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When Does it Make Sense to Rent in Retirement?


Deb and Bruce Homan are in their 50s, empty nesters, and for the first time in decades, renters. They sold their large suburban home in Minneapolis and moved to a high rise in downtown Chicago when Bruce got a job offer in banking more than a year ago.

"We like renting. We are in walking distance of the theater, restaurants, shopping. We haven't decided where we want to live in retirement, as renters we can easily pick up and move without worrying about having to sell a home," says Deb.

The building offers a fitness center, outdoor pool and hot tub, resident-only bike share program, 24-hour concierge, on-site pet care service, nearby lakes, parks and more.

"Our space is smaller, but we don't miss our big home. It was cathartic getting rid of all that stuff. We don't have rakes, lawn mowers. Less is more."

The Homans are not unique. Many are finding that renting can be a real plus in retirement.

Conventional wisdom says home ownership is best. The arguments are well known. If the home is paid off by the time a person retires, there's no monthly payment. You can also make any structural changes to the home if needed, and remaining in a familiar environment can be crucial for people who become cognitively impaired, points out Debra Drelich, geriatric care manager and founder of New York Elder Care Consultants.

There's home ownership's promise of capital appreciation, though the last several years have tested that belief.

Then too, renters face the constant threat of increased rent at the end of their term, which can be a significant factor for those with a fixed income, says Patrick McGonigle, a certified financial planner with CJM Wealth Advisers.

However, there are times when renting can be a smart strategy.

How's the real estate market?

When you think the real estate market is overpriced and don't want to buy with the possibility of being under water in a few years, renting makes sense, says David Shucavage, president of Carolina Estate Planners. "This would have been my area, a retirement community in coastal North Carolina. Many of my clients are still under water in houses they bought in 2005-2007."

When Anthony Kirlew, a financial consultant, former realtor and mortgage banker, and his wife moved to Phoenix in 2007,they looked at buying and ended up renting a condo that was selling for $150,000. Within a few years, that condo value dropped to about $60,000.

Test drive an area

Maybe you're not sure where you want to live in retirement. Renting can serve as a way to test drive a city, says McGonigle. "Many retirees move to warmer locales. Renting for a year allows retirees to determine whether that neighborhood or city is truly the place where they want to buy a home without having to make the significant outlay of a down payment."

Or, for retirees who want to explore a new city or country, renting can allow them to live a in a place for fixed period of time, and them move on to a new city, without the hassle or expense of selling a home.

Do the math

Renting eliminates owing real estate taxes, having to pay maintenance costs and most of the "gotchas" of home ownership, like having to replace a boiler or huge home heating bills in the winter. "Renting in retirement makes sense when a retiree living on a fixed income can more reasonably predict the cost of the rental, than the cost of the home. Owning a home can be more or less expensive than renting, so it will depend on the retiree's personal situation," says Lock Bingham, a financial advisor and chartered registered retirement plans specialist with Sterne Agee.

property taxes and mortgage interest deductions are only beneficial if you pay taxes and itemize deductions

Know too, that property taxes and mortgage interest deductions are only beneficial if you pay taxes and itemize deductions, says Anna Pfaehler, a certified financial planner with Palisades Hudson Financial Group. "Not all retirees will receive the full tax benefits of owning a home, which makes ownership more expensive."

What are your priorities?

If you find a retirement community that offers the amenities you want, like a pool and golf, for example, but it only rents, then forgoing ownership to get the lifestyle you want can make sense.

Renting is also a viable alternative if you want to preserve the part of your savings that would be devoted to the home, for other things, such as health care.

Speaking of health, there's a lot of upkeep of a home that can be demanding physically, such as maintaining the yard and doing repairs. If you're not capable of doing home maintenance and it will be a financial burden to hire someone to do it, this could sway your decision about renting, says retirement specialist David Alemian. Renters, of course, can simply call the super to make the repairs.

For the snow birds, those who flock to Florida in winter and are okay with New England in the summer, renting is ideal. Alemian says, instead of paying the costs to maintain two homes with each being empty for six months, a better solution could be to just rent for six months in each location.

Says Deb Homan, "We are enjoying our lifestyle. I'm not sure we'll buy a home when we retire."



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28 Comments.
Comment #1 by Shorebreak posted on
Shorebreak
"Renting in retirement makes sense when a retiree living on a fixed income can more reasonably predict the cost of the rental, than the cost of the home. Owning a home can be more or less expensive than renting, so it will depend on the retiree's personal situation,"

OK. That about sums it up.

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Comment #2 by shipwreckedandalone (anonymous) posted on
shipwreckedandalone
Your rent will get raised every lease renewal. Sign a 2-5 year lease and negotiate less rent by doing so.

