Downsizing: Should You Buy Or Rent?

One of our readers, Joy, commented on the decision to downsize from their large home to a small rental bungalow.  She states, “At this point we don’t expect to own a home again – we plan on being renters…the whole concept of being a renter is very freeing.”

Joy mentioned that their lawyer told them that they were being very unconventional.

Related: Why downsizing might not save your retirement

Indeed they are.  According to CMHC, Canadians aged 55 – 64 have the highest rate of home ownership among all age groups.  They are accustomed to owning a home and consider it an essential priority.  In fact, statistics show that it is not until after age 75 that more people rent, probably because they are moving into some sort of assisted living accommodation.

Cash asset

If you sell your home after living in it for 30 – 40 years, you can net a fairly considerable sum of money.  Many people have a goal of buying a smaller home and topping up their retirement nest egg with the remainder.

However, other costs such as realtor and legal fees, land transfer taxes, home inspection fees, etc, can take a large bite out of your net amount.

Related: Should you sell the family home?

Should you decide to rent instead you could put the entire amount into another investment (e.g. stock portfolio) that will grow over time and provide additional income.

Evaluate the costs

Home ownership is generally more expensive than renting.  Factor in the costs of property taxes, possibly condo fees, home insurance and ongoing maintenance costs.  Renters write one cheque to their landlord once a month.

Purchasing in a desirable neighbourhood, whether next to a golf course or close to downtown amenities, can be more expensive than in the suburbs or a small town.  Rent in a trendy area can be much less costly.

Many down-sizers have no desire to deal with home maintenance any longer.  If the furnace stops working, renters can just call the landlord.

Many retirees with pets like to own their own home.  It may be difficult to find a rental that allows pets, or it may cost you more.

Related: How I decluttered and simplified my life

What is your expected income from all your various sources?  You want to have enough cash flow every month to pay your bills and have room for discretionary and “fun” spending.  At this time you don’t want to incur credit card debt to maintain your lifestyle.

There are countless calculators online that will help you make the decision of whether renting or buying is right for you.

Final Thoughts

Each person must evaluate his or her own future plans and financial situation as well as current market conditions.

Instead of sticking with the status quo, home ownership is now more of a personal choice depending on your proposed lifestyle.  Instead, renting may be just the ticket.

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  1. Robert on October 1, 2014 at 6:59 am

    This is probably a timely article! Everyone is currently thinking house prices to be at or near a peak from whence we will have either a pullback, calamatous fall, or period of of stagnation which many call a soft landing. If you believe any of those what a great time to switch to renting or a smaller place – the math may never be better.

    Having said that I am retired and indecisive on this one. My house is in a great location for most purposes and close to family – I can walk to 2 of my children’s homes if need be. Switching to renting in Toronto is daunting. I have no need for all that cash and it would take a while to invest it. Then my income taxes would rise quite a bit.

    I need a better space for my new passtime. And that could nudge me to move. In short I probably need a factor pushing me which is not financial.

    • Boomer on October 1, 2014 at 9:29 am

      @Robert: After much deliberation we finally settled on purchasing our new property – but only after finding one we liked. We would have rented otherwise, but permanently? – I don’t know.

      We also had several other reasons for moving that were not merely financial.

  2. Dan @ Our Big Fat Wallet on October 1, 2014 at 1:08 pm

    I think it depends on the person and their individual circumstances. For someone who is willing and able to maintain their home in an older age, there is nothing wrong with owning. At the same time someone who is not able to is likely better off renting. There is nothing wrong with renting and it can provide access to a large amount of equity for some. Personal health in older age is likely one of the biggest factors in the rent vs own debate

  3. Erin D on October 1, 2014 at 8:56 pm

    My brother and his wife had rented from the same landlord for the past ten years. Due to a change in the landlord’s family situation he was forced to move at age 75 to a smaller rental property. He found the move very tiring and overwhelming. If you own this can not happen to you.

    • Boomer on October 2, 2014 at 12:18 pm

      @Erin D: Unfortunately this is something that can happen – even when you own. My parents moved to an assisted living facility after owning homes all their lives. They were well into their 80’s and could not cope well with their house any more. They hated the move – something I hear about every day, even 3 years later.

  4. Mclain on October 1, 2014 at 9:01 pm

    I’ve owned two houses. I made a lot on the first one and lost a lot on the second one. I currently rent and will continue to rent for the foreseeable future. I am really enjoying the lack of responsibility especially coming from owning and maintaining an acre and a half property. Condo rental living has freed up so much time and money!

  5. Paul N on October 3, 2014 at 11:23 am

    I think there is a lot of ways to look at this. You really have to sit down and make a comparison of ALL your monthly expenses of house vs. condo vs. renting. Will you own a car, will you have to pay $200.00/mt more for parking? I think people ignore a few expenses and don’t compare cost’s in a complete manner. Then also ask yourself where will you be the most happy and fulfilled.

    I found when I did that a house made more sense to own. Condo maint. fee’s seem to be going up and up, I think negating some of that zone that used to be an advantage. Plus condo ownership is too restrictive for me with all their BS rules and regs.

    Renting is the cheapest of course but make sure you take advantage of that and invest more. I think you also have to get a bit lucky to find a nice place and good landlords. It’s also what you do with that savings once you have been able to attain some extra money. If your just going to spend it rather then save, maybe the house would be the better choice.

  6. Sean Cooper, Financial Journalist on October 3, 2014 at 4:36 pm

    Downsizing doesn’t have to mean going from a homeowner to a rent. My mother recently downsized when she sold the family home and bought a condo. The maintenance and repairs of a house can be very costly. At least with a condo she won’t have to worry about a new roof or waterproofing the basement.

  7. Paul N on October 3, 2014 at 5:44 pm

    Hey Sean

    You do have to consider the age of the condo. The older the condo the lower the price but the maintenance fees can be staggering. Plus if the condo board decides for example the townhouse or building complex you live in suddenly needs a new roof or plumbing or the underground has a major issue. They can hit you with huge new rates or even a one time special shared fee. I have seen both these scenarios personally.

    In each case there can be unexpected situations that you have to pay for. Sometimes you save short term only to be caught off guard longer term.

  8. Tom on October 6, 2014 at 8:03 am

    Unfortunately, I just can’t do much of our large home maintenance myself. So that sucks. Fortunately, i have one son-in-law who is a handyman/electrician and another who is a pipe fitter/plumber.
    My boiler is old-1981. But then, it really only runs for 6months of the year so it’s just 16.5 years old!
    Fortunately, we’re able to walk downtown or ride our bikes. Unfortunately, our inner city property taxes (about 25% of my pension income) are exorbitant. Fortunately, we see our grandkids every school day as they go to school in our neighbourhood.
    Unfortunately, we have a lot of stuff, it seems. My wife thinks our kids will want it. I totally disagree.
    Fortunately we go to Florida for the winter and, most importantly, we have our health. As well, our son, his fiancé are presently living with us so we have someone in the house if something goes wrong.
    I’d prefer to rent an apartment or small house, possibly in the same area, but then I or rather, my wife, would have to get rid of most of the stuff.
    Seems like an endless list of pros and cons, doesn’t it?

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