April 29, 2016 — One of the biggest considerations most Americans face is determining if, and when, it makes sense to buy a home. In retirement, however, the question becomes a different one: “Should I remain a homeowner?” For all Americans, one recent study by Trulia.com found it is more cost effective to buy than rent. But what about for retirees? Trulia found that it is 41.8% cheaper for retirees to buy than rent in all major US metros. The issue is not quite that simple though, as there are emotional and practical considerations as well as financial ones.
We were very pleased that Trulia reached out to Topretirements for this article, providing us with custom data for our Top 10 Most Popular Places to Retire. This data, presented further down in the article, will give you good insight into the buy vs. rent conundrum for many top retirement spots. You can read their entire rent vs. buy report, “Best Places for Retirees to Rent or Buy.”
Some of Trulia’s general findings:
· Nationally, buying is slightly cheaper than renting compared to last year. Locally, buying ranges from being 52.3% cheaper than renting in New Orleans versus just 14.4% cheaper in Honolulu.
· For retirees, buying is cheaper than renting in all major metros by 41.8% At the city level, Florida offers the best deals on purchasing a home over renting, and popular retirement communities such as Sun City, Ariz., and The Villages, Fla., offer some of the widest margins.
. The 2 U.S. Metros where it is most cost effective to buy rather than rent are both in Louisiana – New Orleans and Baton Rouge, where it is 53% and 52% respectively cheaper to rent. Florida had 2 Metros on the Top 10 Buy vs. Rent list from Trulia, Fort Lauderdale and West Palm Beach.
Cost of renting vs. buying in U.S. cities with highest 65+ population
The chart below contains some great data on the cost of homes, rents, and the buy vs. rent comparison. The Villages in Central Florida offers the greatest advantage to buyers, where it almost 72% cheaper to own than rent.
The Topretirements Top 10 Most Popular Places to Retire
Here is information on home prices and rental costs for the Top 10 Most Popular Places to Retire at Topretirements.com
If You Don’t Have, Or Like Your Heirs, Renting Might Be the Better Choice in Retirement
The Trulia rent vs. buy equation takes into account the value of the equity in your home when you sell. The reality for most retirees is that their retirement home will likely be last home they’ll purchase, so any remaining equity in the house will be passed on to heirs. But what if you don’t have any, or don’t care to pass on anything to the ones you do have?
Omitting the value of home equity in the rent vs. model, it’s actually more expensive to buy a retirement home than rent one in 98 of the 100 cities with the largest 65+ populations. The only two cities where it’s cheaper to buy are the The Villages, Fla. and Danville, Va., where it’s 14% and 7.1% cheaper, respectively. See more at trulia.
A word about Trulia’s methodology
Trulia used a number of financial assumptions to calculate its renting vs. buying figures. You should know them to see if all apply to your situation. Some of them include:
– Quality-adjusted measure of home prices and rents looked at median home value and rent in March 2016 in each of the largest 100 metros.
– Total monthly costs of owning and renting, including mortgage payments, maintenance, insurance, and taxes.
– Future total monthly costs of owning and renting, taking into account expected price and rent appreciation, as well as projected inflation.
– One-time costs and proceeds including closing costs, down payment, sale proceeds, and security deposits (Trulia assumes retirees won’t move as often as younger people).
– Net present value, which reveals the opportunity cost of using money to buy a house instead of investing it.
Here is where you can see the full Trulia Methodology
Pros and Cons
There are also other factors beyond the economic ones. For example, most people believe that owning real estate is important. They want to leave something for their heirs. And they want to outlive their money. Here are some of the renting vs. buying advantages and disadvantages we have discussed in prior articles (see Further Reading below).
Pros of Buying a Home:
– Pride of ownership- the American Dream
– Possible appreciation
– Tax breaks
– Independence and permanency – fix it up the way you want it
– Cheaper (maybe)
– You are in control and don’t have to look for a new place to live (very important in snowbird rentals)
Cons of Buying a Home
– Prices might go down
– Hard, if not impossible, to get a mortgage
– Risky: fire, tornado, hurricane, flood, neighborhood goes bad
– Interest rates go up
– Tax benefits could be taken away
– If you don’t like the state, town, or neighborhood – or your grandchildren move – it’s easy to pull up stakes.
Healthier people more likely to own than rent
We are not exactly sure of all the reasons why (other than economic), but among adults aged 65 years or older, 34% of renters reported fair or poor health compared with 19% of homeowners in that age group. (Source – QuickStats: Percentage of Adults with Fair or Poor Health, by Home Ownership Status and Age Group — National Health Interview Survey, United States, 2014. MMWR Morb Mortal Wkly Rep 2016;65:385. DOI: http://dx.doi.org/10.15585/mmwr.mm6514a8 ).
For further reading:
Buy, Rent, or Stay
Rental Frustrations Lead to the Snowbird Dilemma: Rent or Buy
How to Find a Vacation Rental for Your Retirement
How Anyone Can Find an Affordable Warm Winter Retirement
Your Best Place to Retire Might Be a Rental
Comments? Have you explored the idea of buying vs. renting? What did you decide to do – and what factors did you consider? Are you happy with your decision? Could you ever see yourself renting?