How Your Home Can Become a Financial Tool When You Downsize in Retirement

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Here’s How Your Home Can Become a Financial Tool When You Downsize in Retirement

When senior citizens choose to downsize, one of the first (and biggest) decisions they have to make is what to do with their current home. Should they put it on the market? Rent it? Keep it in the family? There are a lot of details that can help determine the best option for a senior - such as where they’re moving, their budget, and their home’s condition - and it’s a decision that should be made carefully.

Most homeowners realize their property serves two purposes: Your house is the place you call home, but it’s also an investment. When we’re young, we tend to focus primarily on the first reason for home ownership. For seniors, though, it can be smart to start thinking about how your home can also serve as an investment, especially if you’re planning to downsize. When you’re ready to find a place that’s better suited to aging in place, Forbes explains how your home is a source of equity that you can use to your advantage.

Are the Market Conditions Right for Selling?

Some real estate agents will tell you there’s never a bad time to sell, but market conditions can make a difference in how quickly you sell and the price you get. Currently in Orlando, homes are selling for an average of $257,000. Other market factors can impact your potential for selling as well, such as the local economy, mortgage rates, and even the time of year. Since you’re looking to sell in Florida, you don’t have to avoid selling in the winter, since you won’t need to contend with harsh conditions like snow and ice. However, local conditions can make a difference depending on trends in your area.

How to Get the Greatest Windfall - Sell Now or Rent?

The answer to this question is that it depends. In addition to market conditions that influence your potential sales price, you also want to consider what the rental market is like in your area. Money Crashers recommends searching for comparable rental homes near where you live to get an idea of what you can anticipate bringing in. If you live in an area that’s popular with tourists, you may even want to consider renting it as a vacation home rather than a full-time rental.

Once you have a general idea of how much you can expect to earn through rent, you also want to make sure you know how much it will cost you. Besides paying the mortgage (if you don’t own the home free and clear), don’t forget about property taxes, maintenance (for instance, if a dishwasher needed repairing, it could cost $150-$200) , and any costs associated with being a landlord, such as rental income taxes, marketing, and accounting. If you come out netting a profit once all expenses are accounted for, renting the property may be a smart way to generate extra income in retirement while holding onto your home as an asset that can serve you in the future.

Other Logistics

Even after you’ve run the numbers, don’t forget that there are logistical issues that might make one option better than the other. For example, if you’re thinking about renting out your home, would you manage it yourself, or would you need to hire a property manager? Since you’re downsizing, you probably also have more possessions than you can keep in your new home. If you plan on selling, have you considered what to do with those things you can’t take? If you rent it out, would you keep it furnished? These are just a few of the many logistical issues to think about before making a decision.

How Do You Feel About Selling?

The financial impact of whatever you decide should work out in your favor, but regardless of the numbers, how do you feel about selling vs. keeping the home? Letting go of your family home is a highly emotional decision, not to mention the added stress that can come from the process of selling. On the other hand, many seniors downsize in part because they want to simplify life. In this case, keeping a home as a rental may be more of a burden than you want right now.

We know that there are a lot of questions to consider, and that can be overwhelming when you’re making such a big decision. Of course, you want to make sure you do what makes sense financially, but don’t discount the emotional factor as well. All in all, look at this as an opportunity to fund your future as you downsize and start the next adventure.

Contributed by Jim Vogel of elderaction.org.  For more information, contact Jim at Jim@elderaction.org 

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