Should I Sell My House and Rent When I Retire?
Should I put my house up for sale when I finally retire?
If you own your property free and clear or have a significant amount of equity in it, selling it may be able to assist you in funding your retirement. However, renting throughout retirement may end up being more expensive than aging in place in a home that has already been paid off, in which case your only financial obligations would be annual property taxes and maintenance.
The transition into retirement is a significant life change, and in some cases, one significant life change can lead to another. Should you continue living in the house you’ve been in since you retired? Or is it time to start a new chapter? Think through the following arguments in favor of staying or leaving so that you may make the decision that is most appropriate for your circumstances.
Justifications for retiring in the house you’ve been in all along
According to Zillow’s definition, empty nesters are homeowners who are at least 55 years old, have resided in the same property for at least ten years, and do not have children of any age residing there. The number of households that are now considered to be “empty-nest” homes is on the rise, and here are some of the reasons why members of this generation prefer to remain in their current location.
You feel a sense of community even at this early stage.
It could take some time before a neighborhood starts to feel like home. It’s natural to have sentimental feelings for the area you now live in, especially if you brought up your family there.
Already, improvements have been made to your residence.
If you have already invested time and money into making your home more comfortable so that you can continue living there as you age, you may be less likely to want to move and begin a new life elsewhere. And you always have the option to keep altering it as your requirements shift. According to research conducted by Zillow, one-fifth of homeowners who are retired have made at least one modification to their residence in order to make it more accessible to people with disabilities. These modifications can include adding handrails, modifying the flooring, or installing a walk-in shower or bath.
You have a family member in mind to get your home when you pass it on.
It is possible that you will decide, in the future, to leave the family home to your children or grandkids rather than selling it. Simply consult a tax specialist about the potential implications of inheriting a home with regard to the taxation of capital gains.
After you retire, you should consider these reasons to sell your current house.
The Zillow Group Report found that only 13% of sellers came from the silent generation, while 25% of sellers belonged to the baby boomer age. Various are some of the most prevalent considerations that go into persons of these ages making the decision to sell their homes when they reach retirement age.
The residence is out of your price range.
Since you do not have a consistent income at this time, it is possible that the time has come for you to sell your property if you are no longer able to afford the monthly costs associated with maintaining it.
The home does not correspond to the way that you live.
As you get older, you could find that you would prefer a home that requires less work to maintain, such as one that has a smaller yard or none at all. You could also acquire mobility concerns in the future, which would be much easier to manage in a home with only one level.
You have to reduce your spending.
Because of the amount of maintenance that is required for a big single-family house, many retirees choose to downsize into a smaller apartment or condo so that they may spend their leisure time engaging in other interests.
You are looking for a different setting.
It’s not uncommon for retirees to express a desire to relocate so they may better pursue hobbies like golf or skiing. You might also consider moving closer to the water or to a community that is more welcoming to pedestrians.
Advice on how to sell your home after retirement
It can be a difficult adjustment to go from being a homeowner to a renter, particularly if you’ve been a homeowner for a significant amount of time. Before you take any more steps, you need first determine whether or not it is financially and practically beneficial for you to sell your property.
Calculate your equity
If you need the equity from your house to invest in another home — or another sort of investment to fund your retirement — it is crucial to evaluate your potential profit ahead of time. If you need the equity from your home to invest in another property, for example. Employ a real estate agent or do the research on comparable homes on your own to determine how much you should ask for your property. Be sure to take into account any outstanding balance on the mortgage, as well as any commissions, closing costs, repairs, and buyer concessions, and don’t forget to throw in any other associated expenditures.
Get the timing of the market perfect.
On a national scale, a Saturday in the first part of May is the finest time of the year to put your house up for sale. According to research conducted by Zillow, properties listed during this window sell on average two weeks faster and for an additional 1,600 dollars.
Understand listing prep work
If you have been living in the same house for several decades, it is likely that it need some cosmetic, mechanical, or structural modifications or repairs before it can be brought up to code or before it can appeal to potential purchasers. According to research conducted by Zillow, homeowners who employ specialists to assist them with the pre-sale preparation work of their properties spend an average of $6,570. This cost covers items like lawn care, staging, and painting.
Consider capital gains taxes
When you sell your house, you can be responsible for paying capital gains taxes if you’ve been the owner for a long time and have built up a considerable amount of equity. A single taxpayer can deduct up to $250,000 in profits from their taxes, while a married couple can deduct up to $500,000 in profits from their taxes. If you think you might be able to pocket more than that sum, you should speak with a tax specialist about additional choices. One possibility is to convert your home into a rental property and then use the 1031 exchange to trade it in for another piece of real estate.
