Should You Own or Rent a Home in Retirement?

By Maurie Backman Markets Fool.com

Despite the many benefits of homeownership, the U.S. rental market has seen a steady increase over the past decade and change. Between 2006 and 2014, the number of renters in the country grew to over 43%, but it's not just younger Americans at the heart of this trend. According to a recent report from the Harvard Joint Center for Housing Studies, since 2005, folks in their 50s and 60s have accounted for the largest portion of the rental market increase.

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Given that housing can be your single greatest monthly expense at any age, it pays to put some thought into renting versus owning once you're retired and on a fixed income. Here are some of the benefits and drawbacks to both options.

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Pros of owning a home in retirement

It's not uncommon to grow attached to your home, so much so that you're willing to hang onto it even once money gets tighter. But while homeownership is unquestionably expensive, here are some good reasons to own in retirement:

  • The equity you build in your home can become a source of income. As long as you aren't underwater on your mortgage, you can use your home to take out a line of credit when you need money. Similarly, you can sign up for a reverse mortgage and use your home as an income stream of sorts.
  • You won't have to worry about your rent going up. While your outside costs, like property taxes and maintenance, might fluctuate, as long as you have a fixed mortgage, you won't run the risk of your actual housing payment increasing during retirement. Furthermore, since 70% of homeowners 65 and over enter retirement mortgage-free, you may not even have a payment to deal with at all.
  • You'll have a potentially valuable asset to leave to your heirs. Even if you spend down your savings in retirement, you can always pass your home on to your beneficiaries.

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Cons of owning a home in retirement

But owning a home in retirement isn't all roses. Here's the downside of owning during your senior years:

  • Maintenance can be costly. The average homeowner spends anywhere from 1% to 4% of his or her home's value on annual upkeep, but if your home is older, you'll probably hit the higher end of that range. Additionally, as you age, your ability to tackle maintenance items yourself might decline, which will only add to your costs. And since you never know when a major repair might creep up on you, owning a home while living on a fixed income can be a pretty risky prospect.
  • You'll always have property taxes and homeowners' insurance to contend with. Even if your mortgage is paid off by the time you retire, these peripheral costs of ownership won't ever go away. Property taxes can be an exceptional burden for seniors, especially since they've proven to rise over time, even during periods when home values decline.
  • Your home may not be as valuable an asset as you think. While it's true that owning offers an opportunity to tap some equity or leave something behind to your heirs, all it takes is another housing market crash to crush your property's value. You may be better off finding a cheaper rental and using whatever money you save as a source of income or potential gift for your heirs.

Pros of renting a home in retirement

Homeownership isn't for everyone, and even if you've eliminated your mortgage debt, it might pay to unload your property and rent instead. Here are a few benefits of going this route:

  • Your housing costs are limited to whatever your rent is. Renting eliminates the risk of growing maintenance costs or unanticipated repairs. And fixed costs tend to work better than variable costs when you're dealing with a fixed income.
  • Renting is almost always cheaper. According to Trulia, it's generally less costly to rent a home than to buy one. Furthermore, of the 100 cities with the highest population of seniors 65 and older, renting makes more sense financially in 98 locales (though this doesn't take the potential to leave a home an as inheritance into account).
  • You have the flexibility to pick up and move as you please. When you're selling a home, you're at the mercy of realtors, buyers, and market conditions. On the other hand, if your health situation changes, or if you decide you're ready to relocate to someplace warmer or cheaper, it's a lot easier to get out of a rental situation than it is to sell a place you own.

Cons of renting a home in retirement

While renting in retirement has its benefits, it's not necessarily the best move either. Here are a few drawbacks to think about:

  • Your home won't be a source of equity. Your rent payments will constitute nothing but an expense, and you won't get any value out of them other than an immediate roof over your head.
  • Your rent can be raised once your lease expires. Granted, you'll have the option to go elsewhere if that happens, but picking up and moving is costly, and easier said than done.
  • You're at the mercy of your landlord or management company. While there's something to be said about not having to pay for maintenance and repairs, when you rent a home, you're reliant on other people to fix problems and keep things running smoothly. Now this is true of all renters, and not just seniors. But if you're retired and don't have a job to go to daily (meaning, you're home more often), you may be more impacted by a faulty sink, broken toilet, or busted radiator that takes days or weeks to repair.

When it comes to owning versus renting a home in retirement, there's really no right or wrong answer. The more thought you put into your decision, the better your chances of making the move that's best for you.

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