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3 Benefits of Selling Your Home and Renting After Retirement

Welcome to "Money Talks," a new column that focuses on financial wealth and health.

Selling your home now and becoming a renter might be a good move if you are retiring and/or looking to downsize. I personally have a few friends in Stamford who have done this and they love it. There are three main benefits and they are biggies:

1. Free Up Capital
This won’t happen if you are putting together a short sale package, but if your home has equity in it, it’s a great way to tap into it. Barbara sold her home recently because she was getting ready to retire. She didn’t want to worry about even greater declines in home values. Her home was worth $500,000 and she owed $300,000. By selling the home, she freed up $200,000 in capital she had been sitting on. She invested that $200,000 in mutual funds and travels on the earnings from that money.  It could be a nice way to get some “extra income."

2. Saves Time and Space
Getting back to Barbara’s example, by taking this course of action, Barbara saves the time she had been spending on keeping her place up. No more trips to the hardware store for her. Repairs are as close as a phone call away — to her landlord.
Added benefit: when she moved she had to clear the clutter and is very happy without all the junk that was lying around.

3. Lower Housing Costs
Barbara had a monthly mortgage payment of $2,000 (net of her income tax savings). On top of that, she had to pay for upkeep, taxes and insurance. That was setting her back another $7,200 a year — or $600 a month. That meant her total housing expense was $2,600 a month. Her rent is $1,500 a month for a studio in Stamford and that means she saves $1,100 every month. That’s a good deal for her. Of course, let’s not forget the earnings she receives on the $200,000 in equity she now has access to. If you want to retire now, extra income from a move like this could really come in handy.

If selling your home and renting elsewhere is such a great deal, why isn’t it for everyone?

There are downsides to this maneuver. First, while Barbara is saving money now, her rent will go up over the years ahead while a fixed rate mortgage is… well.. fixed. Barbara has no control over what her landlord does and now she lives in an apartment rather than in a home. That means more pesky neighbors around. It also means she can’t play her metal music at 3 a.m. unless she wants to get a visit from the local police department. In short, she gives up some privacy.

In her case, it’s not a big deal. She found a great rental with a nice landlord and pleasant neighbors. And she doesn’t engage in any loud activities, she really has all the freedom and privacy she needs. I personally can’t see myself doing this even though the numbers make a lot of sense. I love having my own home and being able sit in the backyard with my wife, kids and dogs on those nice sunny weekends. Would you sell your home and become a renter?  Why or why not? If not now, when?

richardirish123 June 03, 2011 at 09:09 AM
If you are in a home and want to refinance, 2 things are absolutely key. First, you must have meaningful equity in your home. Second, you must have a good credit score. But in this economy if you do not have both of them still you could get a good rate, Search online for "Mortgage Refinance 123" they gave me the lowest rate of 3.45% my credit history is not so good.

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