Does it make sense to rent in retirement?
When you’ve made the decision to sell your home, you might start to ponder if you should buy another one or if you should rent instead. The following are a few of the primary considerations that lead retirees to choose renting over home ownership.
More retirement funds
You can free up the equity you have in your house by selling it and moving into a rental property. This equity is something you can use to support your monthly needs during your retirement years. You might also choose to reinvest the proceeds in a different kind of investment that will yield a higher rate of return while still allowing you easy access to the funds if and when you find yourself in need of them.
Reducing one’s living space in order to save money each month
When people reach retirement age, they frequently discover that they do not want as much room as they did in their younger years or that they do not want to retain a large single-family house. Saving money on monthly housing costs, utilities, and furniture can be accomplished by relocating to a smaller living space, such as an apartment. In addition, there is less upkeep that must be done, and unforeseen expenses are reduced.
Less expensive insurance
When compared to homeowner’s insurance, renters insurance is far more affordable. This is especially true if you are considering relocating to an area near the water, which mandates that homeowners carry flood insurance.
Absence of any property taxes
If you now reside in a region that has high property taxes or are preparing to move to a region that has high property taxes, renting can assist you avoid having to pay hefty tax payments.
There are no home sale conditions attached.
Rather than having to worry about buying another property and getting the timing just perfect, once you have sold your house, you may move into a rental that coincides with the closing date of the sale (or carrying two mortgages at once).
Less maintenance
Being a homeowner requires a significant time commitment, what with mowing the grass, maintaining the pool, and changing the filters in the HVAC system. When you rent an apartment or house, your landlord will often handle the majority of the maintenance responsibilities. You won’t need to worry about paying for any kind of upkeep, repairs, or replacement appliances either.
More amenities
If you are moving from a single-family house into an apartment, your new place may come with wonderful amenities, such as a pool, gym, or tennis court – all of which are included in the rent and do not need you to pay HOA dues.
The ability to travel freely
When you rent an apartment, you are freed from the long-term commitment that comes with owning a home. You may even check out new places by signing leases for shorter terms, and you won’t have to worry about your home sitting empty while you’re gone for longer periods of time.
Sense of belonging
Retirement communities and other planned communities for seniors can be an excellent location to meet other individuals who are in a similar stage of life or who have hobbies that are compatible with your own.
Challenges of renting after retirement
If you have been a homeowner for a significant amount of time, you will need to familiarise yourself with what it is like to be a renter and adjust your lifestyle to accommodate this new circumstance.
Releasing oneself from emotional attachments and ties
It can be difficult to part with the place you previously considered your “permanent home.” You will need to be willing to let go of your previous residence and instead hold on to the memories associated with it.
Having to depend on a landlord
When you are not the owner of a piece of property, you lose the ability to make decisions on that property. In the event that something fails, you will have to rely on the maintenance provided by your landlord to fix it. It’s possible that you won’t be able to make all of the modifications that you desire, and even if you are, you won’t get any of your money back when you leave even if you do make those enhancements.
Having to make new monthly payments
When you were a homeowner, you probably never thought about having to pay for things like parking or pet fees, but now you might have to pay for them. Make sure that these additional charges are accounted for in the monthly budget that you have created. Parking might easily cost more than $250 per month in some of the larger cities.
The unpredictability of monthly rental fees
Your rent, in contrast to the interest rate you pay on a fixed-rate mortgage, can (and most likely will) change on an annual basis depending on the market and your landlord. The most recent report that we have compiled on the rental market indicates that the median rent increased by 2.6% ($38 based on the median rent) year over year, and it reached $1,477 in April and February of 2019.
• The year-over-year increase in rent in Las Vegas was the biggest of any city, coming in at 7.8%.
• With a growth rate of 6.7%, Phoenix was the city with the second-highest increase.
• Orlando had the third-highest unemployment rate, coming in at 6.4%.
Renting is typically less expensive on a month-to-month basis than purchasing a home, at least in the short term, in many different areas. According to U.S. News & World Report, Austin, Texas, was recently recognized as one of the finest places to retire in the United States. The median listing price for a rental unit in Austin is $1,695 per month, while the median listing price for a home for sale in Austin is $389,000. If you assume a down payment of 20% ($77,800 upfront), plus closing expenses, and an interest rate of 4.3%, your monthly mortgage payment as a homeowner will be $2,049; this is an increase of $354 compared to what you would pay if you rented. On the other hand, unlike homeowners, tenants do not build equity in their homes, which means that purchasing a property may be the better financial decision in the long run.
