Canada's Condominium Magazine

Keep the family home, downsize, or rent: which option is best for retirees who want to enjoy life?

When starting — or even just planning — for your retirement, you will likely have a few big assets to liquidize, such as the over-sized family home. Downsizing to suit your new active retirement lifestyle — with the kids long gone — can be exhilarating, but there are so many choices. Assuming you entered retirement with a paid-off family home, the options boil down to three: keep, sell and downsize, sell and then rent.

When a retiree buys a downsize condo, the issues are different from an earlier-cycle buyer — not so much because of the “downsizing” aspect, but because of time horizon. In the past, you might have bought your home knowing that — regardless of any cycles and downturns — your asset will increase over the long term. In retirement, a downsize purchase is primarily not an investment — there’s not an urgent expectation to liquidize. It’s a security and lifestyle move for a comfortable retirement.

 

With retirement come decisions, many of them excitement. If your lifestyle choices include travelling the world, consider downsizing to a small base condo or rented condo.

 

Keep, Sell or Rent?

First, do you feel attached to the homestead? Deep down, you know it should go, to recapture that equity that you’ll need to support a comfortable lifestyle in retirement. But then what? Do you buy again — something smaller and less troublesome, like a  new condo? Do you move to Florida like a snowbird? Do you rent, instead, keeping your cash liquid and handy for things you enjoy? Or, do you compromise, buying a small condo, but banking the cash from the sale of your old homestead.

 

Right-sizing and down-sizing are usually a big part of retirement planning. Below, are ten reasons to consider downsizing to a bought condo.

 

Of course it depends on you, but it will come down to three bigger choices (one of which mostly relies on you having a “paid off mortgage):

  • Keep the paid-off home: assumes you can afford the property taxes, maintenance and other expenses with your retirement income. If you like stability and to continue your existing lifestyle and neighbourhood, this is for you
  • Sell the home and buy a smaller home or condo: mostly likely a condo to minimize maintenance, at least for most retirees. If you want to turn equity into cash, travel and enjoy life — while maintaining the security of a paid-off home base — this is your option. (This assumes you pay off the condo, rather than finance, using proceeds from your current home’s sale.)
  • Rent a home: maximize your “cash out” of your home exit, but monthly expense may be higher that keeping your existing home if it’s paid off. if you want to liquidize assets and have the money to really enjoy life — for example, you plan on travelling, cutting loose, no pets, and you just want a home base — this is your option.

Keep, rent, or buy? If you buy, of course it will be something smaller, less troublesome, and inexpensive enough to leave you a comfortable cushion of money. Whether you rent or buy, what type of home do you want? Should you rent or buy? Both options have plenty of pros and cons, so how do you know which one is the right choice for you?

 

Lifestyle choices for retirement are the key to the decision. If you aspire to travel North America in an RV, a small home base condo or rental apartment might be ideal.

 

Ten Reasons to Downsize or Rent

There are some compelling reasons to rent or downsize to a bought condo. Both have similar advantages — low maintenance, mobility, comfort that fits an active retirement, and many others. Mainly, it comes down to “personality” profile. Do you prefer the comfort of continuing to live as you have been? Keeping the family home, if you can afford it, may make the most sense. But the reasons to downsize or rent are extensive:

  1. You want to spend your money while you’re healthy enough to enjoy it!
  2. No anchor (or a small anchor): you want to travel, or even just be free to drop everything and just — go. Fancy a Mediterranean cruise or a wine tour in the South of France? Or just six months in the warmth of Florida or Mexico? This is the most often cited reason retirees downsize or rent.
  3. You want to free up needed capital from your existing larger home to fund a comfortable lifestyle without work.
  4. You want to diversify your risk — important in retirement. Home ownership is an asset-based investment, less risky than most, but subject to fluctuations.
  5. You want to put aside the chores and maintenance of a house. It was great when you were younger, and had a family to help, but now that there’s just one or two of you, who needs the big lawn and other chores like caulking the windows, painting the fence, and hiring contractors for the big jobs?
  6. You want to have no debt. Hopefully, the family homestead is fully or mostly paid off. Selling, then downsizing, frees capital but also releases debt load. Assuming you downsize to a condo that requires no financing, you could enjoy debt-free living (short of taxes and maintenance fees.)
  7. You don’t want to leave it too late. A home can take time to sell. Sometimes, situations change quickly in retirement. Selling the home early is a sound strategy to plan for any contingency, such as the sudden need for money.
  8. You want to try out new lifestyles: either renting, or owning a condo and subsequently renting if to someone else if you want to move around, are the keys to flexible choice. Renters can change residents more often, as can condo owners who rent out while they’re away travelling or trying out the town home in Florida.
  9. You can’t afford to carry a big house: with a fixed income, even if the mortgage is paid off, it might be difficult to carry the big house even if you feel devotion and attachment for the old homestead.
  10. You want to stop the kids from moving back home. (Only half joking.)

 

Sometimes retirement means just taking it easy, not worrying about things like cutting the lawn and painting the house.

 

Downsize versus rent

The goal is to recapture equity, to liquidize your assets so that you can enjoy your retirement without stress — at least that’s supposed to be the goal. If the kids have moved back home — watch out for boomerangs! — or they’ve begged you to finance their mortgage on their home, your options may be more limited.

Many retirees, so used to the security of owning, tend to become downsizers. The committed lifestyle change retiree — especially the ones committed to an immediate plan to travel the world and experience life, might choose to rent for now.  Josée Jeffrey, a Montreal financial planner and tax specialist — as quoted on the Sun Life FInancial blog, said, “Usually, people who are nearing retirement and selling their houses have already paid off the mortgage. If they move to an apartment they’ll have to pay rent.” [1] She points out you wont have to pay property taxes or maintenance, however if you can afford to downsize, without debt, it may be the best way to hang on to your savings.

 

Weighing home options is an important retirement decision. Many people, who spent their entire lives in a family home would never dream of down-sizing their home. Others can’t wait to make the move. The big things to consider are: size (normally smaller), maintenance (the less the better) and debt (ideally, none.)

 

Buy, if you’re debt free

Most experts recommend downsizing and buying — if you can remain debt free. Home ownership is certainly an appealing option, especially if you can buy it with cash and not owe anything for it. It is yours, free and clear. That is a great feeling. However, the goal is to free up some cash, so it’s important your downsize also be a substantial downsize in real estate value.

If you are considering home ownership, you also need to decide whether you want to own a house or a condo. Most retirees — if they look far enough into the future, maybe another ten or twenty years from now — consider condos. The goal, after all, is to eliminate the expensive maintenance of a home, and the chores. (On the other hand, many of us value and enjoy the weekly lawn cutting — snow shovelling probably not so much.)

Condos are the go-to for downsizing seniors not only because of included maintenance, but also security and amenities. The community aspect is important too. It’s nice to be near to your neighbours from a safety and health perspective.

 

Rent, or own? Generally, in retirement, we downsize, either to a bought condo, townhome or smaller house — or to a rental. The goal is to free up cash for lifestyle enjoyment, and to create a stress-free and enjoyable home.

 

Renting option

Renting is a great option for those looking to free up all their cash and aspire to travel or experiment with lifestyles. While it does free up more money, because you don’t have to re-invest some of your home cash-out in a smaller condo, your monthly cash flow might be higher. In Toronto or the GTA is not unusual to see a 2 bedroom condo rent for $2400 a month.

The choice you make should be the one that is the best fit for you and your needs. Do you prefer the flexibility that a rental property offers, or would you be more comfortable with the security that comes with owning your own home? Do you want to be up close and personal with your neighbours, or would you rather live your life quietly out in the country or some other remote area? Your retirement should be happy and stress-free. You have worked so hard to get this point, so you deserve to make the best of it.

NOTES

[1] Sunlife blog

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