Part of our job at Henssler Financial is to build strategies for people to Live Ready during their retirements. You have planned and saved, and it is time to enjoy the golden years. Recently, we have had some questions regarding retirees selling their homes and renting property during their retirement. If this is a strategy you were considering, let us show you the advantages and disadvantages of renting during retirement.
Living
Regardless of whether you own or rent, housing is a cost of living expense and must be budgeted accordingly. According to different sources, between 69% and 80% of the population older than 65 own their home outright. If you fall into this broad category, even with the recent decline in housing values, your home is likely worth more than when you purchased it. Given this information, there are some questions that need to be answered. Are you planning to downsize to a smaller home? Are you planning to retire and relocate? Do you plan to spend time traveling? If the answer to one or more of these questions is yes, have you considered renting as an option? While we at Henssler Financial feel that renting or owning is a lifestyle choice, here are some advantages and disadvantages to renting versus owning during retirement.
Renting
Advantages:
- Renting is less permanent. If you are relocating to retire, consider renting on a trial basis to make sure that you like the area.
- If you do not like the area, you are not stuck with a home where you do not want to be.
- Also, if you are planning on traveling, you have the flexibility to change scenery every few months or years, until you find where you want to be.
- There are no property taxes on a rental unit.
- All maintenance is likely included in the rent. You should not have to mow the yard, fix a leaky roof, or replace an air conditioner ever again.
- There are no transaction costs with renting.
- No commissions, transfer tax, or other costs associated with purchasing.
- You simply preview a property, and agree to rent or move on.
- When your lease is up, you leave if that is your desire.
- If you feel that the housing market will not regain much of its lost value in your lifetime, you could be a candidate for renting.
Disadvantages
- Some people take comfort in owning a home, which is why it is a lifestyle choice.
- There is no tax deduction for mortgage interest without a mortgage, and if you work from home, you cannot deduct home office expenses.
- Rent is likely to increase over the long term.
- Over the long term, rent is likely to rise compared to today’s extremely low interest rates.
- If the housing market picks up, a renter loses the appreciation they should have gained by owning a home.
- A renter could be priced out of the market with rising home prices, especially important for someone on a fixed income.
- Owning is generally cheaper in the long run.
- You can improve your property, as you see fit as an owner, while renters are not as flexible.
- You may share space with other tenants that you do not like.
Strategies
If you are retired or near retirement age, you have many options. Odds are your home mortgage is paid off, or very close. As you age, you may decide that maintenance and upkeep are taking away time you would rather enjoy spending elsewhere. If you plan to travel frequently, or your home represents a large proportion of your retirement assets, you may want to discuss with your financial adviser about downsizing or renting. If you are disabled or have physical limitations, renting could also be an advantage, as maintenance should be covered by the landlord. The equity you have built over the years will likely be enough to handle paying rent, and some can even be used for enjoying your retirement.
Another benefit of renting is that one spouse is not saddled with a house, the maintenance, and attempting to sell it if something happens to the other partner. This process can take a long time in the current housing market, be stressful, and a drain on resources. For those who do not find renting appealing, make plans if something should happen to one partner. Selling your home and renting may be a better option than a reverse mortgage.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
