When Retirees Should Consider Renting When They Downsize
Another reason to rent: You might not be sure you would stay put long enough to justify buying the condo. Perhaps you're not sure condo life is for you, or that you'll like the new community well enough or be able to handle future increases in condo fees. Or maybe you worry that deteriorating health will force you or a spouse to an assisted-living community.
In that case, renting might give you more flexibility to move on in the next few years. As a rule of thumb, it doesn't pay to buy unless you expect to stay put at least four or five years. That should provide time for gains in your home's value to offset the expenses incurred in buying and selling, such as transfer taxes and Realtor's commission.
After all, if you rent, you can easily change your mind, get out when the lease expires and rent or buy another place.
The downside, of course, is that when you rent you do not have equity, and you can expect rents to rise with inflation. Recently, rents have been going up so fast that many renters are finding it cheaper to buy. Of course, the costs of owning a home go up too -- things such as property taxes, insurance, maintenance and any association fees.It's a tough call, but probably boils down to this: If there's a better-than-even chance you won't stay in the new place longer than five years, renting may be the best option. If the odds favor staying longer than 10 years, buying will probably pay unless you have good reason to expect a big investment return on the cash saved by renting. Between five and 10 years it's a tougher call and will hinge on a detailed look at the numbers: rent and likely rent increases, purchase prices and likely increases in ownership costs, potential investment returns on cash that is not used for a purchase. Use the Rent vs. Buy Calculator to check the numbers. One thing you can be sure of: Renting will be a loser if you squander the extra cash from your home sale. The equity freed up in a downsizing should be put to work, so it will grow -- not frittered away on fancy dinners, cars or other expenditures that have no long-term payoff.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV