Rent vs. Own

[MrsDarcy]

My mom (divorced) is thinking of selling her house.  It's the house I grew up in, and just too big for her now.  She's 63.  I would guess that she'd be able to get about $125-$150k out of the house, and it would be all profit, as she owns the home outright.  She'd obviously have to pay closing costs, but she would be walking away with a good chunk of money.

She can't decide if she wants to buy a smaller condo/townhome or rent an apartment.  In our area, she'd be able to buy something that she wants (2 bedrooms, smallish) for the money she'd receive from the sale of her larger house, but the new condo would be in a nicer area.  She also has a desire to rent, to not be on the hook for repairs and the unknown of owning a property.  Apartment prices for a decent area for a two bedroom would be around $800/month.

I'm concerned that if she rents, and uses the money from the sale of her home (once she retires in a few years), it will obviously run out one day and she won't anything to show for it.  I know she has a 401k, but I have no idea how much she has, I doubt it's up to MM standards.

Any thoughts on renting vs. buying?  Things I'm not thinking of?  Thanks!

[yentl]

My mom is about your mom's age and owns a condo that is set up for seniors. It is not a retirement community really... it's like 10 condos and you can't buy one unless you are over 55. The majority of the maintenance is taken care of by the condo association (which the members pay dues into), except minor indoor stuff that my mom is plenty capable of dealing with.

Any chance there's something like that available in your mom's area?

[MrsDarcy]

Mar 5, 2015 22:11:46 GMT -5 yentl said:

My mom is about your mom's age and owns a condo that is set up for seniors. It is not a retirement community really... it's like 10 condos and you can't buy one unless you are over 55. The majority of the maintenance is taken care of by the condo association (which the members pay dues into), except minor indoor stuff that my mom is plenty capable of dealing with.

Any chance there's something like that available in your mom's area?

There are a ton of communities like that around here, but most are pricy, at least $200k.  She doesn't want to take on a mortgage at this point.  I'll do some more research on that to see if there are any I've missed.  We both this that would be ideal.  Thanks for the suggestion.

[Marmee]

How much income can she get off conservatively investing the $100+K she gets from the sale of the house? That'd sway my decision. Paying rent for say 20 more years would easily eat all that money she gets from her house (not counting any investment profit). Condo seems a better investment, but HOAs can be pricey. I'd have to run the numbers if I was her to see what makes the most sense.

[MrsDarcy]

Mar 5, 2015 22:19:58 GMT -5 Marmee said:

How much income can she get off conservatively investing the $100+K she gets from the sale of the house? That'd sway my decision. Paying rent for say 20 more years would easily eat all that money she gets from her house (not counting any investment profit). Condo seems a better investment, but HOAs can be pricey. I'd have to run the numbers if I was her to see what makes the most sense.

Yeah, I agree.  I know a couple financial planners (is this who she'd talk to?), so we could look into investing it, which I think could be a good idea.  I'm concerned, like you, about how much HOA fees might be.  One "active adult" community fee was $610/month for one person!  Yikes!

Dumb question: if she invested the money, would she be able to withdraw monthly to pay rent in the renting scenario?  I'm assuming any conservation investment would not get her $800/month in interest/dividends.

[imojoebunny]

How risk adverse is she? I am guessing pretty much adverse (with good reason). In that case, investing is unlikely to yield the results she is looking for. I hate condos in inexpensive areas generally from an investment perspective, but in your mom's case, I think it could be a good idea, but I would encourage her to look for a place that she would be happy, and that might include renting first. There is a great deal to be said for finding the right community. It does not have to be 55 and up, but certainly, it would help to have several neighbors who were interested in being neighborly, and a few that she enjoys the regular company off. In her shoes, I would probably get a storage unit for most of my stuff, then rent for 6 months in a place where I could afford to buy, and see how I liked it. If I didn't, I would move on to the next place. Life is too short to live someplace you don't like.

A note on the condo thing and maintenance though, I looked at condos when I was buying my first place, and I ended up buying a single family. I told myself that I would spend what I would pay in condo fees to pay people to maintain the property for me. I saved $150 a month for repairs, and paid a man $80 a month to maintain the yard, so all I had to do was plant a few flowers. That was the same as condo fees in the same price range, and I never spent all the $150 a month in the 6 years I lived there.

I wish her much luck in finding a place that makes her happy.

