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Pros and cons of renting in retirement

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When calculating the potential profit from selling your home, don't forget to deduct ongoing expenses -- mortgage interest, property taxes, insurance, maintenance, major repairs and renovation projects.

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Renting temporarily
If you're not sure which way to go and are determined to sell your house, Mike Dorula, CPA, recommends renting on an interim basis, which is especially useful for retirees who want to relocate to a new community. "Many seniors who are considering moving to a specific retirement community or to a new area, rent first to make sure they like it," he says. "My sense is that renting is cheaper in the short run, but more expensive in the long run."

This approach can work to test the waters of renting in general to see if it's for you. But before taking the plunge of renting -- either on an interim or permanent basis -- make sure to factor in all the costs of renting. Many would-be renters forget to include renters' insurance, security deposits and extra fees for covered parking spots and other amenities when they make their cost calculations, says Marion Somers, a geriatric care manager in Brooklyn, N.Y. known as Doctor Marion. 

Bankrate's renting vs. buying calculator helps you crunch your own numbers.

Economics of buying vs. renting
The table below provides a comparison of various factors involved in owning versus renting.

Compare buying, renting
Owning
Renting
Building equity Yes, the amount depends on years left in mortgage No
Tax deduction Yes, for mortgage interest No
Property taxes Yes Included in rent
Stable payment Yes, with fixed mortgage; property tax, insurance and condo, coop fees can increase No, rent and insurance may increase yearly
Maintenance Yes No
Renovations Yes No
Appliances Yes, must buy and repair No
Other potential expenses Mortgage origination and refinancing costs; water, sewer and trash bills. Security deposit, pet deposit, agent commission

If, like many retirees you've paid off your mortgage, you won't benefit from the mortgage interest deduction. But your monthly overhead costs of property taxes and maintenance likely will be fairly low.

Arguments against renting
Warren Bland, author of "Retire in Style: 60 Outstanding Places Across the U.S.A. and Canada," notes that converting the proceeds of a home sale into income via a certificate of deposit may provide what seems like a nice chunk of income -- $22,500 a year after tax on $500,000 invested at 6 percent -- but it may not go far in the rental market. "In most urban real estate markets, you would pay at least $2,000 a month -- $24,000 a year -- to rent a comparable property. Poof! There goes your additional interest income."

 
 
Next: "There is no one-size-fits-all."
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