What To Consider When Moving to a New Home in Retirement

So you've decided to move. Congratulations! You are about to embark on a great adventure. However, you have many more decisions ahead.

  • Are you moving near to your current home or further away?
  • Are you downsizing, upsizing, or maintaining similar square footage?
  • Are you renting or buying?
  • Are you adding a second home?
  • What about timeshares or fractional ownership?

Moving – Near or Far?

Moving is a big commitment, but the further you move, the greater the impact on factors like logistics, cost, time, and emotional dislocation.

If you move nearby your current home, chances are you can maintain some of your existing routines. You may still be able to see friends and family with some frequency. You may continue to use your current healthcare and personal service providers. Overall, the disruption to your life will be lower compared to a longer distance move.

Also, if your new home is under 50-100 miles away and within your existing state boundaries, getting your stuff from Point A to Point B would be considered a local move. Local moves can often be done in one day and cost less than a further move.

A move over 100 miles and/or across state lines is generally classified in the long-distance category. Such moves require more planning, cost more and take more time. On top of this, once you land in your new home, you must adjust to many new situations and adapt your routines to the realities of the new location.

Overall, the further you move, the need increases for planning and expectation management to ensure you appropriately prepare for the stress that will inevitably follow.

Downsizing/Upsizing/Stay the Same?

Most moves after age fifty probably fall into the downsizing category. An empty nest might mean you have more room than you need, so it's an excellent opportunity to get rid of stuff you probably won't use going forward. 

Some empty nesters don't want to downsize right away. Take the case of Todd and Deb Meyers. Their objective was to move close to their son's family in Texas. However, they were reluctant to commit to a home out of state until their home of 30 years in Plymouth, Minnesota, sold for the best possible price. Giving themselves a three-year window, they watched trends closely and sold right before the local market took a downturn.

The Meyers knew they'd be acting fast when the time came to sell, and there would be no time to properly go through the downsizing process. Instead, they moved temporarily to a rental house with about the same square footage as their former residence. The next stage in their plan is finding a new home in Texas and then downsizing. "The goal was to not put things into storage if we could possibly help it because we didn't want to be scattered, and this location offered us the opportunity to come together with everything that we have.", said Todd.

There is a small segment of older adults who upsize when they move. In a 2019 survey by the Del Webb company, 22% of respondents planned to increase square footage in their next home. The two main reasons are:

  • Finding a long-desired dream home
  • Providing living space for aging parents
  • Having room for family visits

Upsizing-minded sellers in expensive real estate markets often seek to buy a larger home in other, less pricey localities. This phenomenon was on full view during the so-called "The Great Relocation" during the COVID-19 pandemic when many Americans found they could work from home just about anywhere they could find a solid internet connection. Unfortunately, retirees aiming to move to less expensive locations are finding that work-from-home expatriates are driving up real estate prices in cities and towns that were formerly reputed to be low-cost.

Buying or Renting?

When considering the question of buying or renting in retirement, there are several aspects to consider.

Ownership Pros and Cons

Pros Cons
Ownership of a tangible asset Ups and downs in market value
Tax benefits Maintenance expenses
Stability Insurance and property tax costs
  Buying and selling costs and effort

Renting Pros and Cons

Pros Cons
Flexibility No equity accumulation
Cash liquidity At the mercy of landlord action or inaction

Less maintenance cost

Cannot remodel a rental unit
Need less insurance coverage No tax advantages

Since there are compelling pros and cons for each alternative, the decision distills down to each individual's unique circumstances and attitudes. Study the details of each option and decide what fits best for you.

A Second Home?

Depending on one's financial situation, having a second home for part of the year could be an option in retirement. However, the buy versus rent decision applies here, too.

Before buying a second home, carefully analyze the costs involved. Owning two properties results in all the costs of ownership times two. For wealthy families, this might not pose an issue. For most of us, however, it might be an ill-advised risk that could jeopardize an otherwise solid retirement plan.

Even if you purchase a second home with the intent of earning income by renting the property à la Airbnb, there are significant costs and responsibilities. It's important to carefully assess the impact on your time and money. While these arrangements can work well, make sure you have a realistic understanding of what's involved.

Renting a second home could reduce the risks associated with ownership. However, the caveats noted above in the rent versus buy section still apply to the second home scenario. While renting provides flexibility, you are still at the mercy of the landlord.

Another aspect of second homes is the amount of time spent in each location. If both homes are in the same state, the "time balancing" question is mostly about lifestyle. However, if the two homes are in different states or countries, then tax issues arise.

For example, having a home in Illinois and a home in Florida brings up the question of whether the owner of the homes is subject to Illinois state income tax. (Florida has no state income tax.) From a tax perspective, you can only be an official resident of one state. This is referred to as "domicile," for which each state has its own definition. Make sure you understand the domicile rules for each state where you own a home, so you don't run afoul of tax laws.

Timeshares or Fractional Ownership?

Seeking to find the best of both worlds, some alternative methods for acquiring a second home or vacation home have gained in popularity over the years.

One popular alternative is timeshares which originated in Europe after World War 2 and migrated to North America in the early 1970s. A timeshare centers on the concept of "divided use rights." This means more than one party has the right to use the property during a specified time period. Timeshares have a Jekyll & Hyde reputation in that they are often sold in high-pressure sales presentations that result in many cases of buyer's remorse. Frequently marketed as good investments, the Federal Trade Commission warns consumers to be wary of timeshare sales pitches and do the necessary homework to know exactly what you're buying.

Another option is called fractional ownership. In this case, the buyer owns a share of a legal entity that is tied directly to a marketable real estate asset, and that can be sold or transferred. In a typical model, a person buys one or more shares of a property. Usually, there is a maximum of 8 shares in the property. The scheduling of the usage, cleaning, re-stocking, and maintenance is handled by a property management company. Depending on the by-laws for the fractional ownership entity, it may be possible for a fractional share owner to rent their share of the time, thus creating a revenue stream. Also, in contrast to a usually low resale value of divided use timeshares, fractional ownership shares are usually easier to resell because of the underlying real estate asset and the ability to participate in the appreciation of the value of the real estate asset over time.

Overall, those moving to a new home later in life have many alternatives to consider. Doing careful research to answer the questions posed in this blog post will help ensure you find the right course for your particular situation.

Learn more! Read our eBook, "Your Guide to Finding a New Home After 50"!

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