[MrsDarcy]

Yes, imojoebunny, quite risk averse. Thanks for your thoughts and well wishes.

[MrsDarcy]

Do most think that long term renting is a bad idea?

[mrs07]

Mar 5, 2015 23:08:34 GMT -5 MrsDarcy said:

Do most think that long term renting is a bad idea?

I would say that a paid-off primary residence is a major component of a good retirement plan for most Americans.

[VillainV]

Mar 5, 2015 23:42:09 GMT -5 mrs07 said:

Mar 5, 2015 23:08:34 GMT -5 MrsDarcy said:

Do most think that long term renting is a bad idea?

I would say that a paid-off primary residence is a major component of a good retirement plan for most Americans.

While I agree with you, I think that many seniors lose the ability to adequately maintain their own residence -- maybe not at 63 or 65, but sometimes by 70-75. My in-laws (68 and 88) own their house outright, but can barely maintain it, and spend a good deal of money on yard services and a handyman to fix little things that come up......and there is still a honey-do list a mile long for my husband and I to do when we come visit.

I think seniors who own need to have a solid plan for how they plan on maintaining their property, whether it is through an HOA or by having the funds to hire out the work.

[v]

Mar 5, 2015 23:08:34 GMT -5 MrsDarcy said:

Do most think that long term renting is a bad idea?

I'm a long-term renter and I don't think it is a bad idea.  But there are a lot of variables that make it hard to come up with a one-size-fits-all answer.  It depends on the market and your long-term plans and such.

You could play around with this to work the numbers: www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0&abt=0002&abg=0

There's also a huge plus in not having to keep up the place yourself -- I'd imagine that's even more valuable when you're getting into senior citizenhood than when you're an able but lazy 35 year old.

[my3bears]

Mar 5, 2015 23:08:34 GMT -5 MrsDarcy said:

Do most think that long term renting is a bad idea?

Not necessarily, but you have to crunch the numbers and figure out what works in your area. If renting is $800/month and owning is $500/month property taxes and insurance and then $600/month HOA ($1100 total), I would definitely have to think long and hard about if it's worth it. 

Rental prices will definitely go up, so there's that. But those "slowly" increasing rents spread out the costs associated with needing new roof, new hot water heater, rising property taxes that the landlord pays, etc. You're not likely to have as many surprises when you rent where you have to suddenly come up with a chunk of money. Where I live, it seems like condo HOA fees are already pretty steep, cover things you may not want/need, and you still may be on the hook to chip in for a new roof, new fitness center, massive tree-trimming, separate even from the HOA fee. Plus property tax increases.

That being said, my dad bought my grandmom a townhouse in a 55+ community and when he sold it 10 years later when she moved to the nursing home he made a nice profit on it. So if your mom can buy something it could be worthwhile?

[MrsDarcy]

Thanks for the thoughts, everyone! She's meeting with a realtor next Saturday about selling, so we can also look into typical HOA fees with condos, and think about what's best.

[thefield]

I think renting is a great option for her!

[livinitup]

Mar 5, 2015 23:08:34 GMT -5 MrsDarcy said:

Do most think that long term renting is a bad idea?

Paying for rent out of savings, long term, is a bad idea. Because you'll run out of money. It's also worrisome if you are on a fixed income and rent prices rise.

Can she calculate her monthly income after retirement and determine an affordable monthly rent? If she gets into that now, she would do well long-term.

What is her long-term plan for housing? Does she want to stay in her own place or move-in with you (or someone else) some day? Because a chunk of savings and an apartment would make that easy to do.

[msmerymac]

Mar 6, 2015 3:40:20 GMT -5 VillainV said:

Mar 5, 2015 23:42:09 GMT -5 mrs07 said:

I would say that a paid-off primary residence is a major component of a good retirement plan for most Americans.

While I agree with you, I think that many seniors lose the ability to adequately maintain their own residence -- maybe not at 63 or 65, but sometimes by 70-75. My in-laws (68 and 88) own their house outright, but can barely maintain it, and spend a good deal of money on yard services and a handyman to fix little things that come up......and there is still a honey-do list a mile long for my husband and I to do when we come visit.

I think seniors who own need to have a solid plan for how they plan on maintaining their property, whether it is through an HOA or by having the funds to hire out the work.

On the flip side, she'll have equity in the condo and could sell 15-20 years down the line and move into an actual retirement community if she can't do any upkeep. 

