Here’s A Look at The Pros and Cons of Purchasing a Home After 60

Disclaimer: This article is meant to be used for educational purposes only and is not intended to be construed as financial, tax, or legal advice. HomeLight always encourages you to reach out to an advisor regarding your own situation.

A study from the National Association of Realtors (NAR) found that 33% of homebuyers in 2022 were over the age of 57.

If you’re in this demographic and looking for a house in retirement, chances are your priorities have changed from when you purchased your first home.

Finding a house near good schools to raise a family probably isn’t high on your priority list. Instead, you might be looking to downsize, be closer to local amenities, and find a home that requires less maintenance.

But does that mean buying another home or renting one?

In this article, we’ll take a closer look at the pros and cons of owning and renting a home after 60, provide a glimpse into what condo life entails, and dive into the financial component of buying your next property.

Pros and cons of buying a home after 60

Pros

Building equity

Building equity, or increasing your home’s value minus the amount you owe on it, is something every homeowner strives for. This is why purchasing a home in an area where property values are on the rise can be a smart and profitable move.

Whether it’s a vacation home or your forever home, buying a property at a lower price than what you can later sell it for, either with natural market appreciation or through renovations that increase your home’s value, clears you of any remaining owed balance and leaves you turning a profit.

Tax advantages

As a homeowner, there are several tax breaks you can take advantage of. Here are three of the most common:

1. Mortgage interest deduction: homeowners can deduct their mortgage interest paid on up to $750,000 of their mortgage balance, or $375,000 if married but filing separately.
2. Tax deduction (i.e., SALT deduction): If single or married and filing jointly, homeowners can deduct up to $10,000 in state and local property taxes paid in a tax year. If married and filing separately, homeowners can deduct up to $5,000 each.
3. Mortgage points deduction: When purchasing a home, the mortgage points that you pay to lower your interest rate are tax deductible as long as you are deducting them in the same year they were purchased and you meet the requirements.

Read more about the tax advantages that homeowners have access to here and as always, consult with your tax professional about the deductions that you may qualify for and before making any tax-related borrowing decisions.

Stability

When you own a home and take out a mortgage loan, you not only own the property (so you don’t have to worry about any landlords booting you out at their discretion), but you can also count on your monthly mortgage loan payment remaining the same if you have a fixed rate mortgage. Renting a home comes with less predictability in a couple regards.

Since 1980, average monthly rent prices have increased by 8.86%. A landlord can decide to increase rent for a number of reasons: If property values or taxes increase, to cover expensive property maintenance or updates, or simply to bring in a higher profit, subject to some restrictions.

Customization/renovation to meet needs later on

Owning a house over renting one gives you the freedom to make renovations to the property to improve its accessibility. For instance, improvements such as installing better lighting throughout a house, slip-resistant flooring, or replacing a steep staircase can all increase the safety of a home.

Homeowners might also want to consider renovating bathrooms or adding a step-free entrance to the home to accommodate accessibility needs.

Find a Buyer's Agent Who Understands Your Needs

A great buyer’s agent will bring your vision into reality and find you a home that will meet your needs for this next phase of your life.

Find a Buyer's Agent

Access to more communities

“We are a big retirement town here in Las Vegas,” says Rick Ruiz, a five-star rated real estate agent who’s sold 156 more condos than the average agent in the Las Vegas, Nevada area.

Ruiz sees a lot of home sales for retirees in Las Vegas, noting how there are about six age-restricted communities all around town that specifically cater to the 55+ crowd.

“Most of these buyers aren’t first-time homebuyers, so they’re usually downsizing or moving to their final destination as far as a retirement city,” explains Ruiz.

Pass assets to your heirs

From a financial standpoint, Ruiz says that owning a home in retirement can have multiple advantages, including having fixed costs rather than varied, like you would if you were renting.

“Also, if you have heirs that you’re going to be leaving assets behind to, real estate has been such a trustworthy asset over the years that having a property that belongs to you — whether you’re paying it out through a mortgage or you own it outright — is always a benefit to leave to your heirs,” says Ruiz.

Cons

Maintenance and repairs

Ruiz says that upkeep can be one of the biggest concerns for seniors purchasing a property, especially if the upkeep becomes a real burden either financially or physically.

From roofing to plumbing issues to seasonal lawn care, no matter how exquisitely built or well cared-for your home may be, issues are bound to arise. Issues that either you or a hired helping hand are going to need to fix.

American Family Insurance rounded up some of the most common home maintenance and replacement costs:

• HVAC: $110 to $200 annual maintenance cost, $3,000 to $6,000 to replace.
• Water heater: $125 to $375 annual maintenance cost, $750 to $1,400 to replace.
• Gutters: $75 to $150 annual maintenance cost, $1000 to $2,500 to replace.

As a rule of thumb, homeowners are recommended to set aside at least 1% of the purchase price of their home annually to budget for home maintenance costs.

Higher monthly housing expense

Unfortunately, homeownership comes with all kinds of added expenses. On a monthly basis, homeowners should expect to pay: property taxes, homeowners insurance, mortgage interest, mortgage principal, flood insurance, homeowners association dues, lawn care, utilities, and yes, maintenance and repairs.

