An important part of downsizing in retirement is deciding what to do with the family home. You have a few basic options—sell it, pass it on to family, or turn it into a rental. Renting out your home can be a profitable venture, but it can also be a lot of work. Some seniors find it fulfilling to set up and manage a rental property, while others would rather sell the home and move on. Here are some questions that can help you decide if renting out your home is a good idea, or if selling would be a better option.
Will You Be Able to Afford Your New Home?
It’s common for seniors to sell their homes when they downsize. Selling provides a lump sum of cash that can be used to cover the down payment on a new home as well as the many expenses that accompany the downsizing process. If you decide not to sell your old home, make sure you can still afford your new one. Use an online calculator to determine your home affordability based on important factors like your monthly spending and household income. This will help you set a house-hunting budget so you can avoid falling for homes that are out of your price range.
Will Your Rental Be Profitable?
Rental profits can be a welcome supplement to a reduced retirement income. Before renting out your home, try to calculate the ROI of your rental. Check out the rates of other rentals in your neighborhood to get an idea of what you can charge. How does this stack up against your home’s monthly expenses? Remember to consider the costs of vacancies as well. If your property is vacant for months, you will be responsible for covering the bills on your own. Depending on your rental profitability, you may get higher returns by selling your home and investing the money elsewhere.
Are You Prepared to Be a Landlord?
If you’re looking for something to do in retirement, being a landlord can keep you occupied with fulfilling work. But the job isn’t for everyone. According to MilSpouseFest, landlords are always on call and have to be ready to solve problems at any time. To reduce the risk of bad tenants causing damage to your property or living in your home without paying rent, you’ll have to learn how to screen them thoroughly. Some people just aren’t up for the stress involved in managing a rental property—especially if they retired to get away from the demands of the business world.
Do You Want to Keep Your Home in the Family?
Selling the family home to strangers can be upsetting for seniors and their children. If you’re too attached to your home to sell, renting it out is a great way to keep it in the family. Your rental income can help you pay off the existing mortgage on the home and cover any other expenses involved in upkeep and maintenance. Without this income, you would have to cover the costs of two homes on your own.
However, renting out your home isn’t the only way to keep it in the family. According to Business Insider, one of the biggest regrets people have about downsizing is the lack of space for family get-togethers. If you keep your current home, you can still use it for gatherings and reunions—but not if tenants are staying there. An alternative to renting is having a family member take care of your home. You could rent your home to loved ones, gift it as an early inheritance, or sell it to family. If you go this route, you may also be able to hold onto some of the cherished possessions that won’t fit in your new, smaller space.
Decide what to do with your current home before you start looking for new places to live, so you don’t have to change your downsizing plans in the future. Consider the advantages and disadvantages of each option carefully. In the end, only you will be able to determine the best choice for your financial needs and personal preferences.
Written by: Jim Vogel of elderaction.org