Retirement Real Estate Decisions: Is it Better to Rent or to Own Upon Retirement?


The decision on whether to buy or rent is not a spur-of-the-moment call. It’s usually a well thought out process anchored on various factors such as your income stream, lifestyle choices and whether you have children living with you.  As you retire, one of your priorities might be to downsize your living to reduce your cost of living. Some people downsize to free up liquidity for savings or investments.

Renting a home can make financial sense for retirees in areas where home prices and taxes are generally high, and rents fairly affordable. The tradeoff in renting is that you have more liquidity if you don’t put down a large down payment, however, you will not build equity in a rental.  

Others might consider purchasing a home to build equity.  Simply said, if your home appreciates in value it will be worth more than it is worth now. That said, it’s important to consider the upfront costs in home buying such as the down payment, closing costs, mortgage rates, real estate tax rates in your desired community, whether there are any HOA fees, property and utility expenses.

Here are a few factors to keep in mind when deciding on whether to rent or purchase a home after your retirement:

Consider Your Retirement Lifestyle

For some people, the decision on where to live is not just about cents and sense. There are social and psychological factors at play. Some may want the sense of ownership and the freedom to do whatever they like with their homes which isn’t always feasible in a rental. Whether wallpapering a hall bath to make it a gem or changing out the kitchen backsplash, when renting there are limitations regarding-term term decor changes. While having less flexibility  in decor changes is part of renting, it can be a tradeoff. Some rentals have community amenities such as a pool or tennis courts which can foster new friendships with neighbors.

Less flexibility in decor updates doesn’t mean less flexibility in lifestyle. Many retirees find they enjoy adventure and travel without the worries of home ownership. If you are considering a busy lifestyle of travel, owning a home may not make a lot of sense.

Think of the Value of Home Equity

Homes can be investments, especially in markets where their value is growing. Even if you are not planning to leave your home behind as an inheritance, you should factor in the value of your home equity. If the real estate market you are planning to invest in is growing, owning a home in such a market can be advantageous should you want to  tap into this additional equity in the future. Many homeowners enjoy the freedom to make their home their ‘own’, be it by decorating, renovating, adding on or making small structural changes.

You Could Invest Locally and Rent Remotely

Some people have purchased second homes in popular destination areas. They rent these out by the week or month to vacationers, often keeping a week or two dedicated for their own use. Often, the income generated by the renters pays for the cost of the home over time. When ready to retire, they have a home in their chosen destination all or somewhat paid for. This can be an option which allows you to retire in your preferred area while generating an income stream to offset your monthly payments.

Factor in the Costs of Owning a Home Outright

Purchasing a home outright can be a stretch for your dollar. Compare the cost of the downpayment, and monthly mortgage payments when downsizing, against any potential tax benefits that you would derive from a mortgage, insurance and property tax.

In some real estate markets and cities, selling a home and using the proceeds to rent another home may not necessarily make financial sense. This can be an issue if you’ve owned your home for many years and have little to no mortgage, yet the rentals in your chosen budget and area don’t offer the space you currently value in your home.  This is where cents vs. sense comes to play. Are you willing to trade off the space for conveniences? Would you prefer to have a main floor master suite rather than climb the stairs as you age? Sometimes making a list of the pros and cons of renting vs. homeownership for retirees can go a long way to help make a well planned decision.

Tenants Still Have Responsibilities

Each lease can be as different as the next. Being a tenant may not alleviate you of all home tending responsibilities. The landlord may require you to maintain the lawn and driveway, pay for trash removal and snow removal, pay the water and sewer bills, and even pay toward the replacement of appliances.

You May Have no Control on Future Rental Costs

As a tenant you’re vulnerable to future rent increases. Rental does not always provide long term stability. The landlord may decide to sell the property or increase the rent after your lease expires, whereas if you own your home you have a fairly good idea of what your monthly expenses are and will continue to be.

Renting vs. home ownership is an individual, personal decision. There is no ‘one size fits all’ for retirees. Use this article as part of your discussion to help decide what the best fit for you might be.

For more information on financial impacts of renting vs. homeownership and other wealth management issues, contact us today!