Retirees: Is it Better to Downsize and Lease or Sell and Buy a New Home?

One of the biggest decisions retirees face when it comes to retirement is whether to downsize and lease out their old house or sell it and buy a new one. Deciding between two retirement options can be challenging because each option has pros and cons. However, the decision ultimately boils down to personal preferences and financial circumstances. This article will delve into crucial factors that retirees should consider when making this important choice. Additionally, we will provide practical strategies to help them ensure financial security during their retirement.

Option 1: Downsizing and Leasing Out the Old House

Downsizing and leasing the old house can be an intelligent move for retirees looking for a steady income stream. Opting for this choice comes with numerous benefits, such as:

  1. Rental Income: Renting out your old house can provide a consistent source of income, helping you cover your living expenses during retirement. This could be a sizeable sum that can improve your retirement comfort, contingent upon the rental market in the vicinity.
  2. Tax Benefits: The rental income generated from leasing out your old house can sometimes provide tax advantages. You can deduct expenses related to maintaining and managing the property, which can help lower your taxable income.
  3. Property Appreciation: You can benefit from potential long-term property appreciation by holding onto your old house and leasing it out. This can be a valuable asset that could be sold later to fund your retirement or passed on as an inheritance to your heirs.

However, leasing out your old house also comes with its challenges:

  1. Property Management: It’s very uncommon for retirees to have less time or interest in managing a rental property because of the demands of tenant relations and upkeep.
  2. Vacancies and Maintenance Costs: Planning for vacancies and ongoing maintenance costs when leasing out your property is essential. These expenses can affect your rental income and may cause financial stress if not appropriately budgeted. 

Option 2: Selling the Old House and Buying a New One

For retirees, the alternative of selling your old home and buying a new one may be good. Here are some advantages of going this route:

  1. Access to Home Equity: Selling your old home might release home equity, giving you a sizeable chunk of money to invest in a new, smaller home that better meets your needs or utilize to support your retirement.
  2. Lower Housing Costs: By downsizing to a smaller home, you can reduce your mortgage, property taxes, insurance, and maintenance costs, making it easier to manage your retirement budget.
  3. Simplified Lifestyle: Moving to a smaller, low-maintenance property can lead to a more relaxed and manageable lifestyle, allowing retirees to focus on enjoying their golden years.

Nonetheless, selling and buying a new home also has its downsides:

  1. Transaction Costs: The process of selling your old house and buying a new one can come with substantial transaction costs, including real estate agent fees, closing costs, and moving expenses.
  2. Emotional Attachment: For many retirees, selling the family home can be dynamic as it often represents years of memories and experiences.

The Bottom Line

When deciding whether to downsize and lease out their old house or sell it and buy a new one, retirees should carefully consider their financial situation, lifestyle preferences, and each option’s potential benefits and challenges. Talking to a financial planner or real estate professional can provide personalized guidance based on your circumstances.

The greatest choice will ultimately rely on your particular circumstances and retirement plans. By carefully weighing these criteria, you can choose the ideal retirement option and enjoy a pleasant and secure future.