| As Baby Boomers retire, they often consider | | | | foreclosure, deed-in-lieu of foreclosure or short sale. |
| downsizing their home. This especially true of "empty | | | | - Takes less money to accomplish and it's faster to |
| nesters," whose children are grown and have moved | | | | get into a retirement home. |
| away. More recently, many Boomers are losing their | | | | - Not tied down to one place - you can move if you |
| homes due to the Great Recession, whether it be | | | | want. |
| through foreclosure, short-sales or walking away | | | | - Savings may do better in financial investments |
| from an untenable upside-down mortgage. The | | | | other than the real estate market. |
| question is, what should they do now? There are | | | | - Savings have more liquidity than being tied up in real |
| good arguments for both buying a retirement home | | | | estate. |
| or simply renting one from here on out. | | | | - Annual housing costs are usually much less than |
| It used to be that owning your own home was an | | | | owning a property. |
| investment that could be expected to appreciate | | | | Major Risks of Renting a Retirement Home: |
| over time. As we have learned, this is not necessarily | | | | - Rent may go up over time. |
| the case. Given the state of the economy, it is | | | | - Owner could sell out from under the tenants, |
| unlikely that home buyers will see much appreciation | | | | forcing a move at the end of a lease. |
| in market values for some time. In some areas, in | | | | - Renters forego many tax breaks. |
| fact, it may be ten years or more before the real | | | | - Depending on the amount and circumstances, you |
| estate market recovers to pre-crash levels, if ever. | | | | could be taxed on the profit from the sale of your |
| So let's simplify the decision of "buy versus rent" by | | | | previous home. |
| removing any expectation of investment appreciation | | | | - Stocks or mutual fund investments could decline in |
| as a factor in our considerations. | | | | value while property values increase. |
| Looking at "buy versus rent" as a strategy where | | | | Which choice is better? It really depends on each |
| the right answer is different for each person or | | | | Boomer's unique circumstances. Retiring Boomers |
| family based on their unique circumstances, the | | | | who have a nice financial nest egg and are in a higher |
| benefits and risks associated with each choice can be | | | | tax bracket are generally better off buying a |
| generally summarized as: | | | | retirement home rather than renting. Those Boomers |
| Major Benefits of Buying a Retirement Home: | | | | who have been financially hurt by the recession are |
| - Postpone some or all of taxes on capital gains from | | | | likely in a lower income bracket and may have dings |
| the sale of your previous home. | | | | on their credit score too. They are probably better |
| - After down payment, typically - but not always - | | | | off renting. Remember, renting rather than buying a |
| have lower house payments. | | | | property preserves quick access to liquid investments |
| - Annual tax deductions help higher-income retirees. | | | | that would otherwise be tied up in a real estate. |
| - Enjoy more control over a property than a tenant. | | | | In the final analysis, much of it comes down to |
| - Creates estate value for heirs. | | | | personal preferences. Many retiring Baby Boomers |
| Major Risks of Buying a Retirement Home: | | | | simply do not want to be tied down to one location. |
| - Property values could decline further. | | | | They would rather rent homes in different locations |
| - Not easy to relocate if necessary due to illness, job, | | | | during their retirement years. Others desire the |
| divorce, etc. | | | | security of property ownership. As we have recently |
| - Annual costs (PITI, maintenance, HOA fees, etc.) | | | | learned, owning a home is not for everyone, nor |
| are usually much higher than renting. | | | | should it be. And Boomers may be the first |
| - Less liquidity - it can take a long time to sell a | | | | generation in quite a while to abandon traditional |
| residence. | | | | home ownership during retirement in favor of mobility |
| Major Benefits of Renting a Retirement Home: | | | | and more freedom. |
| - May be only option if you went through a | | | | |