My grandparents own a golf course.
When I was a kid, I thought this was the coolest thing ever. I would spend almost entire summers out there. While there, I’d spend easily 8 hours a day golfing. Being the owners’ grandson meant I could sneak on the course whenever I wanted, getting in a quick 9 holes whenever there was an opening. I also served as a distraction for my Grandpa, he’d take time to stop working to golf with me. Grandma would make me all sorts of good stuff, my favorite being cheeseburgers. Some of my favorite childhood memories are from my time spent on the golf course, including the time I got a hole in one.
My Grandpa is over 80 now. My Grandma hasn’t been involved in the day to day operations of the golf course for more than 10 years. They’re both old and are starting to inevitably slow, both mentally and physically. Both have had heart problems over the past year. Grandpa has realized he can’t work anymore, so he’s started the process of selling the golf course.
As you can imagine, selling a golf course is much more difficult than selling a house. There aren’t many people who have both the means and desire to buy one. There is a mountain of paperwork that is needed for any prospective buyer. Grandpa is a little slow these days, so getting the proper paperwork in order takes a little while. I’m not too involved in the process, but I can imagine it’s beginning to turn into a nightmare.
I know a guy who is turning 72 this year. He is quite wealthy, I’d estimate his net worth to be over $2M. He owns quite a few rental properties, as well as a good chunk of change in the stock market. Since he’s in his 70s, one would think he’s going to start slowing down and selling his rentals soon, putting the proceeds in something safe and boring.
He has no intention of selling a single property anytime soon. In fact, he just bought another one.
This Can’t End Well
My Grandparents and my friend are both going to experience some pain before things get worked out. Both are wealthy enough from other investments to ensure they have enough to live on while they wait for assets to sell. Even though they’re not screwed financially (unlike the Wal-Mart greeter Leonard) they still haven’t put themselves in a good financial spot.
All my Grandparents want is to get rid of the burden of this business. They want the money from the sale to ensure that they’ll have enough to comfortably survive for their last years here, as well as leave an inheritance to their children. I’m not sure if they’d ever admit it (my Grandpa definitely wouldn’t) but the prudent plan would have been to sell it 5 years ago when both were healthy and still active.
My early 70s friend isn’t in that same boat, but he could be soon. Health is a fickle thing, especially as you get older. My Grandpa went from working to in a hospital bed in about a day. I’m sure all of you can tell me similar stories about your relatives. We never know when our health is going to fail on us.
One day, my friend will fall ill. Perhaps he’ll die, hopefully he’ll live. In either situation, he’ll be sitting on all sorts of illiquid assets that someone will have to sell. This is not an ideal situation for someone who already has the stress of being sick on their plate.
Proper Planning Is Key
It isn’t really that hard to avoid being in the shoes of my Grandparents and friend.
Once someone gets to the point of thinking about retirement, then it’s time to move your investments into safe, liquid instruments. Things like government bonds and boring stocks like utilities should be purchased for a portfolio. GICs (or CDs) deserve a place in a portfolio as well. Capital preservation should be key.
Yes, these investments won’t grow much. The whole basket will barely out perform inflation. As you already know though, retirement isn’t the time to take risks with your investments. All it takes is a little planning to avoid being stuck with illiquid assets.
One look around and it’s easy for me to see the results poor planning can have on a family. My family is having to deal with selling an asset that should have been sold years ago. My Grandparents are stressed out about it, which makes their kids stressed out. Their inability to plan properly is affecting everyone around them.
Why This Matters At Any Age
I don’t care if you’re 18 or 80, liquidity matters.
Most financial type people solve this problem with an emergency fund. And even though I somewhat disagree with someone keeping large amounts of cash on hand, I always maintain a balance in my chequing account of $10k. The security of liquidity is important to me.
Alternatively, someone can use a line of credit or credit cards for an emergency fund, PROVIDING they have the cash somewhat easily accessible to pay the loan back without paying much in interest. If you’re the kind of person who feels the need to earn interest all the time, I have no problem keeping your emergency fund cash in good conservative bond funds. This money is accessible enough that you can have it in a few days, giving you plenty of time to pay off a credit card or line of credit with a minimum interest penalty.
Whichever way you choose to treat your emergency fund, just remember the importance of liquidity. Having illiquid assets is fine when you’re young, but please encourage your parents or grandparents to keep them to a minimum.
This is why I think it is so stupid to think of real estate as your only investment vehicle. If you get caught in a bad market when you need the money, you’ll probably LOSE money in the process.
You’re absolutely right, liquidity is a very important part of wealth building.
Also, it should become a top priority once you reach 60. Statistically your health can change in a matter of a year or two once you pass your 60th birthday so it is so important to get yourself in a good place financially and also get things like long term health insurance once you get to your 60th birthday – no matter how good you feel at that time.
I’ve heard people argue that real estate shouldn’t be included in a net worth calculation because of the liquidity issue. After all, everyone needs somewhere to live.
Sure, a house can be sold and someone can rent, but when does that ever happen? It only happens when Grandma finally moves to the old folks home. By then the cash raised by the sale of the home isn’t even needed.
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