There are great reasons to invest in a house after your retirement like on this website. There are on the flip side of the proverbial coin, also many reasons to rent a house. If the latter means that you don’t even have to pay for the repairs and maintenance, the latter may be cheaper.
However, if you don’t have to stress about your landlord raising the rent, the pressure on owning a property will be less. No matter which route you choose, maintenance costs will surely be one of your main monthly expenses after retirement.
Here are some factors to consider when deciding to rent or buy.
- Upkeep costs will become part of your budget, whether you own or rent the property.
- Unexpected maintenance, insurance deductibles, and market fluctuations will most likely increase the cost of property ownership.
- Although homes can qualify as valuable assets, they should not purely be used for investments only.
- Possess additional benefits that provide stability, tax incentives, and equity.
- Leasing provides more liquidity, and you will spend less money on maintenance.
One thing to remember when considering owner-occupied housing and rent is surely the tax impact. Starting from the 2019 return, the eligible mortgage interest declared jointly by the spouse does not exceed $750,000 for a deduction. If you purchased a house before 16 December 2017, you are still allowed to deduct mortgage interest of $1 million, or less, under the old law. The upper limit, however, is US$10,000, and they almost doubled the standard deduction. The Tax Cuts in 2017 and the Employment Act, reduced the total number of people who may use these savings in itemized deductions. Also, rental expenses are not tax-exempt, so renters cannot claim these prospective savings.
Risks to think about
Purchasing a house, rather than renting, after retirement is more cost-effective. However, owning a home also comes with huge financial risks. Issues like market fluctuations, maintenance costs, and insurance can drive up the costs substantially, even more than rent. Regardless of which option you choose, don’t forget about inflation – rent, insurance premium, and tax costs will surely increase.
The maintenance risk which is associated with the property can be an issue. Renting can be seen as if you are buying insurance for maintenance; The tenant is not responsible for the costs of regular maintenance, installation failures, or natural disasters like storms or floods. Fortunately, the landlord must worry about these unexpected expenses.
Although real estate can provide investment opportunities, you shouldn’t buy a home for this reason alone. Housing is a necessary cost of living and the liquidation of investment assets should not involve a search for another residence. Retirees should not consider the investment advantages of a property when planning their budget.
One of the biggest fallacies about owning a home is that it should be seen as an investment. It is simply not the case. Owning your own home, in general, is an expense, and should not be seen as an investment. Investments are vehicles that generate cash flow. Of course, being a homeowner has certain benefits, but when you consider all the costs, the absorption of a large amount of money, the home’s illiquidity, and the fact that home prices are not always growing, this may reduce the appeal of this so-called investment.
To truly describe a home as your investment, the homeowner must buy when the price is low and sell the property when the market value is high by opportunistically buying and selling houses. However, by making a profit selling houses when prices are high and they keep on rising, people have the opportunity to be excluded from the market. Like most retirees, people on a fixed budget are not likely to be able to purchase another house, but they will then have to deal with the landlord.
Cash and liquidity
Additional economic benefits of becoming a tenant may include not having to worry about housing market conditions. Selling a home can be time-consuming, it involves a lot of paperwork and contracts. Real estate agent commissions are payable, thus reducing your return on investment. These tangles are definitely worth avoiding when it’s time to relocate.
Some retirees live solely on pensions, so they don’t always have the benefit of large amounts of cash in circulation. If there aren’t enough assets for unexpected costs, the conventional cost of homeownership can be devastating.
If you are one of about half of homeowners who do not have a mortgage when they retire, according to a recent Financial Survey, the problem of renting and owning a home seems less problematic at first. However, just because you don’t have a mortgage doesn’t make this a sensible choice. However, it is possible to find reasons to stay, especially if you live in a home you currently own and are not leaving due to health reasons.
Stability and control
If you own your own house, you may enjoy more stability and more control. No worrying about the landlord’s rent increase. Similarly, the landlord cannot sell the home. You can still choose to move whenever you want to, no rental agreement with a landlord to hamper your freedom of movement. In addition, you cannot remodel a rental house, at least not without the Landlord’s permission.
Leaving a legacy is very important to some retirees. Others use the home equity to obtain loans, additional credit, or mortgages. In these situations, ownership makes sense. Where the value of real estate is growing rapidly, you may have assets that allow you to appreciate in value. This also means that you can sidestep the common rent increases.
Advantages when renting
Renting a house after selling yours has its advantages. If you are currently renting a house, you will know these advantages. However, if you are a homeowner considering jumping out of the boat, here are some grounds to ponder.
If you do not have an empty nest, are looking to downsize, or are not sure where you will spend your golden years, then leasing makes sense. You may want to relocate for a few years to get a better climate or lower your cost of living, but you can also easily live closer to your loved ones in the future. If you need to move sooner to receive or provide care, the health of you or your family may also be a factor. Assisted Living is for rent or ownership, so you have a choice whether to live there or not. If you end up in a rental house, looking at leasing long-term can reduce the uncertainty of increasing rent.
It is vital to compare the cost of renting a home with the cost of ownership. However, it should be noted that in general, it is often cheaper to own a home than to rent one.
When renting, you may not have structural maintenance costs. Homeowners spend an average of 1% to 4% in maintenance costs per year. Older houses cost more to maintain naturally. One word of caution: Be sure to read the contract of the lease carefully before signing and make sure your landlord is the responsible party for all or most maintenance and repairs.
Rent can free up the funds you can use to invest. This allows you to maintain liquidity and can improve your overall income after retirement. Investments generally grow faster than your growth on your property would be, allowing you to make better use of your available capital. Also, if there is another housing market crash, renting means that you are not at risk.
Considering selling your home and renting it out? It’s a viable option but don’t forget about capital gains tax. Current tax laws allow capital gains for single taxpayers to exclude $ 250,000 and capital gains for joint married taxpayers to exclude $ 500,000. Plus, you’ll be able to subtract expenses like estate agent fees and any improvements that you have made over the years.
In certain cases, expense deductions and exclusions may be enough to almost pay no capital gains tax on the sale. People who lived at home for many years or have high-end residences, may not have that advantage. Many economists predict that as the current administration is discussing new policies, the rate of return on equity will increase dramatically. Before taking action, it is advisable to consult a tax expert to evaluate your options.
People who are about to retire can decide to keep the family mansion or shrink it to a more manageable property. If you decide to move, the pressure and expense of homeownership will be something to keep in mind. Owning or renting a house after retirement involves many considerations, such as what tax incentives are applicable when renting or owning. Be certain that your budget can take the unexpected cost risks associated with owning a home. Finally, decide whether housing is an investment opportunity with potential or would it just qualify as an additional expenditure. There is no right or wrong answer here, but at least we know, home is where the heart is.
(Disclaimer: This content is a partnered post. This material is provided as news and general information. It should not be construed as an endorsement of any investment service. The opinions expressed are the personal views and experience of the author, and no recommendation is made.)