If you\u2019re in this demographic and looking for a house in retirement, chances are your priorities have changed from when you purchased your first home.<\/p>\n
Finding a house near good schools to raise a family probably isn\u2019t 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.<\/p>\n
But does that mean buying another home or renting one?<\/p>\n
In this article, we\u2019ll 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.<\/p>\n
Pros and cons of buying a home after 60<\/h2>\nPros<\/h3>\nBuilding equity<\/h4>\n
Building equity<\/h4>\n
Building equity<\/a>, or increasing your home\u2019s 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.<\/p>\n Whether it\u2019s 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\u2019s value<\/a>, clears you of any remaining owed balance and<\/i> leaves you turning a profit.<\/p>\n As a homeowner, there are several tax breaks you can take advantage of. Here are three of the most common:<\/p>\n Read more about the tax advantages that homeowners have access to<\/a> and as always, consult with your tax professional about the deductions that you may qualify for and before making any tax-related borrowing decisions.<\/p>\n When you own a home and take out a mortgage loan, you not only own the property (so you don\u2019t have to worry about any landlords booting you out at their discretion), but you can also count on your monthly mortgage loan payment<\/a> remaining the same if you have a fixed rate mortgage. Renting a home comes with less predictability in a couple regards.<\/p>\n Since 1980, average monthly rent prices have increased by 8.86%<\/a>. 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.<\/p>\n Owning a house over renting one gives you the freedom to make renovations to the property to improve its accessibility<\/a>. 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.<\/p>\n Homeowners might also want to consider renovating bathrooms or adding a step-free entrance to the home to accommodate accessibility needs.<\/p>\n\n\n\n\n\n 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.<\/p>\n \n \u201cWe are a big retirement town here in Las Vegas,\u201d says Rick Ruiz<\/a>, a five-star rated real estate agent who’s sold 156 more condos than the average agent in the Las Vegas, Nevada<\/a> area.<\/p>\n 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.<\/p>\n “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.<\/p>\n 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.<\/p>\n \u201cAlso, if you have heirs that you\u2019re 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 \u2014 whether you\u2019re paying it out through a mortgage or you own it outright \u2014 is always a benefit to leave to your heirs,\u201d says Ruiz.<\/p>\n 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.<\/p>\n 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.<\/p>\n American Family Insurance rounded up some of the most common home maintenance and replacement costs<\/a>:<\/p>\n 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.<\/p>\n Unfortunately, homeownership comes with all kinds of added expenses. On a monthly basis, homeowners should expect to pay: property taxes, homeowners insurance<\/a>, mortgage interest, mortgage principal, flood insurance, homeowners association dues<\/a>, lawn care, utilities, and yes, maintenance and repairs.<\/p>\n 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.<\/p>\n If you suddenly need to move, there\u2019s a lot less involved with moving out of a rental unit compared to a home you own. When moving out of a rental, it\u2019s pretty straightforward \u2014 clean up the place, fill in any holes from hanging pictures, run through your lease agreement to make sure you\u2019ve crossed all your t\u2019s and dotted the i\u2019s, and, if you can, give your landlord as much notice as possible.<\/p>\n When you own the home, you\u2019ll also be taking on the responsibility of either selling that home<\/a> or finding tenants to rent it from you<\/a> if you decide to move.<\/p>\n \u201cIn 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,\u201d explains Ruiz.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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\u2019s that.<\/p>\n 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.<\/p>\n 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.<\/p>\n When renting a property, you will not need to factor in home maintenance expenses<\/a> 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.<\/p>\n If you\u2019re looking to live independently but cut costs, renting a property may be just the ticket.<\/p>\n Some landlords include utility costs<\/a> in their monthly rental rate so you\u2019ll know ahead of time exactly what you\u2019re paying month-to-month.<\/p>\n Another consideration is insurance. Renter\u2019s insurance averages about $187<\/a> annually, a lot less expensive than homeowners\u2019 insurance, which has increased over 40% in the last 12 years<\/a>, to an average annual rate of $1,083.<\/p>\n By renting a house instead of investing in a property, your money wouldn\u2019t be tied up in<\/i> 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.<\/p>\n 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.<\/p>\n Ruiz explains that a key disadvantage to renting over buying is that you won’t have control over the property’s rental rate.<\/p>\n \u201cEvery year or every two years, it\u2019s more than likely your landlord is going to be raising your rent,\u201d says Ruiz. \u201cIf you\u2019re 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.\u201d<\/p>\n 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.<\/p>\n If you have signed a fixed-term lease, the seller might have to wait until your lease has expired<\/a>, 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.<\/p>\n If you want to make adjustments to the property to improve accessibility and safety, you most likely won\u2019t 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\u2019t yours.