Even if you’re one of the fortunate few who own their house outright, you still might be forking over a lot just to stay in your house, when taxes and maintenance are included. Do you sell your house? If so, do you buy a new one or rent? And where?
Location, Location, Location
Location is your first consideration. Generally speaking, it’s cheaper to rent than buy when you’re on the coasts. Conversely, it’s a better deal to buy a home in the interior of the country than on the coasts. This isn’t, of course, universally true. Chicago, for example, is an outlier when it comes to home ownership and rental costs in the nation’s great middle. And some coastal cities, such as Baltimore, have a lower cost of living. However, for the most part, this general rule holds true.
Should You Sell?
Price of home ownership won’t just impact your cost analysis. It will also help you to determine whether or not you want to sell your home. For example, the median home price in the San Francisco Bay Area is $860,000, according to a CNN price calculator. On the other hand, Flagstaff, Arizona boasts a median home price of $279,000. So if you’ve got a house in an expensive market and want to live somewhere less expensive in your retirement, you should sell, right?
Well, maybe. Lots of Americans have way more house than they need. If that’s you, selling your home might make sense whether your buy or rent. But not everyone wants to live in Flagstaff, or other inexpensive markets. So what are the other advantages of buying and renting?
A Closer Look at Homeownership
If you’re already a homeowner, you probably know that owning a home comes with a number of attractive advantages. You can write off your property taxes and your mortgage interest. When it comes to renting, however, there’s not much you can write off. Still, you might not want to get too hung up on the tax advantages of home ownership. As your income goes down, so does your tax bracket, and along with it, the savings you can get out of those deductions. If you’re in the 15 percent bracket, you only get to write off a mere $1,500.
What’s more, owning your own home isn’t “free.” You’ll have to keep paying property taxes and you wouldn’t be the first person to lose their home because they couldn’t afford those. Further, there are maintenance costs associated with home ownership that rents don’t have. Consumer Reports estimates the monthly cost of a $300,000 home at $2,500. That’s enough to get you a nice rental property in even the most expensive cities in America.
What About Renting?
Renting isn’t without advantages, but most of these aren’t economic. As mentioned above, it might just be cheaper. That’s where the economic advantages end. Still, renting can allow you to check out a city before moving there. And lots of people want to travel in retirement. Renting gives you a greater flexibility to do so, because you won’t have to have friends or neighbors come by and look after the property while you’re away.
So which makes sense for you? Ultimately that’s your decision to make as you create your retirement plan, based on both monetary and non-monetary factors. But one thing to keep in mind is that with any money you have left from the sale of a home, you can greatly increase the size of your nest egg. That’s an attractive prospect no matter where you ultimately decide to live in retirement.