Even though our house is sold, Janice and I have only completed half the puzzle. We still have to figure out where to live. For us, and many other people approaching retirement, the decision to keep the family home, downsize to a smaller house or condo, or rid themselves of the stress and expense that can come with home ownership altogether is a difficult one. Let me give you a few things to chew on as you contemplate this decision…

Things to Think About

Keeping a few simple ideas in mind will help simplify the decision between renting and home ownership. Although this is an important choice for anyone contemplating downsizing, Janice and I think it is best to avoid the details of specific ownership and rental opportunities and examine this issue from a big-picture point of view. Keep the following points in mind as you weigh your options:

• What is your budget for renting or ownership, net of taxes?
• Do you view a house or condo as a potential investment opportunity or just another cost of living?
• Have you thought about the risks associated with ownership in terms of unexpected costs? Can your budget tolerate them?
• Create a “don’t/can’t” list. We do not want a lot of land, a house that needs a lot of work, it cannot be north of this or south of that…In our case this is being done through the process of elimination.
• Is this move temporary or “permanent?”

After-Tax Expectations

The first step, in analyzing ownership versus renting, is to determine how much money you want to spend net of taxes. Since mortgage interest and property taxes on a primary residence are tax deductible, knowing after-tax cost is essential. Keep in mind that you need to foot the pre-tax bill until tax refund season. That being said, your cash flow situation needs to be taken into consideration as well.

Risks to Consider

Homeownership can stretch your dollars further in some cases, but it carries risks—fluctuating home values, maintenance costs, and insurance deductibles, to name a few. Once you understand the financials, start exploring real properties that fit within your parameters, and be sure to plan for inflation—costs like rent, insurance, and taxes rarely stay static.

An Investment Opportunity?

While real estate can be a good investment, your primary residence shouldn’t be viewed solely through that lens. Housing is, first and foremost, a cost of living. As our financial planner Jeff Ivory reminded us, “One of the biggest myths of homeownership is that it’s an investment. It’s not. A primary residence is an expense—not an asset—and in many places, like Michigan, home values aren’t appreciating.”

If you do view your home as an investment, the basic rule still applies buy low and sell high. But housing markets are emotional—and your home is not a liquid asset. If you sell and prices rise, you may find yourself priced out of the market later. Renting, on the other hand, can offer a strategic advantage—especially if you believe home prices will decline. But if you’re wrong, you risk paying more down the line.

Maintenance Risk

Maintenance risk is another key factor. Renting is essentially an insurance policy against the many surprises of homeownership. Renters don’t have to budget for new appliances, roof repairs, or emergency plumbing fixes. In our case, I’m not exactly handy—I joke that my toolbox includes only a checkbook and a phone.

We lean toward renting for a number of reasons: high housing prices with limited upside, underestimated monthly costs of ownership, and the freedom from ongoing maintenance responsibilities. However, we recognize the emotional and financial appeal of owning a home outright and living payment-free in retirement—a luxury many in the previous generation enjoyed.

We’ll keep you posted on how our downsizing decision unfolds—stay tuned!

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