Should you rent or own a home after you retire?
Reaching the milestone of retirement is a joyous occasion. Instead of getting up to work in the morning, you can spend the day enjoying a nice walk, reading a book, or doing whatever else you'd like to do.
Retirement often comes with a change of housing as well. Perhaps you need a more accessible home, or you'd like to downsize to a smaller residence. You might want to relocate to a dream location, like a beach house or even a larger property.
If you'll be moving at the end of your working life, you'll need to make an important decision: should you buy your next home, or should you rent it?
People who are thinking about buying a home are often presented with a variety of benefits. These include being able to customize the residence to fit your tastes, having your monthly payments go toward building equity instead of a landlord, and finding a home with better qualities than a rental property, such as a larger size or more amenities.
These advantages can still hold true when buying a home after retirement. As with any home purchase, you should try to anticipate how long you expect to stay in your new residence. David Rae, writing for Forbes, says buying a home is a good option if you think you'll stay at your new address for at least 10 years. If housing trends are favorable, you'll be able to enjoy the property and build up equity in the new residence as well.
Buying can often be surprisingly affordable. If you've owned your home for several years, you'll likely have a substantial amount of equity that can go toward your next purchase. If you're downsizing, this equity may be sufficient to cover all or most of the purchase price. Jane Bryant Quinn, writing for AARP, says buying is a good choice for those who can pay cash for a home and still have enough money left over to live on.
Owning a home also comes with certain tax benefits. Jim Probasco, writing for the financial site Investopedia, says these include deductions for mortgage interest and property taxes.
Qualifying for a mortgage is often easier to do for older buyers. Terri Williams, writing for Realtor.com, says these buyers usually have better credit scores and less debt, making them more attractive to lenders even if their income tends to be lower.
Purchasing a home also ensures that you'll have more stable housing costs. While some expenses are more variable, such as insurance and property taxes, you'll have a fixed mortgage payment each month. By contrast, rents will often increase over time.
On the other hand, purchasing a home also comes with added expenses such as paying for a home inspection and closing costs. Rae says you'll also be responsible for all of the associated costs of homeownership, including maintenance, utilities, and any necessary repairs.
Any home purchase comes with a certain risk that the property will be a poor investment. Probasco says you'll need to expend a substantial amount of money for the down payment, and market changes could cause the property to lose a good chunk of its value. The purchase could also tie up a large amount of money in the property's equity, where it won't be accessible unless you sell it or borrow against the equity.
You'll also be responsible for any regular upkeep of the home, which can be time-consuming. If you aren't prepared to take on tasks such as mowing the lawn or shoveling snow, you'll need to hire someone to do this work for you.
One compromise many retirees opt for is purchasing a condominium or a residence with a homeowners association. Williams says these residences include regular fees that cover the majority of the property's regular maintenance.
In many cases, renting can be more affordable than purchasing a home – especially if you don't think you'll stay in one place for a long time. The initial costs tend to be minimal, such as first and last months' rent and a security deposit. Probasco says renting is less expensive than owning a home in most markets, which can be a crucial consideration if you're on a fixed income and living off your retirement savings.
Part of the reason renting can be more affordable is that you won't be responsible for the expenses of maintaining the property. The landlord is on the hook for any roof repairs, appliance replacements, or other costly work. Some will include certain utilities with the rent, and many landlords are even willing to help older residents with regular tasks such as taking out garbage or changing light bulbs.
The lower costs of renting will free up more money for other purposes. Susan B. Garland, writing for the financial site Kiplinger, says this money can be put toward the stock market or other investments that can have a higher yield than home equity might provide.
Renting also gives you more flexibility. Garland says you'll also be able to leave the residence more easily if your new address doesn't work out or if you want to move to another home after a few years.
One downside of renting is that rent increases can be unpredictable and may ramp up your living costs considerably over time. Probasco says you'll also have less ability to customize your home.
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