Renters will typically only be responsible for a monthly rent as well as the cost of utilities if they are not paid by their landlord.

Less flexibility in moving

If you suddenly need to move, there’s a lot less involved with moving out of a rental unit compared to a home you own. When moving out of a rental, it’s pretty straightforward — clean up the place, fill in any holes from hanging pictures, run through your lease agreement to make sure you’ve crossed all your t’s and dotted the i’s, and, if you can, give your landlord as much notice as possible.

When you own the home, you’ll also be taking on the responsibility of either selling that home or finding tenants to rent it from you if you decide to move.

You may not have enough time to recoup your investment.

“In a traditional market (i.e. a market without such unprecedented growth as over the last couple of years), real estate is supposed to be appreciating at about four to six percent annually and selling costs usually average anywhere from 6% to 10%, depending on your sector of the market,” explains Ruiz.

Ruiz says in a traditional market, it usually takes about two years before a property owner can get their investment back to recoup closing costs.

If your circumstances change and you need to sell quicker than you were expecting, depending on the growth of the current market, you may have to sell before your house has appreciated enough in value to get back your investment.

Pros and Cons of renting a home after 60

Pros

Flexibility

If circumstances unexpectedly change in your life, it could be much quicker and easier to end a lease rather than sell a home. With renting a property, you have no ties to the home other than your lease agreement. Once your lease is up, that’s that.

If you are looking to terminate your lease before your term is up, you might have to pay the remaining months of rent until your lease expires, so pay close attention to the termination clause and term length when signing.

Renting on a month-to-month basis can offer even more flexibility as you might only need to give as much as 30 days notice if you need to move.

Not responsible for maintenance and repairs

When renting a property, you will not need to factor in home maintenance expenses or have an emergency home repair fund included in your monthly budget. This means that when things go awry, you won’t have to foot the bill or pull out your tool belt for any unexpected home repairs or maintenance that creeps up.

Can be less expensive

If you’re looking to live independently but cut costs, renting a property may be just the ticket.

Some landlords include utility costs in their monthly rental rate so you’ll know ahead of time exactly what you’re paying month-to-month.

Another consideration is insurance. Renter’s insurance averages about $187 annually, a lot less expensive than homeowners’ insurance, which has increased over 40% in the last 12 years, to an average annual rate of $1,083.

Liquidity of savings

By renting a house instead of investing in a property, your money wouldn’t be tied up in that property. This can provide you with the security of knowing that you won’t have to go through selling your home if you need quick access to funds.

Renting can also be a good option for those who want to spend their retirement years traveling. Having money freed up to pay for travel expenses is a priority for many people with this dream, and increasing the funds you have access to can make this dream a reality.

Cons

Rent increases

Ruiz explains that a key disadvantage to renting over buying is that you won’t have control over the property’s rental rate.

“Every year or every two years, it’s more than likely your landlord is going to be raising your rent,” says Ruiz. “If you’re on a fixed income or a limited budget, this is definitely going to affect your ability to stay in a place long-term if the adjustments to the rental rate exceed your ability to afford it.”

Landlord could decide to sell at any point

If a landlord decides to sell the property and you have signed a month-to-month lease, you may be given short notice and have to vacate the property quickly, usually 30 days after your landlord gives the notice depending on your state.

If you have signed a fixed-term lease, the seller might have to wait until your lease has expired, execute an early termination of the contract, or negotiate with you to vacate the property. Any one of those options, however, ends with you needing to find a new place to live.

Not customizable

If you want to make adjustments to the property to improve accessibility and safety, you most likely won’t be able to do that like you could if you owned the property. Even if you get permission from the landlord to make improvements, it is not always a wise decision to pour money into renovating a home that isn’t yours.

Renting a property also comes with other restrictions that you will need to consider — landlords may have rules about animals on the premises, gardens, and particular parking requirements.

Renting does not build equity

If you own a property, you can build up equity by paying down the mortgage and waiting for it to appreciate over time. With a rental, you’re helping the landlord build equity, but you aren’t getting any return on your investment.

Should you consider purchasing a condo?

Condos (aka condominiums) offer a lot of great benefits, and there are even age-restricted condo communities available for seniors.

A condo can be an excellent choice for those who are looking to downsize from their current residence but still want to live independently. Being that most condo associations maintain their own grounds, a condo can also be a viable option to have your own space but avoid all the upkeep and yard work that comes with owning a single-family home.

Another great perk of condo associations, especially those for seniors, is that they have a strong focus on creating a community and offer events, clubs, and social activities for residents. Not to mention there’s also typically on-site amenities that are included in the condo association fees such as gyms, pools, clubhouses, golf courses, shuffleboard courts, bridge clubs, and more.

But condo life may not be for you if you enjoy your privacy and don’t want to give up the space and freedom to do things you’re used to doing in a single-family home, says Ruiz.

“Some people like to garden and they like to have pets. With condo life, you’re very limited in space,” explains Ruiz.

Condos and assisted living communities range in cost, with assisted living communities costing anywhere from $1,500 to $6,000 a month. While condominiums are generally more affordable than single-family homes, you will have to factor in the cost of the condo association dues into your monthly payment and this can range very widely depending on the area and the amenities offered.

