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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.
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 |
|
| Yes,
the amount depends on years left in mortgage |
No |
| Yes,
for mortgage interest |
No |
| Yes |
Included
in rent |
| Yes,
with fixed mortgage; property tax, insurance and condo, coop fees can increase |
No,
rent and insurance may increase yearly |
| Yes |
No |
| Yes |
No |
| Yes,
must buy and repair |
No |
| 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." |
