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As Baby Boomers retire, they often consider downsizing their
home. This especially true of “empty nesters,” whose
children are grown and have moved away. More recently, many
Boomers are losing their homes due to the Great Recession,
whether it be through foreclosure, short-sales or walking
away from an untenable upside-down mortgage. The question
is, what should they do now? There are good arguments for
both buying a retirement home or simply renting one from
here on out.
It used to be that owning your own home was an investment
that could be expected to appreciate over time. As we have
learned, this is not necessarily the case. Given the state
of the economy, it is unlikely that home buyers will see
much appreciation in market values for some time. In some
areas, in fact, it may be ten years or more before the real
estate market recovers to pre-crash levels, if ever. So
let’s simplify the decision of “buy versus rent” by removing
any expectation of investment appreciation as a factor in
our considerations.
Looking at “buy versus rent” as a strategy where the right
answer is different for each person or family based on their
unique circumstances, the benefits and risks associated with
each choice can be generally summarized as:
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Factor |
Buy |
Rent |
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Major Benefits |
Postpone some or all of taxes
on capital gains from the sale of your previous
home.
After down payment, typically –
but not always - have lower house payments.
Annual tax deductions help
higher-income retirees.
Enjoy more control over a
property than a tenant.
Creates estate value for heirs. |
May be only option if you went
through a foreclosure, deed-in-lieu of foreclosure
or short sale.
Takes less money to accomplish
and it’s faster to get into a retirement home.
Not tied down to one place –
can move if you want.
Savings may do better in
financial investments other than the real estate
market.
Savings have more liquidity
than being tied up in real estate.
Annual housing costs are
usually much less than owning a property.
|
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Major Risks |
Property values could decline
further.
Not easy to relocate if
necessary due to illness, job, divorce, etc.
Annual costs (PITI,
maintenance, HOA fees, etc.) are usually much higher
than renting.
Less liquidity – it can take a
long time to sell a residence. |
Rent may go up over time.
Owner could sell out from under
the tenants, forcing a move at the end of a lease.
Renters forego many tax breaks.
Depending on the amount and
circumstances, you could be taxed on the profit from
the sale of your previous home.
Stocks or mutual fund
investments could decline in value while property
values increase.
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Which choice is better? It really depends on each Boomer’s
unique circumstances. Retiring Boomers who have a nice
financial nest egg and are in a higher tax bracket are
generally better off buying a retirement home rather than
renting. Those Boomers who have been financially hurt by the
recession are likely in a lower income bracket and may have
dings on their credit score too. They are probably better
off renting. Remember, renting rather than buying a property
preserves quick access to liquid investments that would
otherwise be tied up in a real estate.
In the final analysis, much of it comes down to personal
preferences. Many retiring Baby Boomers simply do not want
to be tied down to one location. They would rather rent
homes in different locations during their retirement years.
Others desire the security of property ownership. As we have
recently learned, owning a home is not for everyone, nor
should it be. And Boomers may be the first generation in
quite a while to abandon traditional home ownership during
retirement in favor of mobility and more freedom.
About The Author
Al Kernek is a Internet marketing consultant, author and Baby Boomer. Learn more about issues facing Baby Boomers seeking to retire on a
limited or fixed income at
www.BabyBoomerLifeboat.com, which is also an online portal to Websites containing valuable information and resources for Baby Boomers.
Those interested in marketing consulting assistance to
launch an Internet business are urged to visit
www.SmallBizSmartMarketing.com.
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