Buying or selling a property is a big decision at any time, but the margin for error is even smaller when you’re approaching retirement age or have already retired. If you’re considering purchasing a property to live in, a vacation home or even a rental property, you need to be confident that the investment is one that will bring you value.
Purchasing a property is expensive. In addition to the cost of the property itself, there are legal costs, appraisal fees, real estate agent fees and other expenses. If you take out a mortgage, then there’s the cost of borrowing to consider too.
The median age of first-time home buyers in the United States is 33, and the average age for all buyers is 47. These average ages are higher than they were a few decades ago as people are now waiting longer to settle down and buy a property. Taking out a mortgage in your 30s or 40s, however, means you still have ample time to pay it off before reaching retirement age.
Getting a mortgage as you approach retirement is a more difficult proposition, because lenders may have concerns about your ability to repay the loan once you retire. If you’re spending your retirement savings to purchase a property without a mortgage, then you’ll want to choose carefully, because a mistake could leave you with an expensive property that you find hard to dispose of down the road.
If you’re purchasing a property to live in as you get older, consider the following
If you’re purchasing a property as a vacation home or a rental investment, many of the above considerations still apply, but you should also take into account how desirable the area is. If you plan on renting out a property, either choose somewhere you have local knowledge of and that you know has high rental demand and will attract good tenants, or seek advice and work with a management company that can guide you in these areas.
There are many perks to home ownership. The security of owning the property, the reduction in monthly expenses once the mortgage is paid and the freedom to do what you wish with the property are all nice to have.
There are some downsides, though. When you own a property you’re responsible for all the maintenance and don’t have a landlord to fall back on when things go wrong. In addition, it’s much harder to move if your circumstances change. With a rental, you can simply put in notice and hand back the keys.
There’s no one correct answer to the question of renting vs. buying. It depends on your financial situation, health and future goals. If you’ve always dreamed of living in a small beachfront property and you’re very fit and active, you might feel confident that you can continue living in the home long enough to make it worthwhile. If you have nagging health concerns and are worried you might need more support with day-to-day activities in ten year’s time, renting may make more sense.
If you’re able to pay for your planned purchase with cash, this puts you in a powerful negotiating position, since the seller knows that they don’t have to worry about last-minute financing issues.
Buying with cash also means you don’t have to pay interest on a mortgage, or pay financing-related fees.
Spending all your savings isn’t always the best decision, however. If you have your cash in an investment that’s performing very well, and you’re able to get a low-interest mortgage, it could be that borrowing works out better than paying cash. This is a gamble, since you can’t guarantee the future performance of an investment, but it’s something to consider.
Secondly, spending cash on a property, where it’s harder to access the equity, may make life difficult in the future if you need access to liquid funds to pay for assisted living, home care, medical bills or other unexpected expenses.
It’s a good idea to seek help from a financial advisor before making any commitments with large sums of money.
Some seniors may wish to sell their home to downsize or move into an assisted living facility. While the sale of the property is going through, they may need some short-term funds to cover living expenses and moving costs.
There are several options for seniors who are in that position, such as:
Reverse mortgages and bridge loans can be cost-effective options for seniors who are confident in their ability to sell their home in a timely fashion. Selling to a cash buyer offers rapid access to funds, but the amount received for the property may be lower than what the seller would get if they listed with a Realtor.
There are some unscrupulous financial companies that prey on seniors who are worried about their future. Don’t agree to any loans or other deals or offers made by a company that knocks on your door or calls you unexpectedly. Always seek advice and think about any major finance-related decisions for a few days before committing to anything.