Time to Downsize -Should you buy or rent?

Is it time to downsize? Are you thinking about downsizing and wrestling with the question about whether you should BUY a home or RENT a home?

For many older adults owning a home offered a sense of pride and was a bar to reach that signified success. After working a lifetime the idea of renting is a kin to “throwing money out the window.” There are some pros and cons to purchasing a home when you’re downsizing.

Lifestyle Considerations for a Downsize

  1. Unless you buy into a cooperative, owning a home means you’re going to have some maintenance to do. In general, if something breaks or wears out, you get to fix it…or pay to have it fixed. This includes things like windows, roofs, appliances, water heaters, and air conditioners.
  2. Are you someone who likes to make changes and decorate? Do you need to have the latest appliance or color on the walls? It’s easier to remodel or upgrade and make the place yours when you own the property. If you rent, this may not even be an option.
  3. Are you going to downsize more than one time?  If you decide to or need to move again, there will be selling costs. Selling costs can be 7-10% of the sale price of your home. This usually means you need to live in your home for 6-9 years before you sell. Staying that long will help you build up enough equity to pay for those darn closing costs. If you only live in your new home for 2-3 years, it will cost you money to sell.
  4. Because it takes a while to make the purchase financially worth it, you’ll want to be sure the physical layout of the home will meet your needs for years to come.
  5. Most ownership communities such as condominiums or townhomes in Minnesota do not have supportive services, meals, or transportation. You can always bring services in. You’ll be required to interview, select and pay for these services yourself.

Financing Considerations for a Downsize

  1. If you’re going to purchase a home please please please talk with your financial planner. If you don’t have one, I can help you find one that’s senior-friendly. It’s very important at this time of your life you understand the pros and cons of whether or not you should pay cash, use a conventional mortgage or a reverse mortgage. There are lots of ways an older adult can make this work and it’s important that the way you finance your purchase is in harmony with your long term goals. The good thing is you likely have many more financing options than a young person just starting out!
  2. If you downsize into a condominium or townhome (or cooperative) there will be association dues (or subscription charges). This is not a static number, and will likely go up over time.
  3. While owning means your rent won’t go up, it does mean you may have some monthly charges you may not be able to plan for. These are things like the association dues and maintenance items.

You won’t see age listed as a determining factor about whether it’s time to downsized, or if you should own or rent your new home. If you’re 80 and you’ve decided to purchase a townhome with a 30 year mortgage and the loan officer approves the loan, and your financial planner says it makes sense for you,  I say go for it.

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