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Downsizing Retirees: Should You Own Or Rent?

There’s been a lot written about the advantages of renting rather than owning a home for young people as they try to find the right balance between their financial situations and their housing needs. These days many older homeowners are struggling with this decision too.

Empty nesters are thinking, “Our 5-bedroom house is too large for us now, not to mention the money drain. It’s time to move to a smaller place.” Downsizing retirees should examine whether renting would be a smarter solution for them instead of buying a smaller home.

Given that housing can be your single greatest monthly expense, it pays to put some thought into renting versus owning once you’re retired and on a fixed income.

What’s the best option for you moving forward? Here are some of the benefits and drawbacks to both options.

Downsizing Retirees: Should You Own Or Rent?

Pros of buying a home in retirement

While home ownership is expensive, many retirees opt to buy and there are some good reasons to own in retirement.

  • Selling your family home and buying a newer, less expensive property reduces your expenses and you may also have money left over from the sale to invest.
  • Buying a house or condo can appear financially attractive because of the ability to benefit from potential price appreciation and build equity.
  • The equity you build in your home can become a source of income – either through a line of credit or receive an income stream with a reverse mortgage.
  • You’ll have a potentially valuable asset to leave to your heirs, even if you spend down your savings in retirement.
  • You can decorate or renovate to make your place look the way you want.
  • Owning is more predictable. There’s no landlord to increase your rent or tell you to move.

Cons of buying a home in retirement

Here’s the downside of owning during your senior years:

  • When you buy a new place with the proceeds from your house sale, that money is tied up and not easily accessible should you need it.
  • Depending on what city you are considering, you may be buying in at a potentially high point in real estate prices.
  • Maintenance can be costly even with a newer home. As you age, your ability to tackle maintenance items yourself might decline, which will only add to your costs. Dealing with major repairs on a fixed income can be a risky prospect.
  • Even with no mortgage payment, you’ll always have increasing property taxes and homeowners’ insurance to contend with.
  • Consider how long you expect to live in your new residence. Just because you’re retired doesn’t mean you’ll stay in your new digs permanently. Down the road you may want something more accommodating to aging or to a disability. The shorter the stay the less financially attractive owning a home becomes.
  • Your home may not be as valuable an asset as you think. While it’s true that owning offers an opportunity to tap some equity or leave something behind to your heirs, you won’t know the value until the “For Sale” sign goes up on your lawn. You may be better off finding a cheaper rental and using whatever money you save as a source of income or potential gift for your heirs.
  • If you do need to sell you are at the mercy of realtors, buyers, and market conditions, plus selling takes time and effort.

Pros of renting in retirement

Many argue that it’s best to own a home in retirement, but home ownership isn’t for everyone. When you sell the family home, it might be worthwhile to rent instead. The biggest difference is in the level of responsibility and freedom. Here are a few benefits of going this route:

  • Your housing cost is whatever your rent is. Fixed costs tend to work better, and can be cheaper, when you are living on a fixed income.
  • You can let the responsibility of maintenance and unanticipated repairs be someone else’s problem.
  • You can test out different homes and locations. You plan to move from an urban centre to a quiet coastal town, for example, or an apartment instead of a house. If the move turns out to be a bad idea, you can just move on. By renting you may be able to try out a couple of options to see which one is the best fit.
  • An apartment building could offer aging-in-place amenities such as elevators, wheelchair access and bathroom grab bars.
  • You have the flexibility to pick up and move when your lease is up. If your health situation changes, or if you decide you’re ready to relocate to someplace warmer or cheaper or closer to family or a care facility, it’s a lot easier to get out of a rental situation. Tenants don’t have to worry about market conditions or liquidity.
  • You could use the cash from the sale of your home to build your nest egg or boost your finances. With this money freed up, you may feel more comfortable spending it on vacations or other items you have dreamed about while you are healthy enough to enjoy it.
  • Being a tenant might be more suitable for people who travel a lot or require ready funds for health issues.

Cons of renting a home in retirement

While renting in retirement has its benefits, switching from home ownership to rented accommodation isn’t necessarily the best move for everyone. Here are a few drawbacks to think about:

  • Usually retired people who are selling their family home have paid off their mortgage. If you move to an apartment, you’ll have to pay rent. Your rent payments will be an expense and you can expect it to increase over time. Granted, you’ll have the option to go elsewhere if that happens, but picking up and moving is costly, and easier said than done, especially as you get older.
  • While there’s something to be said about not having to deal with maintenance and repairs, when you’re renting, you are at the mercy of your landlord or management company to fix problems in a timely manner and keep things running smoothly.
  • You have less control than owners over things like decorating and renovating. Renters often have difficulty modifying their spaces if they acquire any physical ailments as they age.
  • Many retirees with pets may find it difficult to find a suitable rental.