6
Comment #3 by Anonymous posted on
Anonymous
Living in a rent controlled city is a way to have fixed costs, and after 20-30 years those costs can be very much below the going market price. The problem is that these tend to be big cities, so the eventual move to a retirement or nursing home will be very expensive unless you move out of the region to another with a lower cost of living. Sadly I see lots of very elderly women in San Francisco who should be in such a facility but are instead struggling with things like getting groceries on and off a city bus.

5
Comment #4 by Anonymous posted on
Anonymous
Rent or lease is a losing proposition.
You may be evicted for whatever reason, including owner change of the units.
The rent are on par with mortgage payments but no equity building.
Insurance is more expensive and there is no garden to work on or landscape to enjoy of your own and when you include the spaciousness of the house in relation to a small appartement you just wasted your money and life in enclosed 4 walls.

14
Comment #5 by Anonymous posted on
Anonymous
This is a liberal view for the renting business. My question is:
What happens when your present fix income can no longer sustain the rent payments, do you downsize to public housing or do you become homeless, since your life style is to spend and spend without wary when you chose to live wary free.
It is not likely that your fixed income will outpace the inflation and the cost of living, do you go on government dole or you trade your pride with work and self sufficiency.
The endless printing of money and the democrats demanding no debt ceiling will make everyones life misarable in future, therefore, I conclude that renting is not going to be easy or predictable as #1 shorebreak thinks.

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Comment #6 by Anonymous posted on
Anonymous
Possibly true, but the same could be said for owning your own house.  Fixed income not keeping up with increased taxes, insurance, maintenance, etc.  Rent or own, life's a crapshoot!

4
Comment #7 by Hoody posted on
Hoody
I'd like to rent too, but the cost of even a small apartment is crazy, and like one said as rents go up and you could always be evicted.

Luckily I bought a small cheap home back in 80, paid it off in 07, live in a small city, my property tax amounts to less than 100 bucks a month, where could I rent for that? a 3 bedroom home with 3/4 ak land. Since I have no one around that would want it, I don't spend anything on it, only if the roof leaks or the hot water heater busts. I have never even bothered to paint the inside in 30 years 

But for simplicity a small apartment would be fine, they are just nuts on the rents and rules.

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Comment #9 by Anonymous posted on
Anonymous
Just get reverse mortgage and live rent and mortgage free forever, problem solved. You can not do that if you rent,

4
Comment #12 by Anonymous posted on
Anonymous
Personally, I would never even consider a reverse mortgage.  Be very, very careful what you are getting into with a reverse mortgage.

4
Comment #10 by Marion C. (anonymous) posted on
Marion C.
We are in our late 50s.  We sold our house to "downsize" nine years ago, and rented a house in our community.  We read all the articles and bought the wisdom that renting was the way to go.  Even our financial planner said so.  Long story short, after 3 years of bliss, our landlord decided to sell the house.  We of course didn't want to buy, so we had to move.  Very disruptive, upsetting and expensive to say the least.

Not wanting to repeat a mistake, we rented a place in a nice apt. complex in our community.  Another mistake, just a different one.  Even though we took their largest apt. unit (3 bedrooms), we had noise from neighbors, lack of privacy, inconvenient parking, etc.  Plus, the rent went up EVERY YEAR, the maintenance was free, but sub-par, etc.  The kitchen appliances were OK, but we couldn't change them, etc. It became clear that this was not be our long-term home.

Last year, we bought a modest but comfortable home in our community.  This was the way to go.  We have more control over our expenses, a garden, privacy, tax write-offs, etc.  If we don't like something in our home, we can change it.  The "experts" who sing the praises of renting vs. owning are often wrong, even for empty-nesters.  Just our opinion.

10
Comment #29 by Anonymous posted on
Anonymous
One of the nice things about renting is that if you have bad neighbors or things change in the neighborhood, you can move as this person did. (in NYC where I live, there are constantly new buildings going up so that nice view you had last year can this year become looking onto a wall.
And those nice neighbors you have when you moved in might sell to the neighbors from hell.  Also, as many towns and cities face financial challenges, the services they provide might be downgraded and neither you nor anyone else might want to live there anymore making selling your home difficult.

2
Comment #11 by Anonymous posted on
Anonymous
When does it make sense to rent? When illness makes it impossible to maintain and manage your life in the house.  It never makes sense to rent if your house is comfortable and in a quiet neighborhood. Only if you have suffered some type of financial setback and are still paying off a mortgage, then it might make sense to scale down with a rental.

