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2016_01_06

When downsizing, the question of whether to rent or buy is a difficult one and those who are drawing close to retirement age should think carefully about it. By the time most Canadians reach retirement age, many have been homeowners for a number of years, and yet the answer is not the same for everyone in the rent vs. buy debate. Making this decision involves evaluating the benefits and drawbacks of both selling and renting in light of your personal situation. Listed below are some factors that can help you make your decision:

  • The Costs
    If you are moving after retirement, you must look at the costs associated with your new home. One way to compare the cost of renting to the cost of buying is with a home-price-to-rent-ratio. You calculate this ratio by dividing the purchase price of a home by the yearly cost of renting a similar home. If the result is less than 15 this indicates low home prices, which means buying is a better option. A result that is more than 15 but less than 20 indicates that renting is probably the better option. If the result is 20 or above then renting is definitely the better option. As the ratio increases, you will need a higher spike in housing prices to make the purchase price worth your while. According to the Organization for Economic Cooperation and Development (OECD), Canada has the third highest home-price-to-rent ratio behind Belgium and New Zealand.
  • The Financial Benefits
    This high home-price-to-rent ratio means that it may not be feasible for all retirees to be homeowners. If you are wary of the costs that go with homeownership (such as maintenance fees and property taxes), then you may see renting as the better option. However, many retiring seniors have other priorities. They may be looking for an investment and building equity in real estate makes the purchase of a property an attractive investment opportunity.Some retirees plan to sell their home and rent while using the money from the sale to form a part of their retirement nest egg. However, the stock market is not necessarily a safer investment option when compared to real estate. In both cases, the wrong decision could cause serious financial troubles later on. If you are considering this route, it may actually be wiser for you to sell your home and buy one with less yearly costs instead of renting.
  • The Downsides
    Most retirees who are considering renting, intend to sell a home where they have already paid off the mortgage. They are now moving to a place where they will have to pay rent. They may escape the necessity of paying their own property taxes, but their landlord’s property taxes and other expenses are included in their rent.
  • Your Lifestyle
    While some retirees prefer to spend their newly acquired free time traveling, many others want to have their own home. They want to feel rooted and settled in a community more than they want to save money. This is common when they have been living in their own home for most, or all, of their adult lives.

The items above should factor into your decision; however, it is important to keep your own financial state in mind. Pay attention to all the risks and costs as you contemplate this chapter of your life.