Many people relocate somewhere warm when they retire, but what do they do about their living situations? Do they buy a new house or do they rent in their new destination?
There are benefits and disadvantages to both homeownership and renting in your golden years. Most of the time renting a home has fewer costs than owning and can free up time and budget for retirees, but they’ll also lose access to hard-won equity if they sell their home. The right choice for you depends on your financial situation and some personal preferences.
Only 5% of seniors planned to rent, according to a survey by The American College of Financial people ages 55 to 75 with at least $100,000 in investable assets and $100,000 in home equity. Unsurprisingly, 83% of seniors said they wanted to remain in their current home for as long as possible, speaking to the importance of stability.
While most home-owning retirees don’t seriously consider selling their homes and renting, there are, however, a number of advantages to doing so.
When the nest empties out, you might not need all the space of your current home. You may want to move somewhere warmer or with a lower cost of living. If you're adventurous you can move to new cities or even countries and explore different areas, since you're only tied to a lease and not a mortgage. If you want to be with other seniors, you might be able to find a rental in a retirement community.
Of course, nobody likes the process of moving, and lease agreements aren’t exactly sterling examples of flexibility, but it’s significantly easier to move into a rental property than it is to sell and then buy a new home.
There are exceptions depending on where you want to live, but most of the time, it’s cheaper to rent than to buy, so you’ll pay less than you would on your monthly housing costs as a homeowner. Retirees won’t have to deal with paying property taxes or for services like garbage and recycling, and the cost of renters insurance is much more affordable than homeowners insurance.
When you rent, you’re not financially or physically responsible for any home maintenance; your landlord or property manager is. That saves you money, time, and attention whenever something goes wrong in the apartment and frees you from having to mow the lawn, rake the leaves, fix any appliances, or maintain the property’s curb appeal. You may even have some enviable amenities in your rental. Just make sure you read the lease carefully to ensure the landlord doesn’t try to wriggle out of responsibility — especially if you’re renting a larger property, like a single-family house.
With less money going to your mortgage, taxes, and maintenance costs (not to mention a down payment, if you were thinking of buying a new home), you have more liquid cash to use how you’d like. More cash allows you to put more money aside for your family as an inheritance, or pay for the things you really want to do in your retirement. You can even use the money you're saving towards investing instead.
Renting a home isn’t without its drawbacks, especially for senior citizens. Here are a few things you to keep in mind:
Everyone has a landlord horror story. When you’re not in charge of your own space, there are always inherent risks. Tenants might become subject to unpredictable rent increases, strange lease clauses, eviction for seemingly innocuous things, or simply have a negligent property manager who refuses to honor maintenance requests.
For some retirees, selling their home means cashing out their largest investment. If you’re strapped for cash or need to finance something, you won’t be able to benefit from borrowing against your home equity if you sell your house and become a renter. That means no chance of a home equity loan, line of credit, or a reverse mortgage, if it comes to that.
Renters get no special tax advantages, like writing off mortgage interest and property taxes. That’s not a huge deal since you also don’t have to pay those taxes in the first place, and you may have already paid off your mortgage by the time you retire.
Landlords are picky about how you treat the place you’re renting and leases often have clauses limiting what kind of materials you can use to hang your wall decor. Retired tenants may miss out on the sense of control they have over their space that comes with homeownership. You likely won’t be able to renovate a rental, so you’d better be very content with the space.
If you’re a retired homeowner considering selling your home, there are a number of factors to consider before you follow through with the decision.
For retirees who have an empty nest or need to downsize to a more manageable space, selling their home may be a great option. Retirees can assess their future needs and goals for their lifestyle, such as wanting to travel, relocating closer to family, or moving to a senior community.
Selling a home can be an emotional decision for retirees, but it's important to consider various factors to make an informed decision. By evaluating financial goals, lifestyle, timing, and selling options, retirees can determine the best course of action to take. Ultimately, it's about creating a retirement plan that meets their unique needs and goals.
Selling a home can help provide financial resources for the retirement years, but depending on how much your house is worth and how old you are when you’re selling, you may not make enough to cover your monthly income for as long as you’d like.
Make sure to evaluate the current value of the home and estimate the net proceeds if you're thinking of selling and renting. This can help retirees understand what they can afford and plan how to use the funds, such as investing or using them to purchase a smaller home. It's also worthwhile to consult with a financial planner for more tailored advice.
Home prices and market values generally appreciate over time, making a home an excellent and steady investment. But they can also go down because of housing market fluctuations and unforeseen circumstances, like bad neighbors. If you’re dreaming of liquidating your home equity and retiring on the profits, put that idea out of your mind. It’s possible, certainly, but don’t count on it until you’ve finally closed the deal.
When you sell your home with Orchard, we can help retirees get their home ready for sale with listing prep and basic upgrades. We can also give you a guaranteed cash offer. Get started with a free valuation.
If you decide to sell your home, timing is an essential factor. Retirees need to assess the current real estate market and housing trends to determine if it's a good time to sell. It's also important to factor in the costs of moving and finding a new home, which can impact the timing of the sale. Make sure to work with a real estate agent you trust who can help price your home to sell no matter the market.
When you sell your home, you might be subject to capital gains taxes. Assuming you’ve lived in a home for at least two of the previous five years, you’re likely eligible to write off up to $250,000 ($500,000 for couples filing jointly) of profits in a home sale. If your home has appreciated more than that since you bought it, you may owe a significant tax bill.
Also keep in mind that while homeowners pay certain taxes that renters don’t, they’re also entitled to certain accompanying tax benefits. If you sell your house and rent when you retire, you won’t be able to benefit from the mortgage interest deduction or property tax deduction.
Here are more details about selling and renting a house during retirement.
There are several reasons why someone might choose to rent during retirement. Renting offers flexibility to explore different locations, freedom from the responsibilities of homeownership and maintenance, reduced financial burden without mortgage payments and property taxes, access to amenities and social opportunities in retirement communities, and the ability to adapt to changing needs and preferences as they age.
Renting can be more affordable than buying a retirement home, depending on factors such as location, housing market conditions, and personal financial circumstances. Renting eliminates upfront costs like a down payment and ongoing expenses such as property taxes and maintenance, potentially freeing up funds for other retirement priorities.
Selling a retirement home can vary depending on factors such as market conditions, location, pricing, and demand. While it may take time and effort, properly pricing, staging, and marketing the home can increase the chances of a successful sale.
When you list with Orchard, we’ll get your home show-ready and make repairs to increase your home’s value at no upfront cost.
Orchard guarantees your home will sell, so you can buy your next one worry-free.
We provide peace of mind that your home will sell, plus list your home on the market to maximize your earnings.
Use our home sale calculator to estimate your net proceeds.
Our Home Advisors are experienced local agents who know how to sell for top dollar and help win your dream home.
All Orchard Home Advisors are experienced agents who know your local market inside and out. Request a consult today.
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