a number of things that need to be look at under a microscope before making such a significant decision.

  • What will it cost?
  • What is the best location to invest in?
  • Will I see a return on my investment?
  • What potential problems will I see?

The first thing to consider is the initial cost of the investment property.  Will you have a cash down payment, or will you need to take out a mortgage? Lenders usually require 30% or more on a down payment if the owner of the property will not be living in the home.  As a buyer, if you don’t have a considerable down payment, you can consider using IRA funds, as equity growth and rental property income will grow in an IRA.  

Owning a property means you have to think ahead too.  Consider what the cost of covering on going expenses will be—taxes, updates, repairs, etc.  Think about how to cover periods of vacancy as well. It is very unlikely that the property will be occupied every single day of your ownership over it—so how will you cover the mortgage cost when the property is unoccupied?  

Just as was discussed earlier in this very blog (as is the case in basically all of real estate), location is everything.  If you’re investing in a property as a personal venture, you will ideally want the property to be within driving distance of your own home.  Unless there is a plan in place to have property managers (who you will also have to pay out as part of your investment), the closer you are, the better.  Just like investing in your own property, there will be expenses to consider that will change from place to place—like taxes, insurance, and maintenance fees.  Do yourself a favor and become well versed in all the financial burdens that could arise when owning an investment property, and where that burden is more…well, burdensome, depending on location.  Will you have to pay out more in taxes in California vs. Arizona? Probably! Take note of that to help figure out our next issue—what kind of return on investment will you see?

When trying to evaluate out what type of return a property will provide, it’s vital to think about what you’ll want to earn on the capital you’ve invested—and ideally, that number averages around 8%.  Put in the simplest of terms, if you invest $100,000, you want to see a net income of $8,000 per year above and beyond your investment costs.  This will help to compensate for the risk and liquidity of investment. The costs and expenses, however, will be much lower if you are able to do your own maintenance and repairs.  Normal expenses will include:

  • Mortgage
  • Taxes
  • Insurance
  • Maintenance
  • Optional 10% property management fee
  • 10% vacancy allowance rate

As the case is with any investment, potential problems can arise that seem completely unexpected without the right research.  Potential problems include:

  • Renters failing to pay
  • Excessive maintenance costs
  • Difficulty finding tenants
  • Vacancy

Take into consideration too that owning a rental property is not a hands-free affair.  There is a lot of work that goes into acting as a landlord, and if you can’t physically manage the property yourself, hiring a property manager will be a requirement—which will mean paying between 8-10% of the total gross income from the rental fees.  

Retirement is a huge step in life—a leap into an unknown world with less schedules and more adventure.  Deciding where to live for the adventure is part of that huge step—and choosing whether or not property investment is a good way to make some income post retire is an even larger hurdle to jump.  

With all of these decisions to make and options to weight out, it’s good to know Arizona, and Prescott in particular, is a highly desirable place to make such a key investment.  The state, county, and city itself has some of lowest taxed in the U.S. and is one of the most tax-friendly states, in general. Investing in Arizona, be it for personal or income property, is a decision that will likely go without regret. 

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