Is owning or renting a home best for retirees?

Dear Chuck,

My parents are retired and have a very low interest rate on a small amount of remaining mortgage. They told me they want to sell their home and rent, thinking they will save money. I am gathering information to help them. Would you suggest they rent or keep owning their home?

Retired: Rent or Buy?

Dear Retired: Rent or Buy?

It depends. I don’t have the full financial picture of your parents, so I don’t want to give advice based on false assumptions. Let me disclose a few assumptions from your question:

• They are feeling financially insecure.
• Their home value is not such that paying cash for another, smaller home is an option.
• They have other things they want to do with their time than maintain a home.

Renters by choice

Many people who are 55 and over desire financial flexibility. Rather than having the majority of their money tied up in a home, they prefer to rent. They realize a home is not the most liquid asset.

Some no longer want the responsibility of maintenance and repairs. Losing a spouse, physical limitations, and the desire for a more flexible lifestyle can play into the decision. I call this “renters by choice.”

Prepare for a deeper conversation

Try talking with your parents about their financial situation, desired lifestyle, and long-term goals. Have they personally sought wise counsel — especially from those who are older than themselves? Are they seeking financial margin due to consumer debt or medical expenses? Do they have a lien against the property? What is the driving force?

If the home is paid for, how do they plan to use the equity? Will they have to pay capital gains taxes? Have they considered downsizing to a low-maintenance housing option, in which case HOA fees must be considered. My wife thought she found an incredible deal on a condo until we discovered the fees were outrageous. If they want to rent, can they support that lifestyle indefinitely? Are they healthy? What is their life expectancy? What sources of income do they have or expect?

Growing trend

FoxBusiness.com reports that renting is a growing trend among those 55 and older. Rising property taxes, insurance, and repair costs are major factors. People want a simpler life so they can pursue traveling and hobbies. Some find it lonely (and expensive) to occupy the big homes in which they raised their children. The widowed, single, or divorced sometimes desire a community that their home or neighborhood may not provide.

Insurance is up

Consumer Federation of America: Between 2021 and 2024, property insurance premiums rose an average of $648 a year. Premiums increased in 95% of U.S. ZIP codes, with a third increasing more than 30%.

Taxes are up

National Association of Realtors: Taxes have increased across all states. The national median annual real estate tax surged by 23% between 2019 and 2023. It represents 4% of the median annual household income. Twenty-seven states recorded hikes of 20% or more, with Florida experiencing the largest rise, followed by Wyoming, Louisiana, Indiana, Georgia, and Utah.

The following information is for anyone, regardless of age, when deciding whether to purchase or rent a home.

Pros to buying/owning

• Possibility of building equity over time.
• Some liken mortgage payments to “forced savings.”
• Fixed-rate mortgage payments remain stable.
• Lifestyle: neighborhood, schools, privacy, landscape, pets.
• Can customize as desired.
• Offers stability and putting down roots.
• Can be future rental income.
• Can be inherited by children.
• Tax benefits.

Pros to renting

• Can be less expensive and more flexible.
• Maintenance costs are nonexistent (though typically built into the lease).
• Lower upfront costs: deposit vs. down payment.
• Offers time to build or improve credit.
• If home values decline, you avoid being “underwater.”
• Money (that would go toward the mortgage) can be saved and invested.
• Lifestyle: no maintenance, nearby neighbors, and amenities in multi-unit communities.
• Just starting a career, inconsistent income, changing jobs, or traveling frequently.
• When the market is not conducive to buying.
• Prefer to invest rather than build equity.

Cons to buying/owning

• Closing costs.
• Property taxes.
• Opportunity cost of down payment.
• Price/value/interest rates are impacted by the economy.
• It may take years to break even or build equity.
• Handyman skills or reliable contractors require time/money.

Cons to renting

• Rates can rise when renewing the lease.
• No control over maintenance and upkeep.
• The landlord may decide to sell the property.
• No equity for payments made.
• Must usually accept the property as-is.

Whether buying or renting, housing costs should not exceed 30% of one’s monthly income. Analyze objectively, not emotionally, and compare apples to apples. Costs are in the details, like age of structure, square feet, lot size, location, etc. Most experts advise against buying if the owners do not plan to be there for a number of years to recoup the costs. My rule of thumb is to plan to stay at least five years.

Redfin suggests answering the following questions: 

• Does renting or buying/owning work with your timeline?
• Where do you see yourself in five years?
• How much can you afford?
• Which option best fits your lifestyle?

Helpful Zillow articles:

Remember, this is not our home

“In my Father’s house are many rooms. If it were not so, would I have told you that I go to prepare a place for you? And if I go and prepare a place for you, I will come again and will take you to myself, that where I am you may be also” (John 14:2–3 ESV).

Keep an eternal perspective when you talk to your parents, being mindful of three financial milestones: making it to the end of the month without running out of money, making it to the end of life without running out of money, and preparing to stand before the Lord to be evaluated for stewardship. Talk to them about each of these milestones, and see what is on their heart.

Hopefully, you can support them and help them whichever way they decide to go.

Walking through a functional budget is a good place to start, and Crown has free tools that can help. We also offer a variety of calculators that can help with making financial decisions.