Baby Boomers, Homeowners and why Renting Makes Perfect Sense.
Homeowners who have lived in their “forever” home for decades are struggling to maintain their properties and to care for them. I have noticed that once a homeowner is in the 65 – 80-year-old range, things such as shovelling snow, cutting grass and general maintenance start to become a burden. Many homeowners I have chatted with over the past few years feel that to sell and to rent a condo or apartment is too costly, so they stay where they are, even if financially it makes no sense to stay.
When you look at the costs of operating a home, (assuming it has no mortgage) in Durham Region, property taxes can be in the $5,000 – 8,000 range and hiring a company to maintain your landscaping and cut the grass/shovel snow can add another $2,400 a year. Without taking into account the regular maintenance such as replacing roof shingles, or any of the appliances or furnace, insurance can run between $1,000 and $1,500. Without any costly breakdowns, it is easy to see that, once you add utilities into the mix, a home can be in the $10,000 – $15,000 a year to maintain.
If a homeowner decides to entertain the thought of selling and then renting, here is what it might look like from a financial overview.
To rent a spacious, 2-bedroom apartment in a newer building will be in the $2,000 – $2,400/mth range. Assuming the high end, with utilities included the apartment will be in the range of $30,000 a year. So a homeowner gives up paying $10,000 in home costs and replaces that with a rental outlay of $20,000 more renting than owning. However, is the homeowner really out $20,000 by moving to an apartment?
If the homeowner is in Whitby, living in an “average” priced home the home would be worth in the $1,200,000 range. Once the home is sold and the costs are deducted, the homeowner would be left with about $1,125,000. Invested at a very low rate in the 4% range the investment would generate, and again, looking at the worst-case scenario, about $45,000 per year. This would be taxable, and after paying $5,000 in tax the Seller would be left with about $40,000.
Reviewing the different scenarios, staying in a home is about $10,000 out of pocket, renting is $30,000 so the net difference is $20,000. Now add in that once the home is sold the investment generates $40,000, the Seller actually pockets $20,000 a year! This is a way of making your hard-earned investment in your home pay for your living expenses. Once the rates start to move up, if they move to even 6% that $45,000 return bumps up to $67,000! Many elderly homeowners struggle with high inflation, seeing their fixed retirement incomes being eroded as time goes by. This is a way of allowing your investment to better your lifestyle rather than be a burden to it.
The upside is that homeowners who are stressed living in a home can relax into an apartment where everything is looked after by the owner and if there are any issues, they are not the ones paying out of pocket. The other outlier is the current value of the market. We saw a downturn in values in 2022 and people lost in some cases hundreds of thousands of dollars in equity. Once a property is sold and the equity invested in a safe investment, there is little chance of the person investing their home equity to lose on their investment. Along with the precarious economy for values the cost of rentals have been increasing. In the past 12 months, 2 bedroom apartments in Oshawa have increased over 12% outpacing the increases in home values.
The other part of the puzzle that becomes a benefit is that a home becomes available for a young family who is looking for a place to raise their kids in a market where there are not enough homes for sale.
This is a win/win situation where some many lives are impacted by a single activity… the sale of a home.
If you are in a home and considering selling and renting, we know most of the attractive spots to rent locally. I can be reached at lindsay@buyselllove.ca or 905-743-5555.
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