To Rent or Not to Rent: That Is the Question

February 3, 2022 — Chances are that for most of your life it was drilled into you that home ownership is the road to economic security. Pay off that mortgage, count on rising property values, and someday you will have accumulated substantial equity. But now that you are approaching your retirement, it might be time to re-think that belief.

Our friend Ray brought to our attention a thought provoking article in the NY Times that makes the case that renting a home can be more appealing than owning one. Renting means giving up the prospect of investment gains, but more than makes up for it with hassle free living and not having to come up with big down payments and closing fees. Younger people like millennials might not have much choice in the matter, due to soaring costs of real estate, the difficulty of funding down payments, or qualifying for a mortgage. But many retirees are attracted to the rental option for a variety of reasons, which we will explore here.

Build to rent

The housing market is unusually tight right now – not enough homes are being built to meet the demand – and that fuels rising prices and bidding wars. But another hot section of the market, build to rent, could take some of the pressure off. This segment, single-family homes built expressly to be rented, increased 30 percent from 2019 to 2020. It is the fastest growing part of the housing market. These developments are usually built in clusters in tracts on the fringes of second tier cities, normally on smaller lots. While the homes are usually smaller sized, their quality is usually on a par with homes for purchase. Many are built for younger families who have been priced out of the real estate market, or have other reasons not to purchase one.

Rent, don’t buy

The biggest reason for not buying a home is that you can’t afford one, but the next important advantage of renting is reducing uncertainty. People who are moving to a new area can take a deep financial bath if things don’t work out for any reason – they might not be able to recover their closing costs or have to sell in a down market. Many retirees can easily find themselves in those situations. Perhaps they are unsure if they will like their new area or neighborhood. Or they might have moved to be near their adult children, but are worried they might have made a mistake, or that the kids might get transferred, leaving mom and dad with a home to sell. Just as frequently, baby boomers might have had it with maintenance headaches and surprises. If the hot water heater breaks or the roof leaks – calling the landlord is a lot better than dealing with it themselves. Not having to cut the grass, plow the driveway, or tend to the landscaping can be quite a luxury. Finally, boomers who have cashed out their equity in a home might find they can easily afford a rental for the rest of their lives, and still have plenty of cash left over to live a wonderful life style filled with travel and entertainment. In some ways it is like taking a negative mortgage, using your home equity to finance a lifestyle you might not otherwise be able to afford.

Plenty of builders

There are many builders who are active in the rent to build market. NexMetro Communities is a developer with two dozen neighborhoods under the Avilla brand, mostly in the Sun Belt. 360 Communities at Shearwater is a development near Jacksonville, FL built by Freehold Communities, which has developments in seven states. Many investment companies are pouring into the market as well. Invitation Homes is a large single-family leasing company in the United States. It recently announced it spent $1 billion purchasing single-family homes that will be converted to rentals.

The majority of the build to rent homes seem to be single family, and primarily designed for younger people. But if one happens to be in area that appeals to you, it might be an affordable option with many advantages. Of course there are also many other rental developments in many other types of communities. On Topretirements we used our Advanced Search to look for rentals. That search came up with 770 rental communities in our database. Many of those are developments where most of the homes are owned by residents, with some available for rental. But there is a substantial number that are mostly or exclusively rentals.

Comments? Have you thought about renting instead of owning in retirement? There are plenty of advantages for doing so, not the least of which is if you move into a community and don’t like it, you just move out when the lease expires. Please share your thoughts in the Comments section below.

For further reading:

Which Is the Better Option: Renting or Buying?
The Snowbird Dilemma: Rent or Buy