Renting after Downsizing: Is It Right For You?
Many long-time homeowners have a difficult time deciding what their next living situation should be after they sell their home while downsizing. Because we’ve all been taught that owning a home is the smartest financial choice, it can feel wrong to even consider another option, like renting. Isn’t renting basically “throwing away” money? That sentiment may be partly true but doesn’t have to be your North Star in this decision. You need to focus on your goals in this phase and whether or not renting helps you reach those goals for the lifestyle you want.
Let’s weigh the pros and cons of renting so you can make an informed decision. We’ll start with the positives for renting compared to owning a home.
5 Potential Benefits of Renting After Downsizing
1. Housing Style Options - If you think that becoming a renter means you need to live in an apartment, think again. You can rent ANYTHING. Single family, condo, apartment, mobile home, etc. If you can envision yourself living in a particular style of home, you can probably find a home of that style to rent.
2. Less Responsibility - As a renter, you no longer have to budget to replace your furnace, roof, refrigerator, etc. Your landlord will be financially responsible for all the maintenance needed on the building and unit. I cannot guarantee that you won’t be responsible for lawn and snow care if you decide to rent a single family home, so pay close attention to what the lease says regarding these items.
3. Financial Predictability - You will know what your rent is and what it covers. If it also includes utilities, that takes out even more financial unknowns from your budget. You won’t be subject to property tax increases anymore. Emergency and deferred maintenance items won’t be your responsibility. All you have to do if something goes wrong is call your landlord. There can be a lot of freedom in that.
4. Available Funds - If you sell your home and decide to rent, you unlock all that cash you had as equity in your home. You give yourself a bit more financial freedom. If you’re worried about running out of money, do a little math and see just how long that money might last for you. Take your home sale proceeds and divide it by the cost of your rent and see just how long you can live off of your equity in a rental. It will probably be longer than you think.
5. Low Commitment - For most people, the idea of moving often is not appealing. But maybe you’re feeling ready to have more adventure in this phase of your life. If you rent, it is much easier to adjust where you live if you decide you’d like to try a few different places.
Just like everything in life, there are possible downsides to consider as well.
5 Potential Downsides of Renting After Downsizing
1. Less Control - You might not be able to do everything you want to your rental. For example, if the kitchen is outdated, you can’t just decide to remodel the kitchen. For a less extreme example, you might not even be able to paint your living room walls the color you’d like.
2. Landlord - Your landlord will be a person who you will need to be able to work with. A good landlord can be a joy, but a bad landlord can really make your life stressful.
3. Rent Increases - Rents always seem to increase slightly over time. You are at the mercy of your landlord and the rental market. Sometimes a landlord won’t raise your rent if you’re a really great tenant and they don’t want to lose you but most often, landlords will keep their rents right around the market value.
4. Property Sales - If your landlord decides to sell the property you are renting, the next owner will have to respect your current lease, but they don’t have to extend it when it’s up. A property sale could force you to move again and it might not be entirely your choice. If you’re nervous about this, consider moving into a property that is intended to be a rental, such as a larger apartment building. Then you’ll have a greater chance of the property continuing to be used as a rental, even if it’s sold.
5. No More Equity - When you rent, you never get any of your rent money back. But in a way, as a homeowner, there is also plenty of money you have to spend as well that you never get returned to you (property taxes, condo fees, utility costs, some maintenance items, etc).
Even if you’re not excited about something you see in the negatives list, that doesn’t mean that renting won’t be the right option for you. The good AND the bad is shared here because it’s important to have a realistic picture from all angles of what renting might look like for you.
Many Jess Lex Homes clients have downsized out of owning a home and into renting and it has been the perfect fit for what they want their lifestyle to be in this phase of their life. Remember to think through your goals and not get stuck on financial principles that might not make as much sense for you in this phase.
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