Renting vs. Owning Your Home in Retirement

As you near retirement, you’ll need to begin making strategic decisions about where to live. Your family home may be paid off, but can you justify the utility bills to heat and cool a house with a bunch of extra rooms that are going unused since the kids moved out? If you can’t, then you’ll want to downsize. This, however, leads to a host of new decisions: do you buy a smaller house or a condo, or do you rent a house or apartment? Below, we offer some insights to help you make this decision and get started with your golden years.

The Basics

When you begin to consider your housing options in retirement, there are a few key considerations to keep in mind. First, what is your budget? Be meticulous and be honest when thinking about what you’ll be able to afford for housing. The last thing you want to do is go beyond your means when you’re about to stop working. Next, do you plan to invest in real estate as a retiree? Would any condo or house you bought be sold down the line, or simply lived in for the long haul? And finally, have you thoroughly considered all of the inherent risks of homeownership? There are a lot of hidden and secondary costs of owning a house or condo, so be sure to consider these when making your budget. If you want to make sure you’ve covered all the bases here, speak with an experienced real estate lawyer, like those at Adam Leitman Bailey, P.C., to discuss the costs of homeownership.

Taxes

One of the more nuanced considerations of renting versus owning your home in retirement is how much you’re willing, or able, to pay in taxes. Mortgage interest and property taxes on your main residence are actually tax deductible. Rent, on the other hand, is not deductible. Therefore, your budget calculations should take this into consideration when you’re deciding on where to live.

Risks

It’s important to consider the risks of renting and buying before you decide which is best for you. When it comes to homeownership, the financial risks are great. Unpredictable fluctuations in the housing market, abrupt and largescale repair costs, and high utility bills and property taxes can make owning a home more expensive than renting.

Renting, on the other hand, insulates you from the financial risk of having to pay for repairs since the landlord will be responsible for repairing all defects not caused by you. Of course, you lose out on getting build equity when you rent.

Investing?

Although real estate can prove to be a productive investment, it’s not advised for most retirees to approach homebuying with this in mind. To invest in real estate, you need to either buy low and sell high immediately, or rent the property out to produce passive income. If you are buying the property as your primary residence in retirement, neither of these strategies is really available. You should instead be looking for a house in which you will be happy, and which you can afford.

What if you don’t initially plan to treat your home as an investment, but it doubles or triples in value a few years after you buy it – surely you shouldn’t pass that up? That’s actually not as clear-cut as it seems. It may seem like a dream come true to make a huge profit on your house, but what if prices continue to climb after you sell? Since you’re likely on a fixed budget as a retiree, you’ll now be priced out of your market and will have to move and potentially downsize further or switch to renting.

Closing

Retirement is a new stage of life, both financial and otherwise. This can mean taking a hard look at your living situation and adjusting it to accommodate your new, fixed budget. If you can’t continue living in your family home, then you may need to consider whether you want to downsize to a smaller space as an owner or renter. This decision will be based on numerous factors specific to your situation, and an experienced lawyer and financial professional should be consulted for advice.

Views: 69

Comment

You need to be a member of Vanguard Online Community to add comments!

Join Vanguard Online Community

Comment by Peytonams on January 6, 2019 at 11:10am

I recommend buying in retirement. The value of homes is still rising albeit at a slower rate than previous years but a house is still a great investment even in retirement. Adding onto this is the rise in rents. Another consideration could be to downsize your property and free up funds for a more free retirement with more choices. There are actually lots of different retirement options that go beyond the standard home ownership or renting, you can read that here: https://www.yeshomebuyers.com/retirement-living-options/

Forum Categories

© 2019   Created by Vanguard Media Ltd.   Powered by

Badges  |  Report an Issue  |  Terms of Service