How do you know which is right for you

Should You Buy or Rent in the Twin Cities in Retirement?

If you’ve planning to move or downsize from your current home after you retire, you might be wondering if buying or renting is the best option. While both options have benefits, there are also downsides. How do you know which is right for you?

In this post, I look at the pros and cons of renting and owning a home in retirement. 

The decision to rent or buy a home in retirement is an individual one, and it depends on your financial situation and your retirement goals. Do you want stability or flexibility? Do you prefer community or independence? Can you afford to reinvest in a new home, or will you need the money from the sale of your current home to enjoy your retirement?

First, let’s look at some of the financial implications of buying or renting a home in retirement.

Cost of Buying Verus Renting

One of the concerns homeowners have about renting is that the rent will continue to increase and eventually they will be priced out of their home. It’s a valid concern. But often, the same things that drive rental rate increases also drive up the cost of living for homeowners. Things like rising property taxes, utility, and maintenance costs. As a renter, these costs are shared among all the tenants. As a homeowner, you will have to absorb all those costs yourself.

Investment Value

If you’re owned your home for a while, you’ve seen the financial benefits that homeownership can bring. Especially during the past five years when home values just kept climbing, many homeowners saw 

their equity increase by tens of thousands of dollars each year. But rising interest rates have cooled the market and home prices are beginning to stabilize. Experts predict home values will continue to rise, but much more slowly. So buying a home may not be the best investment for your money.

Capital Gains Tax

If you’re planning to sell your primary home and rent, you will need to determine if you will have to pay capital gains tax on the sale. Current tax law allows a capital gains exclusion of $250,000 for single tax filers and $500,000 if you’re married and file jointly. You can also deduct expenses for many capital improvements while you’ve lived in the home.

If you’ve owned your home for some time, be sure to consult a tax professional before you decide whether to buy or rent.

Home Maintenance

If you own your home, you are responsible for all of the maintenance and repair costs. If something needs to be repaired or replaced, it’s up to you to fix it. If you’re renting, those costs will be covered.

Those are some of the financial issues to consider, now let’s talk about lifestyle. Ideally, retirement is the time of life when you’ve fulfilled your obligations and you have more freedom to do what you want. Renting can offer more flexibility, but home ownership many offer more independence.

Flexibility

Buying and selling a home takes time, and it costs money. If you decide you want to move closer to your kids, or you’d like to try living in another state or another country, renting offers more flexibility. You can try out a new neighborhood or a new city and you can just give notice at the end of your lease and leave if you want to make a change.

When it comes to the future, none of us has a crystal ball. And as we age, we need to plan for new unknowns; the death of a spouse, loss of mobility, difficulty keeping up with home maintenance tasks. As a renter, you can more easily move if your situation changes.

Independence

When you own your home, you can change things to suit your taste. You can remodel the kitchen, plant a garden, and have pets. As a renter, you won’t enjoy the same freedom to paint or remodel. And while many rentals allow do allow pets, often there are restrictions on the number of pets, size, and even breed.

Enjoy the Retirement You Want

If you’re still not sure whether owning or retiring is the right choice for you, consider this question. Will renting allow you to have the retirement you want?

For a lot of people, their home has been like a retirement piggy bank, and much of their savings are tied up in their home. If that’s you, selling a home and renting may enable take those dream trips, visit family, or just go out with friends. Let’s face it, the last thing most of us want in retirement is to be house poor.

J Trout Lowen is a Minneapolis REALTOR and an expert at helping home buyers and sellers navigate the Twin Cities housing market.

What you need to consider if you’re planning to buy a home after you retire and why you may want to buy or downsize before you leave your job. 

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