Faced with the rising cost of living, many American retirees are looking to control one of the most fundamental expenses: housing.
Due to the pandemic, housing costs have stayed unexpectedly elevated. As reported a recent report In January, home affordability declined even more, with price increases requiring higher incomes for mortgages in 12 out of 13 major market areas.
Relocating can be challenging under ideal circumstances, particularly so for those who are retired. Choosing between leasing a dwelling or purchasing one will significantly affect both their financial situation and daily life over time. Retirement specialist and YouTuber Geoff Schmidt recommends adopting his 5x5x5 guideline as an aid to determine which choice suits you better.
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About the 5x5x5 formula
The 5x5x5 guideline helps clarify decisions about moving by examining the advantages and disadvantages of leasing versus buying over both brief and extended periods. For retirees, an essential factor is considering their future location—not only in terms of geography—but also what it will look like ten years from now. Below is a detailed explanation for each ‘five’ within this approach.
5 pros of ownership
The initial step when considering purchasing a new home for retirement involves reflecting on the five significant advantages of being a homeowner. For those retiring, the benefits of owning a house enable you to:
- Accumulate equity in your house Each mortgage installment you pay gets you one step nearer to fully owning your house without any further payments. Should you purchase a new home or condominium using the proceeds from selling your present property, you will continue to accumulate equity in your new place gradually.
- Predictability If you opt for a fixed-rate mortgage, your payment amounts will stay steady for many years, and you won’t have to concern yourself with a landlord potentially asking you to leave.
- Tax benefits : While mortgage interest and property taxes are not tax-deductible on a principle residence, you could find tax deductions if you use a portion of your home for a home-based business or to rent out as short-term accommodation or to a long-term tenant.
- Customization You aren't required to get a landlord’s approval to make alterations and enhancements to your property.
- Home appreciation Homes typically appreciate in value over time, allowing you to boost your net worth through property ownership.
5 pros of renting
Leasing comes with five notable advantages, especially beneficial for retired individuals seeking more flexibility to explore and relocate—possibly nationwide or overseas. These benefits include:
- Extreme flexibility You can vacate your premises after providing notice and travel anywhere you please far more readily compared to selling an illiquid home first.
- Lower upfront costs You only need to pay the first and last month’s rent plus a security deposit to move into a rental; you don’t have to make a substantial down payment like you would for buying a home.
- No maintenance concerns If something gets damaged, your landlord has to cover both the repair costs and the expenses for actually fixing it. There’s no need for you to set aside money specifically for maintenance emergencies.
- Predictable expenses During your lease period, your monthly housing expenses, which include utilities, will stay constant, regardless of increases in energy prices, for instance.
- Lack of worry If you're living in a rented apartment, you won’t have to worry about shoveling snow, mowing the lawn, or handling other aspects of exterior maintenance.
5 factors to consider when deciding between renting or buying
The final step of the 5x5x5 rule involves taking into account particular factors that impact you directly. These encompass:
- Financial stability When looking at your present and anticipated CPP benefits along with your retirement income, would leasing property prove to be more cost-effective over time, or might purchasing provide greater advantages?
- Lifestyle preferences Consider what enhances your quality of life and resonates with you. It could be that being near your family is most important. Alternatively, you might prioritize proximity to facilities such as healthcare services and recreational areas. Are you leaning towards having greater stability or more adaptability? Between purchasing and leasing, which choice aligns best with your preferences?
- Current and future health Are you able to sustain your home, and does it include features for aging in place?
- Estate planning Do you wish to leave a house behind for your family as part of your legacy?
- Market conditions Is now a suitable time to purchase a property? In your opinion, what changes might occur in the housing market over the coming ten years?
By posing these specific questions regarding your individual financial objectives and lifestyle choices to yourself, you can more easily determine whether owning or renting makes sense for both the present and the future.
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This article Could Canadian seniors choose between owning or renting their house? Apply this straightforward '5x5x5 guideline' to help make that decision. originally appeared on Money.ca
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