Is it bet­ter to own or rent in re­tire­ment?

George Herald - Private Property - - Property News -

For most of us, the cost of putting a roof over our heads is one of our big­gest monthly ex­penses. This can be chal­leng­ing enough when we're young and earn­ing a salary, but is even more im­por­tant to plan for when we reach re­tire­ment. "I often get asked whether it's bet­ter to rent or own prop­erty later in life," says Tony Clarke, MD of the Raw­son Prop­erty Group. "In re­al­ity, there are pros and cons to both op­tions, and no easy an­swer that fits all sit­u­a­tions. My best ad­vice to peo­ple near­ing re­tire­ment age is to con­sider all the pos­si­bil­i­ties, and choose the one best suited to their par­tic­u­lar needs."

OWN­ING PROP­ERTY IN RE­TIRE­MENT Ac­cord­ing to Clarke, one of the big­gest rea­sons home­own­ers hold on to prop­er­ties in re­tire­ment is sen­ti­ment. How­ever, he cau­tions against let­ting happy mem­o­ries tie you to a prop­erty that no longer ful­fils your needs. "When de­cid­ing whether home­own­er­ship is ap­pro­pri­ate for you in re­tire­ment, you need to try to re­move emo­tion from the equa­tion and take an ob­jec­tive look at how it may im­pact your life­style over the com­ing years," he says.

Pros

Po­ten­tially lower monthly ex­penses: If you're lucky enough to be bond-free by re­tire­ment, home­own­er­ship may be more cost-ef­fec­tive than rent­ing, with monthly ex­penses lim­ited to rates, taxes and util­i­ties.

Sta­bil­ity: Own­ing your own prop­erty means you'll never have to worry about a land­lord not re­new­ing your lease. Your home will be home for as long as you want it.

Ac­cess to emer­gency cap­i­tal: Prop­erty can pro­vide a use­ful source of emer­gency cap­i­tal, and tends to main­tain its value bet­ter than many other in­vest­ments. Tap­ping into eq­uity in an ex­ist­ing bond, or tak­ing out a new mort­gage on a paid-off prop­erty, should never be done im­pul­sively, but can be a com­fort­ing safety net in re­tire­ment.

A legacy for your heirs: The idea of be­ing able to pass a prop­erty on to your heirs is often an at­trac­tive prospect. Just be sure to plan out how that'll work if you have mul­ti­ple heirs and only one prop­erty, and re­mem­ber to take es­tate du­ties into con­sid­er­a­tion.

Cons Buy­ing late in life can be dif­fi­cult: If your cur­rent home is un­suit­able for your re­tire­ment, or you've spent your life as a renter, you may find it dif­fi­cult to get bank fi­nanc­ing for a prop­erty postre­tire­ment. Banks vary on cut-off ages for bond ap­proval, but very few will grant favourable, long-term loans to peo­ple over 70.

Un­pre­dictable costs: Mort­gage re­pay­ments are rea­son­ably re­li­able, but ris­ing in­ter­est rates, taxes, in­sur­ance and main­te­nance costs can in­tro­duce un­ex­pected ex­penses to prop­erty own­ers. On a fixed in­come, that can be a se­ri­ous bud­get­ing chal­lenge.

On­go­ing main­te­nance: While you may have been a DIY su­per­star in your younger years, big­ger home main­te­nance chores will likely be be­yond you as you get older. Con­tract­ing this work out can be both ex­pen­sive and stress­ful, but is es­sen­tial to main­tain the value of your prop­erty.

Less sense of com­mu­nity: Own­ing a prop­erty, par­tic­u­larly a free­stand­ing home, can be­come iso­lat­ing as you get older. Be­ing part of a rental or re­tire­ment com­mu­nity, on the other hand, means more so­cial con­tact and more hands on deck in case of an emer­gency.

RENT­ING PROP­ERTY IN RE­TIRE­MENT Rent­ing prop­erty in re­tire­ment may seem like a down­grade af­ter a life­time of own­er­ship, but Clarke says re­tirees often find them­selves pleas­antly sur­prised by the free­dom a rental prop­erty of­fers.

"That free­dom does come with cer­tain sac­ri­fices," he ad­mits, "but a lot of peo­ple find it well worth­while. De­pend­ing on your cir­cum­stances, you may or may not agree." Pros

Cheaper than a new bond: Rent is al­most al­ways cheaper than bond re­pay­ments on a com­pa­ra­ble prop­erty. That makes it a more af­ford­able op­tion for peo­ple who aren't look­ing for a long-term in­vest­ment.

Pre­dictable ex­penses: The great thing about rent is you know ex­actly how much it's go­ing to be each month, and even rental es­ca­la­tions hap­pen on a pre­dictable sched­ule. When you're liv­ing on a fixed in­come, that kind of fore­sight can be in­valu­able. Any nasty main­te­nance sur­prises are also not for your ac­count.

Flex­i­bil­ity: Rent­ing gives you the op­tion of mov­ing as often as you please, with no more lim­i­ta­tions than the du­ra­tion of your cur­rent lease. That makes it much eas­ier to adapt your liv­ing ar­range­ments to suit your chang­ing needs as you get older, and can also help you stay close to fam­ily and friends.

Up-to-date fa­cil­i­ties: Rental prop­er­ties are often reg­u­larly up­dated to main­tain their in­come po­ten­tial, which means you can ben­e­fit from the lat­est fit­tings and fin­ishes with­out hav­ing to un­dergo the stress and ex­pense of do­ing your own ren­o­va­tions.

Cons

Rent is a sunk cost: A rental prop­erty will never be­come an as­set to its ten­ant. That rent is a sunk cost that eats into re­tire­ment sav­ings ev­ery month and doesn't gen­er­ate any (fi­nan­cial) re­turns.

Land­lords can be un­pre­dictable: There is no guar­an­tee that your land­lord will con­tinue to re­new your lease in per­pe­tu­ity. There's al­ways the chance that they de­cide to go a dif­fer­ent di­rec­tion, and you'll be forced to move. That un­cer­tainty can be un­set­tling, par­tic­u­larly since change often gets more stress­ful as we age.

It can be dif­fi­cult to get a lease at an ad­vanced age: Prop­er­ties in se­cu­rity es­tates and vil­lages geared to­wards re­tirees often have wait­ing lists of a decade or more. Land­lords of or­di­nary rental prop­er­ties, on the other hand, may be re­luc­tant to lease to the el­derly for fear of age-re­lated com­pli­ca­tions.

"What­ever you choose, whether it’s home­own­er­ship or rental, re­mem­ber: your golden years should be about you and what makes you happy," says Clarke. "Choose a prop­erty that sup­ports your needs and en­ables you to live your best life."

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