Downsizing: Run the numbers

The decision whether you should buy or rent in retirement often comes down to the particulars of your situation.

First, estimate your monthly cash flow. Then you can compare the costs of home ownership with renting. Add up expected maintenance costs, utilities, property taxes and insurance. Figure in the opportunity cost – what this money could earn if you invested it instead of having it tied up in home equity.

Final thoughts

Where to live is one of the biggest decisions retirees face. For many people approaching retirement, the decision to keep the family home, downsize to a smaller property, or rid themselves of the stress and expense that can come with home ownership altogether is a difficult one.

By the time many of us retire we’ve become so accustomed to owning a home that the idea of renting might never occur to us. A house is likely the largest single investment you’ll ever make and as you enter retirement – a time when most mortgages have been paid off – it can represent a sizable asset.

But if you are pondering a change of address in retirement, it’s worth considering all the advantages and disadvantages of being an owner versus a renter, even if you haven’t been a renter since avocado coloured appliances were in style.

There really is no right or wrong answer. A lot depends on your personal financial situation. The more thought you put into your decision, the better your chances of making the move that’s best for you.

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12 Comments

  1. Bernz JP on April 27, 2018 at 5:47 am

    Part of my retirement planning is to buy a smaller one-level home. I’d prefer buying solely because I am more of an outdoor person and love a nice size backyard. It’s always very relaxing for me to sit on my deck sipping a coffee in the morning. I also like to barbecue and entertain friends and family members.

    • boomer on April 27, 2018 at 4:08 pm

      @Bernz JP. The key is to take into account your preferred lifestyle in retirement and choose the living space that will enhance it. It looks to me that you have that already figured out.

  2. Keith C. Cowan on April 27, 2018 at 5:56 am

    I have two close friends who died this month. Their surviving spouse are left with large homes that are too much for them. They are doing nothing at present but I can see them facing the challenge of unloading them and moving to something more suitable in the next year or two.

    • boomer on April 27, 2018 at 4:12 pm

      Hi Keith. My condolences on the loss of your friends. I hope you don’t desert their spouses like so often happens.
      If I became widowed, I think I would tend to rent a place instead of buy – unless I had a good friend like you to keep up the maintenance for me :).

  3. Eileen Williamson on April 27, 2018 at 9:12 am

    My parents because of age and health sold their home and moved into a supportive living place where meals and other amenties were provided. They have lived in such arrangements for the last 10 years. Looking after a home of any size was beyond them.
    In BC there is government funding to modify a home be it owned or rented to accommodate physical issues including but not limited to modification of bathrooms, ramps etc.

    • boomer on April 27, 2018 at 4:15 pm

      Hi Eileen. My parents also moved into a retirement home about 10 years ago. Pretty pricey, but the security and community of other people around has given my brother and me great peace of mind – a lot more so than just having modifications done to their home.

  4. Cheryl on April 28, 2018 at 10:30 am

    I’ve owned a house and a townhouse, pros and cons as you mentioned above. I rent now. Divorce, sold house, moved. In the Greater Vancouver Area with a low income I’ll never be able to get back in the market. I don’t rule out owning a home in the future, in an area with a lower cost of living. My deadbeat ex left two big dogs with me. I love the dogs and they’re well looked after and I’ll have them for life, but finding a place to rent was a challenge. My dogs are clean, quiet, and well behaved. Finding a place to rent that allows dogs and isn’t a dump is difficult, and that’s the only reason that I’d consider home ownership down the road. I’m very lucky to rent a secondary home on 10 acres with landlords who take care of everything, their property is well looked after, they want everything in working condition. Our houses are far enough apart to provide privacy and I love the quiet of country living and in 10 minutes drive I can be at any major big box store.

    The biggest con that you didn’t mention about not owning a house is the stress. Whether that’s the stress of maintenance inside or out, worrying about paying the mortgage, worrying about the cost of replacing the roof or appliances and other repairs, worrying about taxes going up, and the million other stressful things that owning a house brings you. I don’t miss the stress of home ownership one bit.

