WASHINGTON – After 20 years of a car-centric lifestyle in a large house in Bethesda, Maryland, and nearly a decade of lobbying her husband, Roxanne Littner achieved her goal of moving into the District of Columbia.
“My husband was more attached to the house than I was, and wanted to stay longer, but when we had a plumbing issue and the basement flooded, I put my foot down and set a date to sell our house in a year,” Littner says. “We started looking downtown at different neighborhoods and couldn’t find anything we wanted to buy with 1,500 square feet or more that we liked and that wasn’t outrageously expensive.”
Littner and her husband, ophthalmologist Roy Rubinfeld, opted to move into an apartment in the Kennedy-Warren in northwest Washington. They quickly discovered that the services provided and the freedom from maintenance suited their lifestyle.
“It seems to make financial sense to rent because we don’t pay high condo fees or have to pay for repairs,” Littner says. “We own a second home in Italy, and renting gives us the flexibility to be gone for months at a time if we want, since we know the Kennedy-Warren staff will take care of our place in the city.”
The rent-or-buy decision is more commonly thought of as a dilemma for young professionals establishing their households, not people approaching retirement. But whether it’s a financially savvy decision or simply the only solution when they can’t find a suitable place to buy, some baby boomers are choosing to rent an apartment downtown when they downsize.
According to a 2016 Freddie Mac survey of boomers, the majority of those 55 and older plan to stay in their homes during retirement. Among those who plan to move, one in five say they will sell their home and buy a new one, while one in 10 say they will sell their home and rent when they move.
Tim Hewitt, a senior wealth adviser with the Wiley Group in Conshohocken, Pennsylvania, says the first step for baby boomers is to understand their goals, such as whether they want to live near family members or buy a vacation home for future retirement use.
“After the goals are established, we can do a cost-benefit analysis and determine how much equity they have in their home, how much it would cost to sell it and how much equity they would want to put in to another house,” Hewitt says.
“People are often surprised by the high cost of moving to a walkable neighborhood close to or in Philadelphia, but they typically still choose to downsize because they don’t want the space in their suburban house, and they want the city lifestyle.”
Although clients want to know whether renting or buying offers a better return on their investment, Kassa says, no one can know that with certainty until after the fact because it depends on real estate and stock market fluctuations.
Hewitt says that 80 percent of his clients don’t want to rent because they don’t want to lose control over their home to a landlord and don’t want the possibility of paying higher rent in the future.
“Those clients that choose to buy tend to make a large down payment or buy with cash from the equity from the sale of their home. and then try to cover their property taxes, insurance and maintenance costs with their Social Security or pension income,” Hewitt says. “They can use their investment income for discretionary spending.”
The 20 percent of Hewitt’s clients who are open to renting can often find more rental properties in the city than condos.
“Financially, real estate historically appreciates about 3 percent per year, while the stock market appreciates nearly 10 percent annually,” Hewitt says. “So renters have an opportunity to invest their cash in the market. Renting can be particularly good for people with a smaller portfolio of investments because they can use the equity from the sale of their property and grow it for a more comfortable retirement.”
Some homeowners are uncomfortable with the idea of renting, but when Kassa runs the numbers comparing a rental and buying a condo, they sometimes realize that renting is the better choice. She says about 30 percent of her clients rent when they downsize.
“Most of our clients opt to sell their house first and then figure out where they can get the lifestyle they want, either in the city or Bethesda,” Sandler says. “The ones that rent tell us they haven’t seen anything to buy that excites them, so they will just wait and make a more permanent decision later.”
