Retirees’ Decisions to Rent Vs. Buy Weighs on Home Equity

It’s better to rent a new home than to buy one in retirement—that is, only if you don’t like your heirs.

That’s according to Trulia’s latest Rent vs. Buy Report, which considers whether it is cheaper to rent or buy a retirement home.

Buying a home in retirement is only more beneficial than renting one if retirees care about leaving an inheritance, the report says. The value of the equity in a home is a major contributor to the financial benefits of homeownership, but if retirees don’t have any heirs or don’t wish to leave an inheritance, the equity in a home loses its importance.


Consequently, when this value is dismissed, the benefits of owning a home as opposed to renting a home drop.

All things considered, renting a home is the superior option for the retired households that don’t care about the equity in their home at the end of their life in 98 of the 100 cities with the most retirees, the report says.

For these folks, the only two cities where it is less expensive to purchase a home than to rent one are The Villages, Florida, and Danville, Virginia, where it’s 14% and 7.1% less expensive, respectively.

But it’s a different story if retirees do care about leaving an inheritance. For them, it’s less expensive to buy a home in all of the 100 U.S. cities with the largest share of residents aged 65 and older than it is to rent one.

The Villages, Florida; Naples, Florida; and Venice, Florida are the top three retirement cities where it is the cheapest to buy, as opposed to rent, the report says.

Read Trulia’s Rent vs. Buy report.

Written by Mary Kate Nelson

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  • People wax on and on about increasing home equity when in fact there is two parts to that equation, home value minus debt. In the last decade we have seen home value drop much faster than debt. During that time many homeowners went underwater who only had 15 years to go on a 30 year fully amortized mortgage.

    Right now on the left and right coasts, over the last few years we have seen most homes rise substantially in value. Yet home values in much of the flyover part of the country have either been growing slowly or have experienced some downs (even considerable downs) as well as ups. Despite their high cost, home equity is generally measured with no consideration for selling expenses.

    For example, if the selling expenses are locally 7% of the selling price of the home and the remaining debt on the home is 60% of its value, its real weight on home equity is 17.5%. So in this case is home equity 40% of the value of the home or just 33%? Using dollar amounts, say the home is valued at $275,000 and the debt is $165,000 so that home equity is estimated at $110,000. If selling expenses are $19,250, then home equity is just $90,750, meaning in a sale estimated home equity fell by 17.5% (not 7%)!

    Don’t be cheated. When considering whether to buy or rent many factors have to be considered such as the benefits of income tax deductions and selling costs in the future. Too many times the value of owning a home is measured with no consideration to all costs and all benefits. Often homes are purchased based on emotional reactions rather than careful and full financial analysis.

    Here in California many people who purchased medium priced homes 40 years ago and leveraged their way into ever higher value homes, have been able to retire with half a million to a couple of million dollar portfolios when selling their homes and moving to comparable homes in places like Idaho, Tennessee, Virginia, the Carolinas, Arizona, Texas, and parts of Florida. So always consider the history of the rise in home values when considering whether to buy or rent.

  • I can’t say I agree with the philosophy of the Trulia’s published article, especially if seniors already own their home and getting ready to retire. Having heirs or not, it would be the time to look at a reverse mortgage instead of renting!

    Take a senior couple who owns their home and they are fortunate to have plenty of equity in the home. Also lets assume they don’t have any heirs, does this mean they are better off renting?

    I would say absolutely not! I personally know of a couple who are in this same situation, however, the husband is concerned about his wife if he passes away first.

    This couple decided to take out a reverse mortgage with me, pay off their existing mortgage on their home, took out a certain amount of cash at closing for a new automobile and to do some remolding on their home. They decided to put the rest in a line of credit and let it grow until needed.

    In short, this couples plan was to have a new car, no mortgage payments, put the home in a up-dated state and remain in the home for the rest of their life’s.

    They both new that the chances were that one of them would go before the other. They planed for this, the survivor would at least have the home with no monthly mortgage payment obligations and a line of credit that would have hopefully grown impressively! The survivor, if desired, could take the line of credit and turn it into a life time income or let the line of credit remain as is and self manage it.

    Renting would not have been to the advantage of the survivor in this scenario. I stay pat on my beginning statement, no to the rental! I would rather have the feeling of security that I could remain in my home for the rest of my life, no mortgage payments and an accumulated nest egg built up in my line of credit!

    John A. Smaldone

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