Rent vs. Buy: Retiree edition!
April 18, 2013 8:39 AM   Subscribe

Single retiree is selling a big paid-off house and asked me and huzzeh for help deciding whether or not it makes sense to rent an apartment or buy a condo. What questions should we consider to help make this decision?

I think buying a condo makes more sense, but that's just a gut feeling, not an educated opinion. Can you help me think this through?

Factors that may or may not be relevant:

-Rents are expensive compared to selling prices in her city
-If buying, we'd advise buying in a (reliably) hot neighborhood to maximize the appreciation of the condo.
-She will be largely living off the proceeds of this house sale, as SS and pension do not cover much. Not sure if it makes sense to tie up that much money in real estate? Or maybe she could just make a big downpayment and get a cheap mortgage, even though she could buy outright?
-She's in pretty good health, but not great. Obviously there's no way to tell, but our working assumption is that she's got about 10 years of independent living ahead of her.

What else do we need to consider?
posted by elizeh to Work & Money (15 answers total) 2 users marked this as a favorite
I would re-read this old NYTimes article for tips.
posted by devnull at 8:41 AM on April 18, 2013

I'm not a financial advisor, but I'd be surprised to hear buying makes more sense for a retiree, though it surely depends in great deal on the local real estate market. Factors I would consider would be foremost how much other wealth she has, given that, more or less, she's not going to be getting any more wealth (perhaps income, but not true wealth) for the rest of her life. I'd be leery of putting a lot of my wealth into a non-productive asset like real estate as a retiree. Your advice to steer her to a "hot" market is a bit meh; who knows what happens in the next ten years--and if the trigger to sell is that she needs to move into assisted living, she may be looking at a fire sale price.

The mortgage interest deduction is of little use to a retiree. I don't know whether the condos you're advising come with a super that's paid for out of condo fees--but if not, she'll presumably have to pay for maintenance, since she's not likely to fix things herself.

She should talk to a financial planner who deals with retirees. Listings are available here. This really is best left to the professionals.
posted by Admiral Haddock at 8:54 AM on April 18, 2013 [2 favorites]

If she ever needs to apply for Medicaid to pay for care, she'll have a better chance of exempting a home than she will cash.
posted by leotrotsky at 8:56 AM on April 18, 2013 [4 favorites]

One word for a retiree: Liquidity. I would probably stay in safe near cash instruments than buy real estate. If I purchased the condo, I would immediately establish a HELOC so that this retiree could have access to the equity in the condo in an emergency.
posted by JohnnyGunn at 8:56 AM on April 18, 2013

I don't think anyone here is going to be able to advise you because we're not going to have enough details but you should probably talk to an eldercare attorney or specialist financial advisor (or several, in fact) about this kind of planning. It can become very complex in terms of assets and coverage for things like assisted living, Medicare and Medicaid.
posted by DarlingBri at 8:58 AM on April 18, 2013 [2 favorites]

This would be quick work for an hourly financial planner- probably less than 2 hours.

Also, there is an emotional component here which shouldn't be overlooked. Owning can give a peace of mind that renting can't, especially if they're of a generation that grew up with the traditional American Dream. On the other hand, if they're thinking of moving (to retirement community, nearer kids or grandkids, someplace warmer/cheaper) then selling a condo is a PITA they may not want to deal with. Also, as with all places that have HOAs, unexpected expenses can be shocking. (Anecdata: a friend of mine was expected to come up with$18k within a couple months for community sewer repair.)

If they're likely to someday go on government assistance, owning is nice if they can afford it- it's a way to stash some equity without the government being able to get its hands on it. Also, reverse mortgages are handy things to have in reserve, but they should be aware that they're harder to get for condos than houses.

So the answer is: it depends.

It depends on what this person's emotional needs are, on their plans to move or not move, and whether or not they're going to go on government assistance or otherwise need to get money out of their residence, just for starters.
posted by small_ruminant at 9:49 AM on April 18, 2013

Here's an article that google found for me on reverse mortgages and condos. I don't know how accurate it is, but it tallies with what I've heard.
posted by small_ruminant at 9:54 AM on April 18, 2013

When I get older (and I'm already looking at that from pretty close up) I don't think I want to be burdened with dealing with a house.

I don't want to deal with landscaping, snow shoveling, gutter cleaning, routine maintenance, etc.

So if I can afford it, I'm going into a place in an Active Over 55 community, with shuttles, and activities and all maintenance included. It will cost the earth. Like $800 extra per month, because that shit ain't free.

Condo's aren't always such hot deals. I've owned one and there are tons of ??? that make owning one problematic. First of all, there are condo fees. That's for maintenance and upkeep of the building and grounds. Then there are assessments, that's money over and above maintenance for things like a new roof, or relining to pool, or repaving sidewalks in the community. You don't get a vote, you just get to pay.

Frankly, no decision needs to be immediate or permanant. Move into a nice rental, and take time to really consider the options. See if renting agrees with you.

Frankly, with 10 years of independent living, it's not that long a time. Being in a nice Senior community, with activites and shuttles and excursions can be awesome. When it's time to go to assisted living, it's not that big of a transition.

Renting is great, if something breaks you call a guy. If it's a huge thing, it's not your headache. As I get older, renting sounds like a dream scenario to me.
posted by Ruthless Bunny at 10:28 AM on April 18, 2013 [3 favorites]

I LOVE renting, for all the reasons Ruthless Bunny does, but some people have emotional stuff about being a renter.
posted by small_ruminant at 11:13 AM on April 18, 2013

There are plenty of condos and coops where if something breaks, you just call a guy.

Yes, but if you own the co-op/condo, YOU pay. If you rent, the LANDLORD pays.

This is a pretty important differentiation.
posted by Ruthless Bunny at 1:20 PM on April 18, 2013

Make sure she has a good tax accountant who can help navigate the capital gains issues/exemptions.
posted by quince at 1:40 PM on April 18, 2013

quince, do you mean in the case of condo ownership?
posted by small_ruminant at 2:06 PM on April 18, 2013

I'm pretty sure quince is referring to capital gains taxes on the sale of the paid off home and this is definitely something to factor into the equation. My understanding is that you don't pay taxes if you plow the funds back into the purchase of a primary residence within 12 months and that generally the first $250K of gains can be excluded from tax. But this is the kind of thing you'd want an accountant to weigh in on who has the details of this transaction.
posted by donovan at 3:03 PM on April 18, 2013

Yes, sorry to be unclear, donovan has it.
posted by quince at 6:22 PM on April 18, 2013

I don't think that's true any more, unless you're talking about income property, or unless I'm completely misunderstanding something.
posted by small_ruminant at 7:02 PM on April 18, 2013 [1 favorite]

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