Home ownership is the deeply ingrained Great Canadian Dream. Adding to the dream is retiring as a homeowner without debt. Although that dream is alive and well, and something that most retirees hope for, there can be some very good reasons not to be a homeowner in retirement.
While renting in retirement may not be your goal, perhaps some of these 10 scenarios might get you thinking differently.
- You can’t afford it. Either you have never been a homeowner because of the high costs, or you were a homeowner but simply needed the liquidity and access to the capital that was tied up in your home. While there are certainly ways to remain a homeowner and access some of the capital, the greatest access to capital is to sell your home.
- You don’t want to carry debt in retirement. You can make a good case that having debt in retirement is just fine as long as you have home equity that is much larger than the debt. Having said that, it is understandable that many retirees don’t want the worry of debt. Usually the best way to achieve this is to sell real estate and use the capital to pay off debt (often debt still owing on the house).
- You don’t want the responsibility of maintaining a house. Let it be someone else’s problem. It can be very nice to suddenly realize that the leaking faucet is no longer up to you to fix. It can be even nicer to know that the roof that needs replacing isn’t going to come out of your pocket (at least directly).
- You don’t want to pay any more realty commissions and land transfer taxes. You may be at a stage of your life where health concerns are either a reality or looming larger. One less home purchase can save you tens of thousands of dollars by eliminating the money that disappears to real estate commissions and land transfer taxes.
- You don’t want to be trapped in a home you can’t sell quickly. You don’t know how long you will be staying in your home. By renting, you have much greater flexibility to move, and with far fewer worries than if you own your home. This can be an even bigger worry outside of urban centres where it can take many months or even years to sell a home.
- You want to spend more money while you are healthy enough to enjoy it. With a major amount of money freed up, you may feel more comfortable spending on vacations, cars, boats or other items that you have long dreamed about. Of course, this should be done with a long-term financial plan in place to ensure you can actually afford it. I have found that while many retirees can afford to do all of these things, “realizing” the cash in their homes often gives them the psychological comfort to start spending.
You want more diversification in your investments. While most people view their home as more than an investment, it can certainly be looked at as a large and extremely concentrated one. Let’s say someone owns a home worth $700,000, and they have a decent pension from work. They could very well have few other assets in their net worth. Maybe $150,000 in other investment savings. This person’s net worth is over-concentrated in real estate, and not just diversified real estate, but 100% in residential real estate in one location. By selling and investing the funds, they can now be much more diversified across a wide range of industries and types of investments.- You want to be able to test out different homes and places. Some people know they want to move to a condo. Some want a backyard garden. Some know the neighbourhood or city or small town they want to live in, some aren’t so sure. By renting you may be able to try out a few options to see which one is the best fit. I am not suggesting that moving is a fun or easy process, but it is a lot easier when you are just renting, as opposed to being an owner.
- You may be needed out of town. Many retirees are happy to finally have their freedom and some independence from family. Others may want or need to move to be closer to children, grandchildren or increasingly elderly parents. Renting may allow you the freedom to spend significant time with family in other cities, without still being responsible for real estate back home.
- You are spending less and less time at “home” anyway. Florida, Arizona, the south of France. Some of these places can be quite compelling in retirement. As you spend less and less time in Canada, does it really still make sense to own a home? By renting you may save a lot of money, especially if you are able to rent for only three or four months at a time. The monthly costs will likely be much higher due to the flexibility, but when compared to a full year of rent for a place that you won’t be in for months at a time, the cost savings and flexibility can be of great value.
Reproduced from the National Post newspaper article 27th January 2015.
