Retirement Living: Buy or Rent?

Posted on: April 20th, 2010 by

Financial Plan - Real Estate - Rockville, MDPeople who think about moving to a new home in retirement invariably plan on buying that home.  In some cases, though, renting may be the smarter option.  Real estate markets are still fairly volatile even though home prices in some areas are beginning to stabilize.  One of the easiest ways to approach the buy versus rent question is to use the “price to rent ratio”.  Just take 2 houses of similar size and quality, one for sale and one for rent, in the same neighborhood or comparable neighborhoods; then take the price of the home for sale and divide it by the total cost of renting the other house for a year.  If the resulting number is higher than 20, it’s likely the price of the home for sale could fall further.  Thus, renting would be the better option.  However, the price is most likely near its low if the figure is 15 or below.  15 is the number at which rental and ownership costs are close to even.

There are other factors to consider when deciding whether to buy or rent.  If you have reason to believe that you are building equity, its okay to pay more to own.  A low price to rent ratio on a property that you plan on being in for more than a decade should signal an attractive buy even if the monthly payment is a bit higher.  But, if you are paying more in context and are unlikely to build equity due to a falling housing market or you won’t be in the home long enough to build equity, you should definitely not buy.

Sitting down with a reputable real estate agent and financial planner can help you decide which options might be best for you.  Whether you are trying to decide whether to live in the city or suburbs or whether to rent or buy, having professionals help you is always the smartest move.



  1. Tag Cloud
  2. Blog Home