If you're approaching retirement and thinking of making a big move or downsizing from your current home, you may automatically think that you should buy another, smaller home. But that traditional route may not be what's right for you. Renting a home may be an even better -- but less obvious -- choice in your circumstances. How can you know? Here's a handy guide to deciding between buying and renting your next home.
Examine Your Budget. The first step is to understand how much room you have in your budget. Houses come with additional regular (taxes, insurance, and HOA dues) and irregular (maintenance and repairs) expenses. Because these expenses may fluctuate a lot from year to year, you may be better off with the fixed expense of rent if you're on a limited or fixed income. In this situation, renting may allow you to better plan for your financial future as well.
Consider Investments. Buying another home may tie up your money flow in only one major asset. This limits your ability to invest in other streams of income that may be important after you retire. For example, would you prefer to pay for monthly housing expenses like mortgage interest, taxes, and insurance, or would you prefer to live more simply (such as in an apartment rental) and use that money to invest in a dividend-paying portfolio, rental property, or a side business? If you have a limited budget, you can't fund everything. So think carefully about what your income and investment needs are before putting all your eggs in one basket.
Go For a Test Drive. Rather than jump into a home purchase -- especially in a new location -- think about moving into an apartment rental for a fixed period of time. You can accomplish a lot with such a "test drive" move: getting rid of belongings, learning about your new city or town, taking your time in finding a new house, and determining if apartment rentals are right for you. Some retirees find that the lack of responsibility -- both financial and physical -- allows them greater freedom to travel, spend time outdoors, and pursue other interests. Others may find that sharing a space with other renters isn't for them. Either way, you can learn a lot without committing by planning a temporary move before you decide.
No matter what you decide about renting or buying when you retire, by following these few tips, you can help ensure that you're making the right choice for yourself and your family.Share