Should you rent or own your home in retirement

After building up equity over the years, your home might be your retirement plan.  Should you really sell it and rent, sell it and buy a smaller home?  Sell it and be a gypsy in an RV?  According to financial experts, the decision you make isn’t just about money.

It’s also about the pros and cons of being a property owner versus a renter.  It’s about lifestyle and how responsible you want to be, or how free you want to be.

Renting

For years, the advantage of owning a home has been the fact that it’s an asset that will increase in value the longer you have it.  It’s been an investment.  But if you’re retired, guess what.  You don’t have your whole life ahead of you in which that asset is going to gain more value.  And conversely, when the market goes down and the value drops, you also don’t have a ton of time to gain back the ground you lost.  Sorry to sound so glib, but it’s true.

You may want to sell your home and purchase one in an adult-only maintenance-free community.  But just because there’s no snow to shovel and no grass to cut doesn’t mean there isn't maintenance to take care of on the inside.  If you rent and your hot water tank blows, the landlord takes care of it.  Kitchen taps just quit?  The landlord take care of it.  You may not have much control over the decorating in your place if you rent, but repairs and maintenance or renovations are a thing of the past.

If you sell your home and purchase a condo, you are also at the mercy of your condo association. If the reserve fund isn’t sufficient for major structural repairs, you’ll be forced to provide funds over and above your monthly condo fees.

Also, if you do rent and sign a lease, you’re out of that obligation as soon as your lease expires, providing an additional element of freedom.

Owning

When you’ve built up equity in your home, it’s often instantly accessible through a line of credit.  Tap into your equity with immediate access.  If you sell your home and put the equity from your home in an investment, it might take days or a week or more to get the funds out of that investment depending on what type of vehicle it is.

The cost of renting will likely be covered by your monthly income and part of that income will likely be a subsidy from your stack of cash from the sale of your home. Bear in mind that your rent will increase over time, biting into your savings even further.

Unless your plan was to use the proceeds from the sale of your home as your retirement fund, ask yourself about where your money will be safest.  In real estate, or in an investment?   We live in an era of volatility.  It’s not an easy answer.  A stock market crisis can wipe out a lot of your investments.  Home prices will fall but historically would they fall as hard as investment value?

A solution to this might be to sell your current home and right-size to a less expensive home.  That way you can have the best of both worlds – no mortgage payments and a bit of a nest egg.   The best way to navigate this type of decision is to examine the value of your home.

For example, pretend you sell your home and after you pay commission and closing costs you come away with half a million dollars.  If you were to invest that amount of money at a conservative return of 4.8%, you could bank on a monthly draw of $2,000.  That would help pay your rent and leave your capital untouched.   But if you come out of a sale with just $150,000, with that same rate of return, you’d net $600 a month.  Doesn’t have the same shine and chances are in Calgary you wouldn’t find a decent place to rent.

If quality of life is first, money second you have so many more options.   If you plan on wintering south, then renting means you have very little to care for when you’re away.

Consult with a real estate professional and your financial advisor to help make the best decision for you in your retirement.