<\/p>\n Renting a property also comes with other restrictions that you will need to consider \u2014 landlords may have rules about animals on the premises, gardens, and particular parking requirements.<\/p>\n 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\u2019re helping the landlord build equity, but you aren\u2019t getting any return on your investment.<\/p>\n Condos (aka condominiums) offer a lot of great benefits, and there are even age-restricted condo communities available for seniors.<\/p>\n A condo can be an excellent choice for those who are looking to downsize<\/a> 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.<\/p>\n 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\u2019s 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.<\/p>\n But condo life may not be for you if you enjoy your privacy and don\u2019t want to give up the space and freedom to do things you\u2019re used to doing in a single-family home, says Ruiz.<\/p>\n \u201cSome people like to garden and they like to have pets. With condo life, you\u2019re very limited in space,\u201d explains Ruiz.<\/p>\n Condos and assisted living communities range in cost, with assisted living communities costing anywhere from $1,500 to $6,000 a month<\/a>. 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.<\/p>\n 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.<\/p>\n When purchasing a new home, should you pay cash or finance with a mortgage? Each option comes with pros and cons<\/a>. Before making a decision, speak with your financial advisor to evaluate your personal finances and see which will be the most beneficial for you.<\/p>\n A few factors that might affect your decision include:<\/p>\n If you\u2019re 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n For retirees, qualifying for a mortgage might be a bit more difficult<\/a> if your monthly income is less than what it was before you retired.<\/p>\n Fannie Mae and Freddie Mac, the agencies that purchase mortgage loans, both state that documentation of proof of income<\/a> can come from social security, retirement or pension, Keogh retirement accounts, bonds, 401K’s, and IRA’s \u2014 as long as there\u2019s proof these funds will continue for a minimum of three years after the mortgage application date.<\/p>\n Ruiz shares that purchasing a new home using a reverse mortgage<\/a>, specifically a Home Equity Conversion Mortgage (HECM) for Purchase<\/a>, is also becoming a popular option among seniors and something he\u2019s seeing more of in Las Vegas. Seniors over the age of 62 might qualify for this program if they meet the requirements<\/a> and are looking to purchase a new primary residence using the proceeds.<\/p>\n 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<\/a> to evaluate your options.<\/p>\n 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.<\/p>\n 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.<\/p>\n When buying a home, it can pay off to buy in a highly desired area since it\u2019s more likely that the property will appreciate over time instead of buying a house where, historically, home values have remained the same.<\/p>\n Life is unpredictable. It\u2019s beneficial to have money set aside in case of an emergency.<\/p>\n 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.<\/p>\n Examples of illiquid assets<\/a> include real estate, collectibles, and stock options.<\/p>\n 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\u2019s not as easy as trading in a few liquid assets and having cash in your hands within a matter of days.<\/p>\n Also, if you’re applying for a loan<\/a>, 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.<\/p>\n In short, if you are choosing to pay cash for a home, make sure you have cash and liquid assets set aside for emergencies.<\/p>\n 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\u2019s known as a capital gains tax<\/a> when selling. This is otherwise known as a tax on an asset that appreciates in value.<\/p>\n However, if you made any capital improvements<\/a> that added value to the property, you may be eligible for tax breaks. The following home improvements can be considered tax-deductible:<\/p>\n 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<\/a> in June of 2021. If you are paying in cash, you can expect closing to take place in as little as 10 days<\/a>.<\/p>\nTax advantages<\/h4>\n
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Stability<\/h4>\n
Customization\/renovation to meet needs later on<\/h4>\n
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Access to more communities<\/h4>\n
Pass assets to your heirs<\/h4>\n
Cons<\/h3>\n
Maintenance and repairs<\/h4>\n
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Higher monthly housing expense<\/h4>\n
Less flexibility in moving<\/h4>\n
You may not have enough time to recoup your investment.<\/h4>\n
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Every year or every two years, it\u2019s more than likely your landlord is going to be raising your rent. If you\u2019re 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.<\/q>\n
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Pros and Cons of renting a home after 60<\/h2>\n
Pros<\/h3>\n
Flexibility<\/h4>\n
Not responsible for maintenance and repairs<\/h4>\n
Can be less expensive<\/h4>\n
Liquidity of savings<\/h4>\n
Cons<\/h3>\n
Rent increases<\/h4>\n
Landlord could decide to sell at any point<\/h4>\n
Not customizable<\/h4>\n
Renting does not build equity<\/h4>\n
Should you consider purchasing a condo?<\/h2>\n
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<\/p>\nShould you pay cash or finance your new home purchase after 60?<\/h2>\n
Monthly income<\/h3>\n
Investment portfolio<\/h3>\n
Liquidity<\/h3>\n
Capital gains tax on previous residence<\/h3>\n
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Cash can streamline the homebuying process<\/h3>\n