Society of Certified Senior Advisors: Do You Buy or Do You Rent?

Retirees considering downsizing or moving may decide that renting is a better choice than home ownership.

Older adults are attached to their homes. People aged 55 to 75 with at least $100,000 in investable assets and the same amount in home equity overwhelmingly (83%) want to continue living in their current home, according to a 2016 survey by The American College of Financial Services. For those who thought they’d move, only 5% planned to rent.

However, according to a 2016 report from Trulia, renting was the less expensive option in 98 out of 100 large cities with a significant population of those 65 and older. Renting is cheaper than buying on the East and West Coasts generally, says Nicolas Retsinas, real estate lecturer at Harvard Business School. So why do seniors hang on to their homes?

“There is a negative stigma to renting,” says David Blanchett, head of retirement research for Morningstar, the investment research and management company. “Even if the numbers don’t make sense, you would buy because you don’t want to be perceived as a renter.”

“Very few homeowners ever showed a desire to rent, but if they did, it was related to their overall wealth,” says Jamie Hopkins, retirement program co-director at American College. “Lower-wealth individuals were more likely to consider renting in retirement.”

Advantages of Renting

But rentals can be as posh as you can afford and they have many benefits that a house can’t offer. Flexibility is one of them. If you’re thinking of moving near the children, consider renting nearby to see how you like living there. If they move, you can easily follow them to their new location. You can also live in Santa Fe for six months, then Anchorage, then Miami … it’s up to you and your budget.

In a rental, someone else shovels the walk, replaces the roof, cleans the gutters, repairs the leaky faucet, and deals with termites. Yes, you can hire those things done, but they are entirely off your plate if you rent. You can also move into housing that has only one floor and a shower with grab bars when you need to.

Making It Easier on Heirs

Estate headaches are often solved when the home is sold before Mom and Dad are gone. Selling the home is stressful for whoever inherits it, says real estate investor Brian Davis. It takes a lot of time and energy, and children may argue over whether one should move in or if they should sell at all. “Retirees should consider offering to sell their home to any of their children and if none bite, then selling it themselves,” Davis says.

Echoing this sentiment is Leasha West, president of West Insurance and Financial Group in Grand Rapids, Michigan. She says that moving out of the family home forces seniors to deal with clutter and give away possessions, thus reducing the burden on the family later on.

Renting Downside

Of course, there are downsides to renting as well. You can’t knock out walls or change the paint at will. The monthly rent can (and probably will) go up, and you are locked into a lease. You may have to pay extra for Fido, too, or pass up the places that don’t allow pets.

Financial Repercussions

You may think that it is just better to own a home than to rent. After all, you can always do a reverse mortgage or take out a home equity line of credit (HELOC). But those are seldom the best option, according to experts.

You can compare the cost of renting to owning, says Thomas W Watts IV, a financial planner with Watts Capital Partners in New York. For example, if you own a home that nets $500,000 after it is sold, that money can be invested. At an annual return of 5% you would have $25,000 per year to spend on a rental, or $2,083 per month. While Watts includes taxes in his calculations with clients, the general idea is the same.

AARP offers a handy Rent vs. Buy a House Tool to help you understand the financial implications. Don’t forget that a married couple gets $500,000 worth of capital gains taxes dismissed on a principal residence, and a single person receives half of that number.

Another thing to consider nowadays is mortgage rates. If you are still paying on your home, hopefully you have low-cost financing. If you go to buy another home and need to get a mortgage, you’ll find that rates have increased substantially. For renters, inflation and rising home prices serve to send rent rates higher as well. Know your numbers and run them by a financial professional before you make any changes. Keep in mind that property taxes, insurance and the cost of improvements will rise over time in a home, and rent goes up over time.

Renting Is Becoming Popular

Most (80%) people 65 and older own their own home, according to research of Census Bureau data by RentCafe, which hosts apartments for rent on its website. But that number is slowly changing. Renter households where the head was 60 or older grew 43% from 2007 to 2017.

Where are most older adults choosing to rent? Hello, sunbelt! Austin, Texas, Phoenix, Arizona, Ft. Worth, Texas, and Jacksonville, Florida had the biggest influx of renters nationally, in that order.

Whether you are following children or seeking out sunny skies, renting can be a practical alternative to buying a home. It can increase your cash flow, offer greater flexibility, and simplify your life when you prefer playing with the grandchildren to mowing the lawn.