For years, the standard plan for retirement was to pay off your mortgage and continue living in the family home, or perhaps sell that home and pay cash for a smaller home, possibly in a retirement community. But that plan has changed in recent years, as some retirees have joined their millennial children and grandchildren in choosing to rent rather than own or entrance fee model retirement communities. While their reasons vary, the trend indicates that renting is losing its stigma and that, for some older people, renting makes good economic sense.
Years before, there was always a stigma in renting. It seemed as though after years of hard work and owning part of The American Dream the idea of renting was like going in reverse psychologically and financially. After all, renting is the way that most of us start out not end up. This has significantly changed in recent years but before retirees decide that renting is a better option, they should get some real information about what their budget will cover. The question really comes down to how strong is the rental market in the area that retirees are considering. In a lot of cities, rents have been escalating quite a bit so the question is how much would someone really have to pay for something acceptable or comparable to what they live in now. That makes it important to examine rental options in the area where retirees want to live before deciding to forgo other retirement living options. It’s a very complicated decision, and it’s very emotional.
One shoe does not fit all particularly in today’s world of increasing retirement options. Bill Piper, Sales and Marketing Director for Carolina Bay a rental continuing care retirement community in Wilmington, NC says, “Liberty Senior Living has been in the “rental” Independent Living, Assisted and Nursing Care business for many years, now Liberty has branched out into the CCRC concept however; continuing the tradition of what Liberty does best… rental. A rental CCRC requires no upfront fees or buy-in. Allowing the individual flexibility to maintain control of personal finances. Yet, receiving the same benefits that a “buy in” community offers. One is not “paying” for a service that you may or may not need.”
Here are six reasons that we hear why retirees are choosing to rent in retirement:
They want to try out a new area. Many people fantasize about moving to Florida or Arizona or even another country when they retire. But those places are big lifestyle changes for many, and some people discover that the land of mosquitoes and endless summer is not for them. Plus, it’s hard to choose a neighborhood when you don’t know the city. Renting gives retirees an opportunity to try on a new lifestyle and check out neighborhoods without committing, particularly if people are relocating. It’s a good idea to test the waters by renting.
They expect to move soon. If the family house sells quickly and there is an expectation that there may be a need for assisted living within a few years, buying a retirement home or paying an entrance fee may not make good sense. Or perhaps the retirees are planning to move closer to children in a few years, but want to stay in their hometown a little longer. Renting makes it easier to move quickly. It is hard to really look ahead and know when to predict transition points. Renting while other options are being considered alleviates the extra burden of having to sell a home quickly – that process is complete so moving is much easier.
They can’t afford to own a retirement home or pay an entrance fee. The cost of the mortgage is just part of the cost of homeownership. Real estate taxes, condo or HOA fees and homeowners’ insurance are somewhat predictable, but the cost of repairs is a looming unknown. A new roof could cost $25,000 plus. The furnace could go out requiring someone to spend $6,000 plus to replace it. Your condo complex could assess you $10,000 for the building’s new windows and elevators. Those types of expenses require cash in reserve. Houses are expensive, and the expenses are unpredictable sometimes. And while owning is only one option, others choose to forgo the entrance fee model retirement community as well, desiring to keep control of the large upfront investment.
They want more freedom. Retirees don’t necessarily want to spend the rest of their life in one place, and want to be free for adventure. That might mean long-term travel, living a few years near one child and then a few years near another, or maybe they want to test out various cities where they see themselves settling. In any of these scenarios, renting makes more sense. Renting give a lot of flexibility.
They want to tap the equity in their home. If the home is worth a lot of money but they have no access to cash for living expenses, selling the home and renting can be a good option for some, though they’ll need to do the math and weigh this option versus a reverse mortgage. You can’t eat the equity in a home.
They want to invest and manage their financial portfolio rather than tying it up in a traditional entrance fee retirement community or owning another home. A rental community is less of a long-term financial commitment and may make more financial sense for some.
Above are the majority of what we hear are the reasons people are choosing to consider renting a retirement home as opposed to owning or entrance fee. For most, flexibility and freedom is the key.
By: Tina McLeod