[MrsDarcy]

Mar 6, 2015 13:48:49 GMT -5 msmerymac said:

Mar 6, 2015 3:40:20 GMT -5 VillainV said:

While I agree with you, I think that many seniors lose the ability to adequately maintain their own residence -- maybe not at 63 or 65, but sometimes by 70-75. My in-laws (68 and 88) own their house outright, but can barely maintain it, and spend a good deal of money on yard services and a handyman to fix little things that come up......and there is still a honey-do list a mile long for my husband and I to do when we come visit.

I think seniors who own need to have a solid plan for how they plan on maintaining their property, whether it is through an HOA or by having the funds to hire out the work.

On the flip side, she'll have equity in the condo and could sell 15-20 years down the line and move into an actual retirement community if she can't do any upkeep. 

Yeah, I felt like having the equity in the condo would be beneficial to her should she need long term care in the future. We'll just have to see what the HOA fees are.

[MrsDarcy]

Mar 6, 2015 13:46:46 GMT -5 livinitup said:

Mar 5, 2015 23:08:34 GMT -5 MrsDarcy said:

Do most think that long term renting is a bad idea?

Paying for rent out of savings, long term, is a bad idea. Because you'll run out of money. It's also worrisome if you are on a fixed income and rent prices rise.

Can she calculate her monthly income after retirement and determine an affordable monthly rent? If she gets into that now, she would do well long-term.

What is her long-term plan for housing? Does she want to stay in her own place or move-in with you (or someone else) some day? Because a chunk of savings and an apartment would make that easy to do.

Yeah, we'll have to see approximately what her monthly income will be. Is there a resource for that online? I'll have to poke around the SSA website.

I think long-term she'd be happiest living by herself. Eventually, if we're in a house with room for her I'd be happy for her to move in with us. I guess it depends on our home and her needs when the time comes.

[livinitup]

Mar 6, 2015 16:25:05 GMT -5 MrsDarcy said:

Mar 6, 2015 13:46:46 GMT -5 livinitup said:

Paying for rent out of savings, long term, is a bad idea. Because you'll run out of money. It's also worrisome if you are on a fixed income and rent prices rise.

Can she calculate her monthly income after retirement and determine an affordable monthly rent? If she gets into that now, she would do well long-term.

What is her long-term plan for housing? Does she want to stay in her own place or move-in with you (or someone else) some day? Because a chunk of savings and an apartment would make that easy to do.

Yeah, we'll have to see approximately what her monthly income will be. Is there a resource for that online? I'll have to poke around the SSA website.

I think long-term she'd be happiest living by herself. Eventually, if we're in a house with room for her I'd be happy for her to move in with us. I guess it depends on our home and her needs when the time comes.

Do you live near each other? Would you consider a house with an in-law suite? Maybe she could use savings to get you into that type of house and you could manage maintenance and repairs for the long-term. Her money is going into property but she doesn't have to manage it.

[meltoine]

I would encourage her to buy something outright. That gives her more options down the road, be that selling and moving to an apartment or retirement community, or using a reverse mortgage to pay for repairs and outsourcing upkeep in later years. My grandmother did the latter and it worked out very well for her. She took out the reverse mortgage at 78, used a small chunk to replace her roof, and used a small amount thereafter for monthly fees to a guy who mowed the lawn in the summer and shoveled snow in the winter. There was still a size able chunk left in the reverse mortgage account when she passed at 87.

[MrsDarcy]

Mar 6, 2015 16:42:37 GMT -5 livinitup said:

Mar 6, 2015 16:25:05 GMT -5 MrsDarcy said:

Yeah, we'll have to see approximately what her monthly income will be. Is there a resource for that online? I'll have to poke around the SSA website.

I think long-term she'd be happiest living by herself. Eventually, if we're in a house with room for her I'd be happy for her to move in with us. I guess it depends on our home and her needs when the time comes.

Do you live near each other? Would you consider a house with an in-law suite? Maybe she could use savings to get you into that type of house and you could manage maintenance and repairs for the long-term. Her money is going into property but she doesn't have to manage it.

That's an interesting idea. Yes, we do live near each other. I had thought about those before, but not in this situation. Thanks!

[lys]

Assume your mom lives for 30 more years.
With no rent increases (highly unlikely) that would be $288,000 for rent payments.