Is it Better to Rent or Own When You Retire?
If you're close to retirement, you may question whether it's better to rent or own your dwelling after you retire. Both options have advantages and disadvantages. Renting gives a certain amount of freedom, whereas owning can provide a measure of stability. Ultimately, the decision to rent or own during your retirement years is a personal one.
If you're close to paying off your house, or if you already own it outright, staying put after retirement can make good financial sense. Housing is typically your biggest monthly expense, and without a mortgage payment hanging over your head each month, you can maintain your quality of life and enjoy life to the fullest. And since your income is likely to drop after retirement, paying off your house lessens your expenses and reduces financial pressures. On the other hand, renting after retiring means paying a landlord each month for the remainder of your years. And since rental rates are likely to increase each year, you can expect your monthly housing expense to gradually increase. This increase can complicate your finances and eat away at your savings.
Paying rent is frequently described as "flushing money down the toilet." Rental payments financially benefit your landlord. You don't earn equity when you rent, and if you need cash, you can't obtain a home equity line of credit or apply for a reverse mortgage. It's a different story when you own. Each monthly payment pays down your mortgage balance, and as your home appreciates in value, you build equity. For example, if you owe $50,000 on a house that's worth $200,000, your equity is $150,000. Think of equity as a savings account that you can tap into.
Repairs and maintenance are typical when you own real estate, and they require your time, energy and resources. If you're spending your retirement days traveling and relaxing, home repairs and home improvement projects are likely the last things on your mind. And if you're living on a fixed income, a new roof, HVAC unit or other big house expense can take a chunk of your savings. If you're tired of maintaining a house and you're looking for less responsibility, renting is the practical option. You're not the property owner, thus you're not obligated to make repairs. If the toilet stops working or the roof leaks, you simply notify your landlord and let him handle the out-of-pocket expense.
Freedom to Move
Maybe you're thinking about renting an RV and spending the next year exploring the United States, or perhaps you're planning a move to Florida for the winter. Renting after retirement gives you the freedom to up and move to new locations, which is perfect if you don't want to commit to a single location. You can't easily move when you own real estate. It can take several months to find a buyer for your property, and if the real estate market dips, you could end up owing more than your house is worth. This situation makes it nearly impossible to sell a house.
Valencia Higuera is a freelance writer from Chesapeake, Virginia. She has contributed content to print publications and online publications such as Sidestep.com, AOL Travel, Work.com and ABC Loan Guide. Higuera primarily works as a personal finance, travel and medical writer. She holds a Bachelor of Arts degree in English/journalism from Old Dominion University.