If you’re approaching retirement age, it’s important to have a financial plan for the next stage in your life. If you own a home, that real estate might be your largest financial asset. As a result, it’s natural to wonder how you can use home equity for retirement.
This may lead you to ask: Should I sell my house and rent when I retire?
The answer will depend on factors specific to you. This guide will go over some of the benefits and drawbacks of selling your house and renting when you retire. It will also touch on your options for selling your house to fund retirement. With this information, you’ll be empowered to decide on the most advantageous path towards retirement.
Is It Better to Sell Your Home and Rent in Retirement?
Should I sell my house when I retire? While downsizing to a smaller home is an option, a new mortgage means you’ll still be carrying debt (unless you’re able to buy a home outright). In contrast, renting provides a potentially attractive option for escaping debt while freeing up cash.
Is renting right for you? Unfortunately, we can’t just plug numbers into an equation and come up with the right answer. Homeownership has financial and emotional components you will need to consider before making a choice.
Memories created in a home will be valued differently by different people, but there are more objective considerations you can look at when deciding whether it makes sense to sell your home.
Next, we’ll dive into some of the benefits of becoming a renter.
Benefits of Selling Your Home and Renting in Retirement
Let’s start with some of the reasons you might want to sell your home and start renting in retirement. Many of these reasons can be broken up into two categories: financial reasons and lifestyle reasons (though it’s worth keeping in mind that sometimes these categories can overlap).
Let’s talk money. The main reason you’re probably considering selling your current home in the first place is that it’s worth a good deal of money. Cashing in on your home equity or capital gain can help you achieve several goals such as:
- Paying down debt – When you retire, your personal finances change, and you’ll no longer have the steady income you’re used to. Relying on social security or your pension to maintain your lifestyle while paying down any existing debt may not be feasible. Selling your home can help give you the cash flow needed to pay off any existing debts so your retirement income can be used to pay for your new life.
- Freeing up funds for investment – One way to offset the loss in earnings you may experience when retiring is to create income through investments. Selling your home may offer you the liquidity needed to create funds that will provide you with monthly returns that make up for any loss in your regular income.
- Achieving early retirement – Maybe you’re close to retirement and just need an influx of cash to get you to the point where you feel comfortable transitioning to a post-work life. Using options like a sale-leaseback program, you can convert your equity into cash and stay in your home while you plan out what the next stage will look like.
- Securing tax benefits – Even if you’ve paid off your mortgage payment, property taxes can be a major expense. In some instances, your tax bill for your house could be more expensive than monthly rent. There are also potential capital gains tax breaks available to people selling their homes.
- Avoiding maintenance costs – Any homeowner knows, one of the major costs of owning a home is upkeep. When the water heater breaks, you’re the one who will have to pay for a new one. When you rent, a problem like that is no longer your responsibility but that of your landlord.
While selling a house to fund retirement may provide you with some needed financial flexibility, your finances are not the only (or even the primary) driver of your eventual decision. You should also consider how selling your home may benefit your desired lifestyle:
- Downsizing – It’s not just the costs of upkeep you need to consider but also the physical toll. As you get older, you may not want to deal with the hassles of maintenance or even the hassles of stairs (if you own a multi-story house). If you’re starting to feel like a smaller space would suit you better, renting may provide you with the option you’re looking for.
- Moving – There are many reasons people continue to live in the same place. However, if the main reason you haven’t moved is your job, you now have the freedom to explore the country and even the world. Renting allows you the long-term flexibility to try out different locations that you’ve always been curious to live in.
- A new start – Sometimes, when you start a new stage in your life, you want to make a clean break. Finding a new area and a new home may be just what you need to mark this new stage in your life’s journey.
Downsides to Selling Your Home in Retirement
While there are many potential benefits to selling your home and renting, there are also several reasons you may not want to sell your home:
- Passing it down to family – Your real estate investment is a valuable asset that often becomes more valuable the longer you have it. Perhaps you’re financially secure and want to ensure your family will have this asset as an investment property after you’re gone.
- Missing familiarity – Over the years, you’ve built a life in your home and your community. If you feel comfortable there and can continue to afford your lifestyle, there may be no reason to sell your home—unless you can take advantage of a Sell & Stay solution.
- Financial circumstances – Housing markets vary. Individual financial situations vary. Selling your home and renting isn’t a definite win financially. For some people, staying where they are will be cheaper than renting.
- Moving can be a hassle – Between packing, paying for movers, and updating your address, moving can be a chore. That may be reason enough to stay in your home.
How to Sell Your House and Fund Your Retirement
As you can see, selling your home can provide you with the financial flexibility to realize the retirement of your dreams. However, financial liquidity, while useful, can’t replace having a place to live.
So, if you decide that selling your house to contribute to your retirement fund is the right option for you, what are your options to do so while still keeping a place to live?
There’s more than one way to convert your equity into cash.
What Are the Options?
We’ve gone over the benefits of selling and renting already. Getting an influx of cash from the sale of your home and reducing your monthly costs through renting may provide you with just the financial flexibility you need to fund your retirement.
Depending on your circumstances, consider the following additional options:
- Sell and buy a smaller home – Downsizing doesn’t have to mean moving into a rental unit. If you still want to be a homeowner, look for a smaller home that will come with fewer monthly costs. That way, you can potentially convert some of your equity into cash while remaining a homeowner.
If you decide to go this route, sale-leaseback solutions can provide you with flexibility while looking for a new home, making you a more competitive buyer and giving you peace of mind while you work out your move.
- Stay and rent out – If you don’t want to leave your home but you do need more income, perhaps renting out a piece of your property could be an option. Maybe you have a second floor you don’t use? Maybe you just want to rent out a room? This option won’t work for everyone, but for some, it may provide the necessary boost in income.
- Home equity loan or HELOC – A home equity loan or a home equity line of credit (HELOC) are two other options that can provide you with an influx of cash. Both of these use your home’s equity as collateral for your bank to give you a loan. If you need short-term cash, this may be an appealing option. Just remember neither is free money. You will have to pay back your bank after you retire (when you’re likely to have less income). For more information, check out our comparison of a home equity loan vs. HELOC.
Ready to Retire? A Sale-Leaseback May Help
Sale-leaseback programs can help you prepare for retirement by freeing up the cash you need while allowing you to stay in your home.
Whether your goal is to buy a new home in the near future or to stay put for the long term, a sale-leaseback solution may best suit your needs. Retirement is a major transition for anyone. Through this option, you can make that transition easier while getting the cash you need to finance the next stage in your life.
Should I sell my house and rent when I retire? Discover the benefits and drawbacks of this route, along with options to consider. If you are unsure of alternative options to fund your house, consult a financial advisor to discuss your options.
- The Mortgage Reports. Should you buy or rent after selling your home? https://themortgagereports.com/43509/should-you-buy-or-rent-after-selling-your-home
- Wealth Pilgrim. Why I’ll Sell My House And Rent Once I Retire. https://wealthpilgrim.com/why-ill-sell-my-house-and-rent-once-i-retire/
- Investopedia. Should I Sell My Home When I Retire? https://www.investopedia.com/articles/personal-finance/121115/should-i-sell-my-home-when-i-retire.asp
- Chase. Selling your home after retirement. https://www.chase.com/personal/mortgage/education/owning-a-home/selling-downsizing-after-retirement