To rent or to buy: wealth adviser discusses pros and cons

by Emily Canning-Dean

Many homeowners considering downsizing after retirement and an empty nest grapple with the decision to rent or buy. Aaron Seil, partner and senior wealth adviser at True Wealth Design, emphasizes that the optimal choice depends on individual circumstances and goals. 

“First, you want to define your goals,” Seil said. “What is your purpose of downsizing? Is it to save costs? Is it to have a smaller space and cut down on yardwork and maintenance? Is it to go to a better location?”

Seil cautions that downsizing doesn’t automatically translate to lower expenses. 

“I think some people when downsizing from a 3,000 square-foot house to a 1,500 square-foot condo expect they will be paying half the cost,” he said. “But often clients find they won’t see much difference in the price of the condo compared to what they are getting out of their house. The condo could be newer or in a more expensive area and there could be HOA fees or amenities they are paying for that add up.” 

Considerations for renting

Seil said there are a number of advantages to renting as opposed to buying when folks choose to downsize. 

“With renting you generally know what your monthly expenses will be right from the get go,” he said. “A lot of HOA fees, utilities and other expenses are already wrapped up in rental cost, so you won’t have surprises that come up. Also, with renting, whatever equity you have in your current house, you can invest and have your money grow and it is usable and liquid and can go toward living expenses if needed.” 

On the flip side, Seil reminds that rental costs can – and often do – increase over time. 

“With renting, you can’t be secure in the fact of what costs will be five years down the line,” he said. “But if you have a mortgage, you know what your costs will be far out into the future.”

Considerations for buying

That said, current interest rates mean mortgage costs on a home purchase will be higher than in a lower interest rate environment. 

Seil said that potential downsizers might want to consider how long they plan to live in that downsized space. If it is only for a few years and not a long-term residence, renting might make more sense. But if the individual plans to live in the space for a longer period, buying might be cheaper than renting in the long run. 

“I think using a realtor really does behoove most people because they can help them to understand the full grasp of what they are buying into as well as selling their current home,” he said. 

Seil also reminds homeowners that the way realtors are compensated has changed in recent years.

“Realtors fees are now split between the buyer and the seller,” he said. While that should translate into higher earnings on the sell side, buyers will need to factor realtor fees into their costs going forward.