  5. Andrew P on April 28, 2018 at 9:17 pm

    My wife and I have been retired about 12 years now. We had a typical family home, 2 story, 4 bedroom, living room (rarely used), family room etc., then both our daughters headed to Universities…one @ Guelph and the other out to Antigonish, St. Frances Xavier….after supporting both with full 4 years (each) university education, our family home became far too large (we were basically using 3 rooms in this house: the kitchen, family/tv room and our Master bedroom….the rest of the former living space was basically dormant ) and outdoor-wise a constant ‘battle’ with grass cutting, gardening etc., and that isn’t considering all the aspects of winter…shovelling driveways etc., …and I was the only individual laden with all these responsibilities & chores.
    Well, enough of this…..SOLD the family home about 11 years ago (the Housing Market was still relatively strong @ the time…just before the BIG Stock Market CRASH) took the monies and bought a NEW end-unit Townhouse about 2 kms from the original family home, so was able to keep the family doctor/lawyer/bank services etc., put about $15,000.00 into upgrades, like new hardwood floors and Kitchen renovations, PLUS bought a NEW comfortable retirement CASA (a detached home in the State of Jalisco, Mexico on Lake Chapala, a large Canadian & American ex-pat retirement community)….we stay in our Canadian Townhome for 6 months and winter in Mexico for 6 months…the best of both worlds
    The original SALE of our suburban family home, basically paid for BOTH homes and BOTH are mortgage free….the Townhome is a freehold property while the Mexican home is in gated community, and has Condo fees etc….
    We own both homes and just maybe, later, when we both get into our 80’s+, IF the trip to Mexico gets more onerous, then, we will sell…currently the housing market where we live in Mexico is strong as more and more American (& Canadian) retirees are looking for their slice of paradise, at the same time, we could sell once again our Canadian Townhome and further downsize…..likely, THEN, renting makes far more sense….who needs ‘all-the-trimmings’ entailed with maintaining a house ?

    • M.Rose Tanaka on May 1, 2018 at 7:27 am

      Hello Andrew P,

      Congratulations! It looks you have the best of both worlds. I retire this October. I own a house. I am cracking my head for ideas, warm places to be…..how can I get in contact with you?

      Thanks

      Rose

  6. John on May 15, 2018 at 6:04 pm

    Hello Andrew P

    Great lifestyle!

    When you’re living in Mexico, how is your house in Canada looked after?

    • Andrew P on May 15, 2018 at 8:07 pm

      Hello John…..well, 1st we have an internal household security alarm system (Rogers), 2nd, fortunately, we have great friends whom we have ‘hosted’ down in our Mexican Casa, and our insurance company (Desjardins) requires that only one visit per week is necessary for their purposes, although our close friend(s) visit twice weekly, to clear out the mail-box, water a few plants, and of course check for any possible water damage etc thru a brief walk-about.

      There are ‘home-sitting’ services which depending upon what ‘services’ you want undertaken, will charge a very basic fee of $25.00/visit (under an hour)…..as we haven’t so far needed this service, I can’t provide what the various ‘scopes’ of their services might entail.

      We have thought about ‘renting’ our house for our regular 6 month absence (we are in a rather ‘hot’ rental area), but haven’t come to gripes about having our ‘personal’ abode occupied by ‘strangers’, and what might occur (chancy) to our ‘main’ house while we are 4200 km away in Mexico.

      Although we have a very nice Mexican Casa (in gated community), 2 bedroom, 2 full bathroom, 1900 sq ft bungalow with a community infinite pool, exercise room etc., we don’t have the same ‘attachment-to-things’ there. So often we rent it, through the summer to ‘sun-birds’ coming from the very hot southern USA, like south Texas, Arizona etc.

      • John on May 20, 2018 at 2:15 pm

        Hi Andrew P

        Thanks for the detailed response. It really sounds like you’ve got it all covered.

        Just one note of caution about home security that might or might not apply to your situation. It comes from Consumers Report magazine, and it says:

        ” HP Fortify on Demand, a security business owned by Hewlett-Packard, studied 10 connected products in 2014, including TVs, door locks, and home alarms. Daniel Miessler, the unit’s head of security research, says that eight of the 10 devices did not require a complex password, seven failed to encrypt data during transmission, and six had user interfaces that were so insecure that attackers could reset passwords”.

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