There are reasons to own a home in retirement. But there are also good arguments for renting. The latter may be less expensive if it means you don’t have to pay for maintenance and repair. Owning, however, could be less stressful if you don’t have to worry about a landlord raising your rent.
Whichever route you go, housing will likely be your greatest monthly expense in retirement. Here are some factors to consider when making a renting-versus-buying decision. Us them for a discussion with yourself about what makes most sense for you.
Advantages to Owning
Especially if you live in a house you own now, it’s easy to find arguments for staying, starting with how annoying the whole process of moving is. Here are some key arguments
Mortgage-Free vs. Maintenance Free (Almost)
If you are one of the 70 percent of homeowners who go into retirement mortgage free, the question of renting vs. owning may seem less complicated at first. The fact you have no house payment does not, however, make this a no-brainer. There are still property taxes and maintenance costs hanging over you. And, the older your home, the higher upkeep expenses will be.
A landlord planning to sell the house you are renting can make your life less stable and more stressful. Likewise, one who raises the rent annually can quickly erase the advantage you had over owning when you first moved in.
You have the option to move, but that can be exhausting and costly. You can mitigate the likelihood of a rent increase by pushing for and signing a long-term lease.
For some retirees it is important to leave an inheritance. Others want to use accumulated home equity to take out a loan, line of credit or reverse mortgage. These are situations in which ownership makes the most sense. In areas where property values are increasing rapidly, buying may also provide protection from frequent rent increases, as well as keeping you able to gain from the real estate market.
One of the benefits of home ownership is the ability to deduct taxes and interest. Other deductions, including mortgage points, can all work to lower the amount you owe to the IRS. You get none of this when you rent.
Of course, property taxes tend to go up over time and can prove to be a real financial burden. Worse yet, tax reform could limit or eliminate the deductions for mortgage interest and property taxes, making renting even more attractive.
The degree to which you are emotionally tied to the idea of home ownership is an important nonfinancial consideration. Selling your home and moving into a rental apartment or home should not be stressful. Also, keep in mind that you can’t remodel a rental, at least not without the owner’s permission.
Advantages to Renting
You may already rent and know these benefits. But if you’re a homeowner contemplating jumping ship, here are some reasons why the water may be fine
Keeping Your Options Open
Renting may make sense if you are an empty nester, ready to downsize and unsure of where you will spend your retirement years. You may want to move away to the land of better weather (or a lower cost of living) for some years, but preserve your ability to easily return closer to your family later on.
Your health—or that of a family member—could also be a factor if you believe you may need to move soon to receive or give care. Many assisted living or independent living communities are rent only, leaving you with no choice if that’s where you will live.
Spending Less in General
It’s important to compare the cost of renting versus owning in the place where you plan to live. According to a report from Trulia, renting was less expensive in 98 out of 100 cities with a large population of residents 65 and older. It’s worth noting that, in the South, ownership is typically less expensive than renting.
Spending Less on Upkeep
When you rent, you will likely not have to pay for upkeep. On average homeowners spend between 1 percent and 4 percent annually on upkeep. The older the home, the higher the number. One caveat: Make sure your landlord is responsible for all (or nearly all) maintenance and repair, especially if you’re renting a house.
It’s not just the cost. As you get older, your ability to do any of these jobs yourself with inevitably decline. Maybe you don’t want to live somewhere that finds you regularly standing on ladders to change light bulbs. That’s what a super or building handyman is for.
Freeing Up Investment Capital
Renting may free up money that can be invested, thereby increasing overall income in your retirement years. Investments often grow at a faster rate than real estate appreciates, making them an even better use of your money. Also, ownership puts you at risk in the event of another housing-market crash, something renting does not do.
Some retirees rent a home in an area where ownership costs are prohibitive and buy property elsewhere, renting it out as an income-producing investment. With proper planning and careful shopping this arrangement can give you the best of both worlds.
Alternatively, you may want to rent for a while (10 years is optimum) and invest the savings. At that point buying will likely be more of an advantage, according to a report by Kiplinger.
Compare Your Options
When it comes to renting vs. buying, what’s best for someone else may not be right for you. Compare the advantages and disadvantages of both options given your cash-flow needs, lifestyle plans and emotional attachments. There is no right or wrong answer, only the one that works for you.