Retirement Housing Rent vs Buy and Inflation

[Bikechuck]

Both my wife and I plan to retire this year. We would like to sell our house and either rent an apartment or purchase a Condo with a master suite and laundry on the first floor that would be better to age in.

Initially we would likely move to Wisconsin to be close to our grandchildren but in today's mobile society who knows what the future will bring so advantage renting.

However, I feel that buying gives us more protection should inflation rear it's ugly head. It also offers the opportunity for a home owner's line of credit or reverse mortgage if they are ever needed so in that case advantage buying.

I am not at all clear which option is best and would be interested in any comments the esteemed readers of this forum would like to offer.

Thanks in advance for your thoughts.

 

[haha]

Both my wife and I plan to retire this year. We would like to sell our house and either rent an apartment or purchase a Condo with a master suite and laundry on the first floor that would be better to age in.

Initially we would likely move to Wisconsin to be close to our grandchildren but in today's mobile society who knows what the future will bring so advantage renting.

However, I feel that buying gives us more protection should inflation rear it's ugly head. It also offers the opportunity for a home owner's line of credit or reverse mortgage if they are ever needed so in that case advantage buying.

I am not at all clear which option is best and would be interested in any comments the esteemed readers of this forum would like to offer.

Thanks in advance for your thoughts.

All the things you mention are real. I believe there may not be a single "best" answer.

Ha

 

[Corporateburnout]

There has been numerous discussions on this subject if you search this topic.

Rent provides more flexibility and mobility so there are lots of non financial reasons to factor in the decision.

This calculator can make the financial decision easier for you.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

 

[braumeister]

Yes, it can be a dilemma and what works best for one person might be awful for another.

One thing to keep in mind though:
If you're planning to buy and you want that HELOC, many people have said it's much easier to do that before you retire rather than after.

 

[FlaGator]

Random thoughts from a guy who hates cold weather and has no grandchildren....

-moving to a smaller space will simplify your lives over time. less maintenance, easier to keep clean, etc. Lots of things will be tossed or find new owners, and maybe your kids will claim some of the things you've been storing for them

-If you move to WI, rent and see how it goes. Any prospective gains as an inflation hedge could get wiped out by transaction costs if you sell in a couple years because SIL has a new job somewhere else. You might not like daily life there over the course of a year and decide it's better to be a frequent visitor.

-A reverse will only get you a portion of your net equity. If you buy, I would give serious consideration to putting down the minimum amount to get your payment at a comfortable level and bank the rest - fund your own reverse, basically. Paying cash for a house with the idea you can get a reverse later is bad financial math - costs of the reverse can be 5% of the value, and the amount you receive is no more than 80% of your equity

-If you move south, you'll have more cycling days and they will surely come to see you in February

 

[Cobra9777]

There has been numerous discussions on this subject if you search this topic.

Rent provides more flexibility and mobility than buy so there are lots of non financial reasons to factor in the decision.

This calculator can make the financial decision easier for you.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

+1 for the NYT rent/buy tool.

It's a very complex question that deals with both financial and non-financial variables, which vary significantly by region and individual. There is no way to generalize. The NYT tool is the best I've seen for analyzing at least the financial part of the equation. It's not only a very comprehensive analysis, but it also explains each variable and makes it very easy to see how sensitive the answer is to each variable. For example, OP can test his theory about high inflation favoring buying.

 

[Lsbcal]

I was surprised to read that inflation has averaged 4.1% over the last 50 years. I checked and that figure is correct.

Who knows if it will heat up again.

One could perhaps rent and then hedge possible inflation. Maybe equities, TIPS, etc.

 

[Bikechuck]

Thanks for the comments so far, it is helpful to read them. Please keep them coming as multiple perspectives are useful.

 

[foxfirev5]

You may want to look beyond the financial reasons. Ownership provides a certain freedom. As a retiree the last thing I want are adjacent neighbors, anyone bothering me as inlandlords, HOA's ETC. If I can't afford to live my desired lifestyle I'm not really FIRE'd. Your perspective may be different.

 

[Bamaman]

I worked for a Wisconsin megacompany, and most of my co-workers lived in Illinois to avoid paying enormous Wisconsin property taxes. And their Illinois property taxes were also too high.

This may sound like an exaggeration, but if my home was in Wisconsin, the property taxes would be higher than my total cost of housing in low tax Alabama--if I had a mortgage.

Wisconsin may be a better place to rent part year--and go to the Deep South for Winter. Their Winter weather is just terrible, and cabin fever is real.

 

[Souschef]

You may want to look beyond the financial reasons. Ownership provides a certain freedom. As a retiree the last thing I want are adjacent neighbors, anyone bothering me as in landlords, HOA's ETC. If I can't afford to live my desired lifestyle I'm not really FIRE'd. Your perspective may be different.

I agree. we bought a new manufactured home in a + 55 senior park that suits our lifestyle. Space rent is controlled by the city, and it tied to the CPI. There is a certain peace of mind in owning the place free and clear. Yes, there are rules in the park, but they are not onerous.
Having lived in a condo for 25 years with an HOA, there is little comparison.
YMMV

 

[haha]

Random thoughts from a guy who hates cold weather and has no grandchildren....

-moving to a smaller space will simplify your lives over time. less maintenance, easier to keep clean, etc. Lots of things will be tossed or find new owners, and maybe your kids will claim some of the things you've been storing for them

-If you move to WI, rent and see how it goes. Any prospective gains as an inflation hedge could get wiped out by transaction costs if you sell in a couple years because SIL has a new job somewhere else. You might not like daily life there over the course of a year and decide it's better to be a frequent visitor.

-A reverse will only get you a portion of your net equity. If you buy, I would give serious consideration to putting down the minimum amount to get your payment at a comfortable level and bank the rest - fund your own reverse, basically. Paying cash for a house with the idea you can get a reverse later is bad financial math - costs of the reverse can be 5% of the value, and the amount you receive is no more than 80% of your equity

-If you move south, you'll have more cycling days and they will surely come to see you in February

A lot of wise counsel.

Ha

 

[brucethebroker]

One big problem with reverse mortgages is that only the original owners can live in the home, you can't vacate and rent it out. When our family member could no longer live alone, we were forced by the bank to put the house on the market during the worst real estate market in 50 years (2008). Would have preferred renting it out and waiting out the storm. But, no. Due to sky high FHA appraisal, home sat on the market for a year, then was foreclosed on. Bank finally sold it after 3 years for about 30% less than appraisal. Terrible waste of a once proud family home.