Where to Live in Retirement - Part 2: Buying Versus Renting

For part II of this series, I wanted to address a common misconception that we have as Americans. In order to fulfill the “American Dream,” you must be a property owner.

It’s true that real estate can be an effective way to build equity, but it is worth considering…is owning property in retirement right for you?

Many people don’t think about the fact that the only way to access the equity in your home is to sell it (save a few last resort strategies such as taking out an equity line or reverse mortgage). Sure, if your house is paid off, living without a mortgage payment can free up cash flow, but ever-increasing taxes and homeowner’s insurance, as well as the hassle and associated costs of maintenance, can make the idea of renting more appealing.

A 2016 survey by real estate company Trulia found that it often makes more financial sense to rent versus buy in 98 of the 100 US cities with the largest populations of people 65 and older.

Not only does renting eliminate the expense and maintenance requirements of owning a home, it also gives retirees the freedom to move around and not be tied to one location. I’ve seen clients sell their home to buy a RV and travel around the country for a few years, or to rent in exotic locations around the world. Traveling not your cup of tea? Renting in retirement may still be right for you.

Another thing that renting provides, especially if you downsize, is helping retirees sort through – and often get rid of – a lot of the junk that we accumulate in our homes over the years. Leaving this task to your heirs can be an unwanted burden. We encourage our clients to start the process of simplifying and getting rid of excess early, while you’re still healthy and able.   

Selling your home early can also eliminate some estate issues if you have multiple heirs. For example, we have a client who passed away and left the house to five children who are scattered all over the country. It has taken them 5 years just to clean out the house and get rid of all the family heirlooms and there have been arguments between the siblings of whether they should keep the house, sell it, or invest in it through renovations.

The last consideration to think about when deciding whether to keep the home or rent in retirement is accessibility issues. As we get older, physical tasks, such as going up stairs, become more challenging. It can be costly to modify your home with accessibility improvements; money that you often won’t get back when you sell. By renting, you have the flexibility of choosing a location suits your changing needs. As we age, being close to doctors, living on a ground level, and having a place that’s easy to get around in becomes a priority. And if you realize a place doesn’t work for you, it is a lot easier to find another rental than it is to get a house ready to sell and find another property that’s suitable. Not being able to choose when to sell the home could force you to have to sell when the time isn’t right, such as during a drop in real estate prices.

At Pathfinder Wealth Consulting, we believe every retirement situation is unique and we are passionate about educating our clients on all possibilities for their specific retirement goals, including the decision of maintaining homeownership versus renting. We would be happy to speak with you about your path to or through retirement, and the goals and objectives you hope to accomplish. If you are ready to take a comprehensive look at your financial plan, we encourage you to give us a call at 910-793-0616.