There are a lot of different communities out there that offer a variety of services and amenities. Before deciding on one place, do some shopping around to feel out all your options and find the right condo, amenities, and services that fit your price range and your needs.

Should you pay cash or finance your new home purchase after 60?

When purchasing a new home, should you pay cash or finance with a mortgage? Each option comes with pros and cons. Before making a decision, speak with your financial advisor to evaluate your personal finances and see which will be the most beneficial for you.

A few factors that might affect your decision include:

Monthly income

If you’re a retiree living on a fixed income and you decide to pay cash upfront for your new home, this can cut down on your monthly housing expenses significantly. By taking the mortgage payment off the table, you not only cut out one big monthly expense, but you save yourself from paying thousands in mortgage interest over the years.

By eliminating these two big costs, your monthly housing expenses will only include the following: Property taxes, homeowners insurance, utilities, HOA fees if applicable, and home maintenance.

For individuals that are still working, it’s easier to send in the required documentation for a loan because you can provide W-2s to show income history and current pay stubs to prove that your income is reliable.

For retirees, qualifying for a mortgage might be a bit more difficult if your monthly income is less than what it was before you retired.

Fannie Mae and Freddie Mac, the agencies that purchase mortgage loans, both state that documentation of proof of income can come from social security, retirement or pension, Keogh retirement accounts, bonds, 401K’s, and IRA’s — as long as there’s proof these funds will continue for a minimum of three years after the mortgage application date.

Ruiz shares that purchasing a new home using a reverse mortgage, specifically a Home Equity Conversion Mortgage (HECM) for Purchase, is also becoming a popular option among seniors and something he’s seeing more of in Las Vegas. Seniors over the age of 62 might qualify for this program if they meet the requirements and are looking to purchase a new primary residence using the proceeds.

They must also be able to pay the difference between what the HECM covers and the new purchase price, including closing costs. This can be a quite costly option and not a great idea for many borrowers, so be sure to contact a reverse mortgage counselor to evaluate your options.

Investment portfolio

Diversification is an investment strategy that involves spreading your investments around instead of putting all your funds into one, or a few, investments. This eliminates the risk of losing all of your money if one investment goes south.

If you do not have any of your savings invested, it might be worthwhile to consider taking on other investments to grow your wealth rather than just investing that money in a home. As always, speak with a trusted financial advisor to weigh your options and determine if you should be investing your money in something other than your home.

When buying a home, it can pay off to buy in a highly desired area since it’s more likely that the property will appreciate over time instead of buying a house where, historically, home values have remained the same.

Liquidity

Life is unpredictable. It’s beneficial to have money set aside in case of an emergency.

Liquidity refers to how quickly and easily an asset (something you own with monetary value) can be swapped for cash. Examples of liquid investments include stocks, bonds, money market accounts, certificates of deposit, and mutual funds.

Examples of illiquid assets include real estate, collectibles, and stock options.

When purchasing a house, it’s safe practice not to tie all your money up in that house. If you find yourself in a tight financial pinch, selling a house is a process that can take time, and getting your return on investment isn’t a guarantee. It’s not as easy as trading in a few liquid assets and having cash in your hands within a matter of days.

Also, if you’re applying for a loan, a lender will look at your assets. Your loan approval could be impacted if the lender decides that you don’t have enough liquid assets, usually called reserves, to cover your monthly payment if faced with financial hardships.

In short, if you are choosing to pay cash for a home, make sure you have cash and liquid assets set aside for emergencies.

Capital gains tax on previous residence

If you lived in your primary residence for less than two years and made a profit of over $250,000 as a single-filer ($500,000 if filing as married), you may be subject to what’s known as a capital gains tax when selling. This is otherwise known as a tax on an asset that appreciates in value.

However, if you made any capital improvements that added value to the property, you may be eligible for tax breaks. The following home improvements can be considered tax-deductible:

• New bathroom
• Installing a swimming pool
• Putting in new flooring
• Adding a fireplace
• New roof or siding
• Putting in storm windows or a storm door
• Additions: garage, home office, bedroom, porch
• Installing new heating, air, or furnace system
• Putting in insulation
• Adding built-in appliances
• New plumbing systems; water heater, filtration, or septic system
• Renovating a driveway

Cash can streamline the homebuying process

Applying for a mortgage for a house can stall the closing process, but paying cash can expedite it. Closing on a house with a mortgage took 51 days on average in June of 2021. If you are paying in cash, you can expect closing to take place in as little as 10 days.

In a highly competitive market, cash offers might be more likely to be accepted. Even if you will need financing to buy a home, with HomeLight’s Cash Offer, you can make a cash offer on your home and close more quickly compared to if you were making an offer with a financing contingency.

Final thoughts and considerations

When looking for your next home in retirement, “lifestyle is everything,” says Ruiz.

“As you progress and age, your needs and your amenities that you’d like to be near change.” says Ruiz. Other priorities may include being close to family where you have a good network and what Ruiz says is one of the most important resources of all — “people you can rely on.”

Header Image Source: (Sidekix Media / Unsplash)