I and essentially all my friends are in the same situation, housing-wise. We own houses that are bigger than we need, but due to the Boomer Phenomenon in housing, condo's and townhouses are grossly over-priced because that's what all the boomers want now. So one option - the one that many are taking these days - is to sell your house for, say, $350,000, then buy a smaller "carriage home" (a townhouse with a first-floor master suite) for $500k, either borrowing the difference, or paying for it out of "retirement" savings. The main advantages are ease of ownership (no cutting grass, shoveling snow, etc.), single-floor living, and a nicer living environment generally.
In addition to the higher, inflated purchase price, the Carriage Home option has two other drawbacks: Real Estate taxes and HOA fees. In my neck of the woods (suburban Pittsburgh), real estate assessors take great advantage of newer housing, especially townhouses and similar parcels. The assessment tracks sale prices, so one ends up paying "top dollar" in real estate taxes for a condo, when compared to existing homes, for which assessments typically lag the market by 10-15 years. Hence, real estate taxes in the given scenario (sell house; buy Carriage Home) go up by about half. In my case, from $8k to $12k per year. The fact that they are "deductible" is nullified by the most recent tax code changes, at least in my case. HOA fees can range from $150/month to several hundred dollars, depending on how opulent the neighborhood is. $350 is typical for a "nice" place.
But what about renting? Change the plan from sell --> buy, to sell --> rent. One good friend is looking into this.
In Scenario A, the house is sold and (for purposes of comparison), a $150k-20-year mortgage is taken out at 4% APR, rendering a monthly payment, principal and interest, of $910. To this, we add a thousand dollars a month R.E. taxes, and a $350/mo Homeowners Association fee, for a total monthly outlay of $2,260 for twenty years, dropping to $1,550 after 20 years - assuming you live that long. Summarizing, your total cost for the twenty years is the initial $350,000 plus $2,260 for 240 months: $892,400.
In Scenario B, the house is sold and the proceeds ($350k) are used to purchase a 20-year annuity. A suitable townhouse (comparable to the one purchased above) is rented for $2,500/month. The annuity yields a monthly stipend of $1,750/mo., assuming only 2% ROI. So the net monthly outlay is $750/month. Summarizing, your cost for the twenty years is the $350k plus $750 for 240 months: $530,000. Admittedly, the rent is more susceptible to inflationary changes, but I think the 2% annuity yield is low.
In Scenario A, at the end of 20 years, you have paid out a total of $892,400, and you OWN a condo with a value of half a million dollars, adjusted for inflation. In Scenario B, you have "saved" $362 thousand, but you own nothing. Taking it a step further, the $362k that you saved REMAINED in your retirement savings account earning money (presumably), but there are too many variables to draw any calculated conclusions from that.
Clearly, the best financial option is to remain in your old, dilapidated house and pay someone to do the chores (both inside and out). Second best would be to purchase a nice, shiny-new Carriage Home and live with the cost, assuming you can do so without hardship, but the renting option might be the least painful overall, though not the best financially.
In addition to the higher, inflated purchase price, the Carriage Home option has two other drawbacks: Real Estate taxes and HOA fees. In my neck of the woods (suburban Pittsburgh), real estate assessors take great advantage of newer housing, especially townhouses and similar parcels. The assessment tracks sale prices, so one ends up paying "top dollar" in real estate taxes for a condo, when compared to existing homes, for which assessments typically lag the market by 10-15 years. Hence, real estate taxes in the given scenario (sell house; buy Carriage Home) go up by about half. In my case, from $8k to $12k per year. The fact that they are "deductible" is nullified by the most recent tax code changes, at least in my case. HOA fees can range from $150/month to several hundred dollars, depending on how opulent the neighborhood is. $350 is typical for a "nice" place.
But what about renting? Change the plan from sell --> buy, to sell --> rent. One good friend is looking into this.
In Scenario A, the house is sold and (for purposes of comparison), a $150k-20-year mortgage is taken out at 4% APR, rendering a monthly payment, principal and interest, of $910. To this, we add a thousand dollars a month R.E. taxes, and a $350/mo Homeowners Association fee, for a total monthly outlay of $2,260 for twenty years, dropping to $1,550 after 20 years - assuming you live that long. Summarizing, your total cost for the twenty years is the initial $350,000 plus $2,260 for 240 months: $892,400.
In Scenario B, the house is sold and the proceeds ($350k) are used to purchase a 20-year annuity. A suitable townhouse (comparable to the one purchased above) is rented for $2,500/month. The annuity yields a monthly stipend of $1,750/mo., assuming only 2% ROI. So the net monthly outlay is $750/month. Summarizing, your cost for the twenty years is the $350k plus $750 for 240 months: $530,000. Admittedly, the rent is more susceptible to inflationary changes, but I think the 2% annuity yield is low.
In Scenario A, at the end of 20 years, you have paid out a total of $892,400, and you OWN a condo with a value of half a million dollars, adjusted for inflation. In Scenario B, you have "saved" $362 thousand, but you own nothing. Taking it a step further, the $362k that you saved REMAINED in your retirement savings account earning money (presumably), but there are too many variables to draw any calculated conclusions from that.
Clearly, the best financial option is to remain in your old, dilapidated house and pay someone to do the chores (both inside and out). Second best would be to purchase a nice, shiny-new Carriage Home and live with the cost, assuming you can do so without hardship, but the renting option might be the least painful overall, though not the best financially.
