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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 58837  
Subject: Buy vs. Rent in retirement Date: 2/2/2007 4:21 PM
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Rent an apartment. Buy a condo. Buy a house. Rent a house. Mortgage or no mortgage. What's the best decision?

The answer is "it depends."

First of all, you have to decide what you want. Sure, I could survive in a 2 bedroom apartment, but I don't want to. I want the space and advantages of a house.

Second, the buy vs. rent decision depends on the current housing market, and must take into account all expenses, like property tax and repairs. In general, based on my experiences examining rental property as investments, this is currently one of the better times to rent. Rental income is terribly low right now compared to purchase prices, particularly if you're looking single family homes or multifamily homes rather than apartment buildings.

Renting gives you flexibility, if you feel you might need or want to move. Of course, if you're retiring, you're probably thinking about staying in once place for the rest of your life. My own moves were always motivated by a new job.

The financial side of it comes down to seeing how much you'll reduce your expenses by purchasing. Assume you're going to purchase outright, since the mortgage is a separate decision. If you'll save more than the safe withdrawal rate on the purchase price, buying makes sense financially. If you save less than your SWR, renting is the better financial decision.

Third, mortgages, while usually a great way to leverage funds for investment when you're accumulating money, or if you have a lot more money than you need for retirement, are usually not a good idea if you're close the minimum safe amount of money you need for retirement.

Again, it's a matter of comparing the interest rate on the mortgage to your safe withdrawal rate. Housing loans are almost always more more than your SWR.

- Gus
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