Renting vs. Buying – Which Is Better in Retirement?

Category: Retirement Real Estate

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.
rentingvsbuying

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
topretirementstop10rentvsbuy2016

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?



Posted by Admin on April 29th, 2016

5 Comments »

  1. This was the exact problem we faced when we moved to Green Valley, AZ. My plan was to rent because I was tired of being a homeowner and wanted someone else to have the pain and agony. However, during visits to research what was available, we decided it would be better to buy for many reasons. First of all, the real estate bargains were there thanks to the 2008 real estate crash. Renters were not open to us keeping our cat and we were not going to get rid of her as she is a family member. There were other things such as we can change the colors on the walls and window coverings if we want. We can decorate the patio and front yard as we want (within HOA guidelines). We found an excellent bargain on a 1,500 sf townhome built in 2003 in a beautiful neighborhood very well kept. In 2003, when it was built it was $160K. The prices went up and I think the highest one went for was 225K before the crash. We paid $132K and it came fully furnished even though we did donate a lot of the furnishings to charity because they weren’t our style. Monthly payments are $648 and that includes taxes insurance, and interest. We do have to pay insurance based on what the insurance adjuster appraised it at which was $207K which is fine with us. The prices of the neighboring townhomes have gone up since we bought 10 months ago and are selling from $150K to $165K. If it hadn’t been for the real estate crash, we (and our realtor) estimate these townhomes would have been in $250K – $265K now. To rent a comparable townhome would be $1,200 and up per month. We love being able to decorate the yard with the desert Southwest look. Neighbors have complimented us on the changes we have made. I have never owned a home as well built and as well insulated as this one. So, before making the decision, do as we did. Research the pros and cons for the area and your personal situation. For us, buying was the best decision. I might add that here in Green Valley, insurance and taxes are only 1/3 to 1/4 of what we were paying on a slightly smaller house in Texas.

    by Joanne Hice — May 4, 2016

  2. We own our main home, but rent 2-3 months during the winter. The cost is less than property taxes, utilities and maintaince would be. We have noticed rents increasing and availability is often limited both in Florida and Arizona. Also owning gives one the opportunity to develop a sense of community. Any thoughts?

    by Gabriela — May 4, 2016

  3. We retired early and at age 57 relocated to Florida where we have owned two bedroom/two bath condominiums with our latest in Winter Haven. This condo has 1400 sq.ft., covered parking, gated, heated swimming pool and is close to city center, grocery, library, medical care and we have a commanding view of the chain of lakes from our fourth floor location. Taxes and fees are both quite reasonable. We are now in our mid seventies and thinking that renting might be a better option should something happen to one or both of us. Our children who live in New Jersey and Manhattan have indicated they would not be interested in living in our condo in their future. We have looked and looked in this great city and are unable to find a suitable rental apartment that comes close to what we have here in the Lakeridge condominium we presently own. None of the rental apartments offer walk in/stand alone shower, none offer covered parking and none have a swimming pool that is heated to 83 degrees all year long. We can’t do better here in this central Florida location than the condo we own. Even if we settled for a rental apartment that did not offer what we have here it would cost us considerably more in monthly costs. Maybe some new rental apartments will be built with all the stuff we want at a rental price we would be comfortable with. We are probably dreaming. I guess condo living in Winter Haven will continue to be our fate.

    by David M. Lane — May 4, 2016

  4. For snowbirds, it’s a matter of how much time they are going to spend in the winter escape location. Many who buy tend to stay longer than renters plan to. Some owners choose to buy investment properties, in anticipation of appreciation, to generate a revenue flow. New York has a Star Exemption, enhanced for seniors, on school taxes. Florida has a Homesteading exemption which only requires six months of residence to qualify how snowbirds between these two states can only claim an exemption in one state, unless the deeds on the respective properties are held by exclusive parties (not jointly). As retirees receiving NYS government pensions, our pensions income is not taxed nor is the first $25,000 of our respective deferred compensation withdrawals, so effectively we pay no income tax in NYS, however Florida has no state income tax so it really doesn’t make any difference for us. The Homesteader exemption on our residence in Florida is better than our Star exemption was on our NYS property so we switched our state of residence to Florida. I know some folks from Wisconsin who did the same thing. It might actually make more sense for us to sell our property in NYS and rent a place just for the summer months and we would not be restricted to one place and could visit various areas in and outside of the U.S. for the costs of property ownership which we currently incur in NYS (Property taxes, insurance, and utilities). The sale of our NY property could fund quite a few years of seasonal rentals, and we have not yet tapped into Social Security or our IRAs.

    by Tom Pritchard — May 6, 2016

  5. I think that it is important when purchasing a home in retirement to choose a home that not only fits your needs at the time of purchase but, to anticipate your needs perhaps later on down the road – i.e. a one story home instead of one with stairs. That way you will be able to get more use out of your home for a longer period of time. Great comparison of renting vs. buying. I definitely think you can save money with buying, but it needs to make sense for the individual. Thanks for sharing!

    by Laurie — August 3, 2016

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