Does It Now Make More Sense for Retirees to Rent
NEW YORK -- For generations the advice about housing for seniors has always been the same: Own, preferably pay with cash, and have the peace of mind of knowing where you lay your head at night is taken care of. Except now, new voices are increasingly heard that advise seniors to rent -- a strategy that may provide superior piece of mind.
There is a lot right about the advice to own outright. Yet it is also fact that the last decade has seen a roller coaster homeownership market in which many thousands lost big money -- sometimes in foreclosure, sometimes in short sales -- often because the owner had to sell at a loss just to unload a home that was no longer wanted. Those painful memories are why a big rethink is going on around senior living arrangements.
%VIRTUAL-pullquote-Although home ownership has been part of the American dream, for many retirees who feel they can't retire comfortably, it can become the American nightmare.%"Although home ownership has been part of the American dream, for many retirees who feel they can't retire comfortably, it can become the American nightmare," said Chris Miles, founder and cashflow expert at MoneyRipples.com.
Miles said it boils down to a simple equation: do you value flexibility and freedom (that means rent) or control and ownership (that means buy).
Statistics show that more seniors are opting for renting and its flexibility. Philip Martin, head of market research at Chicago-based Waterton Associates, a real estate investment firm, said that in 2000, 80 to 85 percent of seniors (defined as 55 to 74) owned a home. Today, said Martin, that number is 75 to 80 percent.
Lee Rawiszer, managing principal of financial advisory company Paradigm Financial Partners, added that more senior citizens are choosing to sell their homes and renting, because they need the added money the sale of their home can provide to boost their retirement portfolios. Some 2.2 million people age 65 and older are projected to become renters in the next decade, added Rawiszer.
One trigger is that at least in some home markets -- San Francisco, Los Angeles, Brooklyn, to name a few -- there's a sense that the top of the housing market is near so now is the time to sell.
But there are other factors that may tilt the balance in favor of renting, Martin elaborated. "Renting, as opposed to owning a home, is a lower cost housing alternative," he said. "Boomers can enjoy maintenance-free living and don't have to have equity tied up to move in. Additionally, renting can be a wealth management tool for boomers, as sale proceeds from a home can be redeployed/invested more appropriately to meet the income needs associated with retirement living."
Martin also said that a trend is for boomers to abandon suburbia -- where their homes probably were - in favor of urban settings where they find richer cultural amenities. And those urban cores may have fewer ownership opportunities, typically at breathtaking prices, thus a nudge into renting.
Yet another benefit to renting is offered by lawyer Joan Wenner in Orlando, Florida. "One point that should be mentioned is elder fraud which is one factor that has seniors particularly renting in today's world as it is increasingly difficult for them to obtain reputable contractors for home repairs or renovations," she said. "With renting, this burden is shifted to a landlord." That is fact: many criminals prey on seniors, selling them shoddy or unneeded home repairs. All that stops when the senior becomes a renter.
Renting is not all peaches and cream, however. "Since rental prices in major cities can spike in economic upturns and seniors, who often live on fixed incomes, are more sensitive to such spikes, it's important for a senior to choose a rental home in a place where prices have remained relatively stable," said Michael Greenberg, CEO at New York City brokerage Level Group.
Like where? Any senior planning a rental lifestyle needs to research particular towns on his wish list but, in a broad stroke, towns with good rent control (New York, San Francisco, Los Angeles, Washington, D.C.) are excellent picks although, often, the rental market is fiercely tight.
Another variable: sunbelt cities with comparatively abundant apartment rentals, such as Houston and Phoenix, generally offer good supply. That is likely to put downward pressure on rents for years.
But, bottomline, for any senior contemplating renting, gather info about rent volatility. But also know, the beauty of renting is there is no lock in. If the rent goes up too much, move. That's an important advantage that is a renter's.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.