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Posted On October 18, 2018
Many Americans choose to downsize their home when they retire. Larger homes tend to require more maintenance. Aging Americans may have difficulty with the ongoing upkeep of a large home, especially when they face health changes. Some retirees also choose to relocate, either to a warmer climate or to be closer to family. A new trend is emerging among retirees who choose to downsize in retirement, converting their former home into rental properties. According to a MarketWatch survey of 6,000 landlords, nearly 10% were of retirement age.
Retiring Americans are facing the decline of Social Security, the end of many types of pension systems, and uncertainty surrounding retirement account investments, especially those that were negatively impacted by the Financial Crisis. Real estate investment is often considered more stable than stock market investments, and a reliable source of long-term income. The UCLA’s Anderson School of Management reports single-family rental homes in large cities across the country have generated an average return of 9% since the 1980s. Over half of the 100 largest US cities see annual year-over-year rental rate increases.
For retirees who choose to keep and rent out their former home when they downsize in retirement, they have two options. Retirees can either act as the landlord themselves or hire a management company to manage the property. Retirees who choose to be the landlord of their property will have to take an active role in property management and likely be located nearby to deal with any on-site issues. This is the best option for retirees who are not moving far away and still physically able to complete work around the house. Retirees who choose to hire a management company will have to pay that company for their services, but can take a more hands-off approach to the property. This is a better option for retirees who are moving farther away from the property, or who are unable to make property repairs on their own. Tech-savvy retirees can also explore the short-term rental option, through services like Airbnb, VRBO, and HomeAway. Technology simplifies the process of finding renters and getting paid. However, some Homeowners’ Associations (HOA) have rules against short-term rentals. Before listing your home on a short-term rental website, consult your HOA.
Real estate investment can be a reliable source of income for retirees and help supplement retirement savings. If you are considering downsizing in your retirement and would like to rent your home rather than sell it, meet with a financial advisor to review your options.