Owning your home is a good idea, but is it a good idea to stay in it throughout your retirement? I know that buying or selling a house is 90% emotion and 10% logic and it seems that even I have difficulty thinking about my living and housing situation in my older years of retirement. It’s almost like it will never get here and so why spend much time thinking about it – I’ll just wing it. As a Realtor who works with retirement age clients helping them sell their homes, I know that “winging it” doesn’t work very well. I see all sorts of great choices out there for seniors and different housing options for retirement - all of these options are available by rent month to month, to buy or invest in, to buy-in and pay monthly fees, special medical needs and steped up care, even moving in with the kids. They all look great for the most part. The factors here are how to pay for it, when and what are the priorities facing us. We’ve all been watching our home value rise and then fall and maybe if you’re one of the lucky ones your house might be close to being paid off. What a concept! That was how everyone used to do it. We talk to our financial adviser, our family and friends for their opinions and still it’s a hard decision to make. Rent or Buy?
Remember I said that buying and selling a home is 90% emotion? That’s where a lot of the problem is. Renting may make sense logically but what I’ve learned is for some people a lot of their “emotional security” comes from owning their own home and so it makes it that much harder to let go. It’s yours, no one can kick you out, or rearrange your furniture ( hey who put that couch there, it wasn’t there yesterday?). All
this is great stuff, but for those of us that are thinking about downsizing ourselves or who have parents who “just won’t leave” their homes, it’s not about logic – it’s about emotion. This generation is of the mentality that your home is your fortress and a “good” investment that will help finance their retirement one day. They’re right again, but when to take advantage of the value tied up on the home is important to. Home prices have had a great run-up in value this past decade but as history has it, home prices are capable of decline, sometimes for long periods.
I’ve personally watched my mom’s house decline not only in value but in maintenance in the last few years. My mom and stepdad are quite proud of the fact that they’re maintaining in their home in their older years, however, the jimmy rigs and fix ups that I’ve witnessed are a bit scary, not to mention my mother’s health issues and the stairs. As a Realtor, I naturally walk into any ones house and notice these things. Forgive me mom. Renting may make economic sense to them, but emotionally they can’t imagine it. The downsizing, the memories, having a home for the “family”, you get it right? While I am screaming inside, sell – sell- sell why you can! Get out from the payments, the maintenance, the taxes, they are thinking about when the next golf game will be on TV this week and when the grandchildren will be visiting next.
Things to consider when deciding or helping your parents to decide whether to buy or rent after retirement:
- Age and Health – two big ones. This will determine whether aging seniors can even consider routine home maintenance or the stress of worrying about it. Age isn’t the deciding factor alone, but health issues do becomes more important. Renting frees up these issues because someone will care for the home for them.
- Fixed Income - most seniors live on fixed incomes and have to budget carefully. A sudden medical expense could wreak havoc on a fixed income budget leaving few choices.
- Financially security – if your finances are such that you don’t have a fixed budget and just want to travel, owning a home might put straps and limits on you that might just impede your retirement fun and travel ability.
- Lifestyle - while you are out traveling the world and enjoying your free wheeling retirement, remember that a health issue could arise anytime forcing you to make living and lifestyle adjustments to the current home or sell the home and moving to a more accommodating living situation.
All of these considerations will have an impact on the housing decisions moving forward. Weigh out the senior’s priorities and their financial situation first. Do a price comparison between the current living situation and an alternative, such as month to month renting (quite a bit of these places are all inclusive). Don’t forget to include things like food, housekeeping, wellness program, yard and home maintenance as well as the usual mortgage, taxes and utilities.
If you’re a numbers person and are looking for other financial market indicators to help with your decision, Seeking Alpha has a a good article basically saying that if the cost of renting is lower than the cost of owning you should consider a rental option for a few years. For example rent in an active adult retirement community to see if you like it and to watch what the real estate market does. You might miss the bottom of the market to buy, but it takes the risk out of buying in the wrong community for you.
Another method you should explore is the concept of the rent/purchase ratio. You take the sale price of a particular home and divide it by the annual rent you would be paying – the higher the number the more you should consider renting. An example given by the website Top Retirement points out that in Miami the peak ratio was 28.2% and in Pittsburgh the ratio is 13.6%. In Boulder Colorado an average patio home or flat in one of the active adult communities would cost you around $400,000 -500,000 or more to buy. The average month to month rental would average 3600-5000 month (43,200-60000 annual). That rent/purchase ratio would be between 9.26 – 8.3. That is fairly low so the argument would be to buy instead of rent.
Back to the EMOTION part of selling your home. One of the most important things is to “have the talk” with your parents and make a plan before something bad happens. There is just too many things that can happen during crisis time that can go haywire and one of them shouldn’t be about selling the house. Also, to sell the house for top dollar the house still needs to be in top shape. I know, it’s a tough subject and a touch decision. But it makes logical sense right? Alright, I know, it’s an emotional thing. But money is money in the long run and if money is important and you might need it to live on it than make sure you get the most you can for the house.
I also
want you to know that it’s never too soon to call on a Realtor and make sure it’s a Senior Real Estate Specialist that understand the intricacies of this part of your parents lives. They can be your ongoing adviser as far as the market goes, (and this might go on for a few years) what needs to be done to help downsize your parent’s household and how to go about doing it, and how much work should be done to sell the house. Get the Realtor involved from the beginning. It’s to your advantage because you and your parents will develop a relationship with the Realtor so that when the time does come to MOVE (that bad word again) you’ll be ahead of the game and I guarantee you and your parents will feel much more comfortable. I know it works I’ve seen it many times.
I was visiting a leasing retirement community a couple of days ago and was taking a tour and explaining what a Senior Real Estate Specialist does and the tour lady said to me “you know, that’s exactly what we do. We have people that have been calling us and visiting us for years – they’re just not ready yet to make a move. But when the time comes, guess what, everything will be ready for them.” A perfect match in my book.
I hope this helps bring more light to the decision of whether to rent of buy in retirement, now get out there and go have fun checking out all the great places to live!
