Renting after Home Owning: A Pros and Cons List

The “rent or own” decision isn’t just a conundrum for millennials. A growing number of baby boomers and retirees are weighing their options too.

In fact, according to a report by iProperty Management, the number of homeowners who are under 35 years old is down 6.9% year over year. When we look at homeowners 25 years old and younger, that number is down 16% in one year. Homeownership is highest among those that are between the ages of 70 and 74, with 82.3% owning homes. Among those that do rent, some may have always rented because that’s their preference or because they were unable to buy. But many of them are former homeowners.

For some homeowners, the idea of renting is unthinkable because they’ve become accustomed to owning property and don’t want to have a landlord. Other homeowners end up renting after owning their residence because they can’t find a house that they want to buy that meets their priorities and their budget. For others, renting after selling a home is a strategic decision, one that is part of their preretirement or retirement planning.

Here are a few factors to consider when you’re ready to make a move.

Pros of Renting After You Sell Your Home

If you’re leaning toward renting, you may find these aspects appealing:

Flexibility of location. Baby boomers, looking forward to the next phase of their lives, may like the option of “testing” a new location or a new lifestyle without the long-term commitment of home ownership. Some want to try out urban living or experiment with different regions of the country. If you think you want to move to a warmer climate, you can rent there for a year or a season and then decide if you want to commit to buying property there.

Flexibility can be important if you move to be near your grandchildren or other family. If they later relocate (for example, if a job change takes them to another area of the country), as a renter you can follow them or easily move.

Smoother transitions. If your situation changes—or that of the family you’ve moved to be near, as described above—as a renter, you’ll be able to respond much faster. Leaving an apartment generally entails providing a 30- or 60-day notice to the landlord, and you don’t have to find a replacement tenant before you can move. When you need (or want) to move as a homeowner, the process can take much longer and involves more moving parts, from attracting a buyer to successfully closing the sale.

Amenities and convenience. Baby boomers who choose to rent an apartment may find that having an onsite fitness center, package delivery service, and a parking garage offer a nice lifestyle benefit. Many buildings now offer concierge services and yoga studios, plus the convenience of a staffed front desk.

Maintenance-free living. Years of home ownership result in both a sense of pride about your property and, sometimes, a sense that your time is curtailed by home maintenance responsibilities. Renting provides the freedom to call the landlord or the superintendent when something goes wrong, rather than hassle with do-it-yourself repairs or paying for a contractor.

Downsizing. While you can downsize into a smaller house, you still have to take care of your place, which means keeping some tools and responsibility. Renting allows you to get rid of possessions and embrace a no-maintenance lifestyle. In addition, many apartment buildings include storage facilities so that you have a place for a few extra things you’d like to keep.

Fewer costs. While not all rentals are less expensive than buying a place, many of the costs of home ownership add up to require more money than renting. Renters don’t have to pay property taxes, condo or homeowner association dues, or repair bills. Plus, renters insurance is typically less expensive than homeowner’s insurance, since you are insuring your belongings and not an entire property.

Freeing up funds for investments. When you sell your home and make a profit, you can take those profits and use the money to invest. The capital can be used to boost your retirement funds or to pay off bills so you can start living debt-free.

Cons of Renting After You Sell Your Home

While those factors are compelling, you should also consider a few potential negative aspects of renting:

Rent increases. While a fixed-rate mortgage offers stable housing payments during the loan term, you do face potential increases in property taxes. However, when you rent, your monthly payment can change annually depending on the terms of your lease and on local rent control laws in certain urban areas.

Signing a longer lease is one way you can offset potential increases. You may also want to investigate the local rules about how often your rent can be raised and by how much, so you’re prepared for a possible rent hike.

Loss of tax benefits. Renters don’t have the ability to take a tax deduction on their federal income taxes for property taxes or the interest paid on a mortgage. You can adjust your take-home pay to have more taxes taken out or consult a tax advisor on the impact of this change in your circumstances.

Privacy issues. When you own your home, you enjoy a level of privacy that rental living may not provide. In an apartment building or complex, you’ll be living in closer proximity to other people whose lifestyles and schedules may be very different from your own. Living in a home and having neighbors is quite different from living in an apartment building with loud or heavy-footed neighbors above you.

Pet restrictions. Many rentals have pet restrictions written into the lease that can range from a complete ban on all pets to limits on the type or size of pets allowed. Be sure to check out pet policies before you sign a lease.

Possibility you could have to move. While renting offers flexibility, it also provides a bit less stability. If, for example, you rent in a single-family home, you could have to move if the owner decides to sell the property or, even worse, if the owner loses the property in a foreclosure. The same thing could happen in a small, individually owned apartment building. This is less likely to happen in a larger apartment community.

Lack of control. As a homeowner, you’ve become accustomed to deciding when to repaint or to make repairs or upgrade the flooring. It can be an adjustment to realize that your landlord will make those decisions when you rent. You may want to ask your potential landlord about your options for painting rooms or changing window treatments and whether the landlord plans to replace appliances or do other upgrades in the future.

Landlord issues. A landlord is comparable to the boss of your home, so you’ll need to think about whether you can accept that transfer of responsibility to someone else. Before signing a lease, try to check out landlord reviews. Just as in a job interview, the exchange of information should be two-way, with you as the renter approving the landlord, as well as the landlord approving your application.

Insurance 

So, which is right for you in retirement? Owning, renting, or some combination? If you decide to become a renter, don’t forget that renters insurance is just as essential as homeowners insurance. While you’re leaving behind some of the responsibilities of home ownership, you still want to be sure that you have liability coverage to protect you from a lawsuit.