Opinions differ on whether or not owning a house is a good investment strategy. I happen to believe that it is, but you may take the opposite view. If so, what would you say if I could convince you that owning your own home can be an excellent – and simple – way to plan a secure retirement?
A utilitarian savings account
Throughout their adult lives, the majority of Americans will either buy their own home, or rent. In either case, there will be basic housing expenses to be paid each month, in the form of either a mortgage or rental payment. While the former expense builds equity in your house, the latter builds equity in your landlord's house. Since you will be paying some kind of shelter costs anyway, why not allow that payment to work in your favor over the course of 30 years?
In my opinion, this type of investment will benefit anyone, even if a house doesn't appreciate much in value over three decades. For those nearing retirement, however, that house can begin to look like a nice big piggy bank – one that also served as a home for all those years.
Renting: The better retirement option
Once you begin to seriously think about retirement, you may decide that home ownership is too much responsibility. Renting can give you the flexibility to live where you want to, as well as free you from the chores of upkeep, and the expenses associated with home repairs.
There are numerous advantages to renting compared to home ownership once you retire. Here are a few:
- You will be able to test a new locale without being tied down by property ownership;
- Moving closer to amenities such as shopping, health care facilities, and public transportation may enable you to make do without a car;
- Rental complexes often offer luxuries you likely would not have at your own house, such as pools, spas and dance classes, right on site.
Many retirees worry that renting will cost more than a home with a paid-off mortgage, or selling their current abode and purchasing a smaller house. The New York Times recently analyzed which is cheaper, noting that buying a house for $250,000 was the best option for most people, unless a similar home could be rented for about $960 per month. Retirees, however, often have very different priorities than younger folks.
Aside from the fact that buying another home limits your options, you would still have all the maintenance concerns of homeownership. For seniors looking to be more flexible, selling a $250,000 home and investing that money to subsidize their new renter's lifestyle could be very cost-effective, even with slightly higher-than-average rental payments.
For example, last summer, the average rent was estimated to be $1,231 per month. Even if rents jumped to $1,500 in 2014, the proceeds from the sale of your house would make a sweet addition to your retirement kitty. Plus, as the National Association of Realtors showed in its June report, the sales prices of single family homes are rising fast. The average sales price in May was $260,700, compared with a May 2013 average price of $251,700.
Of course, this scenario will work best when your existing home is paid off, or nearly so. Also, costs to own or rent can vary considerably; the interactive calculator in the aforementioned NYT article could be very helpful to help you figure out your own costs. Remember, though, that you must also factor in the sale of your home on the rental side of the picture.
Selling your home and moving into rent is a very personal decision, and you may not be ready to take the plunge just yet. However, looking at your home as a retirement savings account could prompt you to adjust the way you plan for retirement, perhaps opening up possibilities you never considered before. For long-term planning, your house could turn out to be one of the best investments you ever made.
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