4
Comment #13 by Anonymous posted on
Anonymous
The only way I would ever consider giving up my home that I own free and clear is if I ever get feeble enough through permanent illness or age, that I could no longer remain independent.  Then I would make my move into a retirement community.

2
Comment #14 by Anonymous posted on
Anonymous
my yearly rental costs is less than the home property tax of most my friends in TX.

Plus no water bill, home insurance, garbage bill, lawn mowing costs, all home appliance repair costs (A/C, dishwasher, dryer, washer, water heater).   

3
Comment #16 by Anonymous posted on
Anonymous
I rent an apt in TX and am forced to have rental insurance and must pay a garbage and pest control bill, but not water.

2
Comment #15 by Anonymous posted on
Anonymous
When we did a careful rent vs own comparison, listing every single cost we could think of, it became clear that for us renting was much cheaper up to about 10 years or so, then owning started becoming a better investment, but the calculations involved making so many assumptions about where propery taxes would be in 10 years and other factors such as inflation, health expenses and so forth, that we decided to just do what suits our lifestyle the most now and for the near term. Let's just say that when we call maintenance for even the smallest problem like changing a light bulb it's taken care of immediately :-))

2
Comment #17 by Shorebreak posted on
Shorebreak
When renting, always consider that property tax is embedded in the monthly rent. The property owner(s) are not going to pay for that out of their pocket. During periods of high inflation rents seem to rise exponentially. After retirement, my parents sold their home and purchased a 3BR/2BA mobile home, but paid space rent, in a 5-star mobile home park on the West Coast. When inflation hit in the 1970s the park owner raised the rent by $100 per month twice in one year. My father realized at that point that selling the family home was a big mistake. Being held hostage by a landlord is a really bad situation to be in.

7
Comment #18 by Anonymous posted on
Anonymous
Good point but a) areas that have a lot of rentals (e.g. Orlando) stay competitive and (b) if you like the spot sign a long-term lease which freezes most of your expenses for awhile. Too many people I know lost their shirt when they bought and are still underwater, some by 50%, but to each his own...

2
Comment #20 by Shorebreak posted on
Shorebreak
If your home is paid for and you like where you are at there is no "underwater". I purchased my home 10 years ago and it's market value has increased almost 50% due to an oil boom in the region. The home is paid for and when the boom turns to bust it won't really matter unless I really wanted to move.

5
Comment #19 by Hoody posted on
Hoody
yup I had the same idea in mind at one time, the park I used to live in before I got the house is still there, I paid 100 bucks a month rent space, that incl garbage and water, now its up around 400. yeah I figure I could get around 100K for my house and buy a used cheap mobile home, but the rent fee along with the usual maintenance on MY trailer would be 4 to 5 times what I pay now with this house. So for now I gave up on that idea for a few more years. Maybe once I get to 75 or so and have less time to care about the cost I might think about it again. But than the housing market would have to be so I could even sell the house.

3
Comment #21 by Shorebreak posted on
Shorebreak
The space rent in 1972 was $95 per month at the park my parents resided at. It is now close to $1,000 per month. They purchased their mobile home for $18K and now a new one goes for $250-300K. Of course, to keep things in perspective, the median home price in that zip code is $750K and the rent on a 1BR apartment is now about $2,000 per month.

2
Comment #22 by Anonymous posted on
Anonymous
A mobile home costing &250-300K?  No way! 

2
Comment #23 by Shorebreak posted on
Shorebreak
Just one example:

Buy: $329,000
Casa De Amigos Mobile Park   1085 Tasman Dr. #33 Sunnyvale, CA 94089 Sunnyvale, CA 94089   Serial #SACO34727CAA/B/C

Brand new home coming soon in the beautiful all age community of Casa De Amigos! This stunning 3 bedroom 3 bathroom home with 1,925 square feet will not last long!

http://www.mhvillage.com/Mobile-Homes/Mobile-Home-For-Sale.php?key=1024297

3
Comment #24 by Anonymous posted on
Anonymous
shorebreak,  hope your not too cold!

1
Comment #27 by Shorebreak posted on
Shorebreak
Cold? I reside in the tropics. :-)

3
Comment #28 by Anonymous posted on
Anonymous
dream on...

1
Comment #25 by Anonymous posted on
Anonymous
Yes, I can see that.  On a lot in a mobile park and considering the area where the park is located.  The price wasn't for the mobile home only, being purchases from the manufacturer.  That's not the impression your in your #21 comment.

1
Comment #26 by Shorebreak posted on
Shorebreak
That price includes set-up on the space in Casa De Amigos Mobile Home Park with all electrical appliances installed. Other than that it's the contract price from the mobile home dealer. The "manufacturer" of the home isn't involved except for warranty issues.

2