For retirees who’ve already paid off a home or are tired of renting, retirement might seem like the ideal time to buy a new house, maybe one that’s smaller or more conducive to aging in place. The problem is, real estate transactions usually require a big cash commitment at a time when you need to be budgeting carefully.
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With that in mind, our experts here explain six reasons why you should not buy a house when you retire.
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It Could Tie Up Your Income
Adding in a new mortgage in retirement, along with the subsequent costs of homeownership, could eat up a big chunk of your likely more modest income, according to Kristina Chervenka, COO, certified portfolio manager (CPM) and co-founder of Five Buffalo Capital, LLC. A home purchase can also tie up liquid funds needed for other things.
Eli Pasternak, real estate agent, investor and founder of Liberty House Buying Group, said he’s seen clients over 65 who regret buying because they cannot access their equity quickly when medical bills hit. He told us about one client who bought a $400,000 condo with cash at age 68 and wished she’d kept that money invested when her husband needed expensive cancer treatments two years later.
Another downside, according to Brian Rudderow, real estate investor at HBR Colorado, is that “investing a large sum of money in a home can limit the potential returns and flexibility that come with a diversified investment portfolio.”
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Insurance Costs Are Increasing
Home insurance is another cost retirees might not factor in before buying a new home in retirement. Insurance is getting more expensive by the day, and in areas prone to catastrophic events such as wildfires and hurricanes, some insurers are even dropping homeowners.
“Accidents happen, so insurance and the average annual increase should be factored into the cost of homeownership,” Chervenka said.
Property Taxes Are for Life
Chervenka pointed out that even with property tax homestead exemptions and grandfather clauses, many areas in the U.S. have seen an increase in property taxes as homes have appreciated in value. Property taxes persist for the life of the house, so unlike a mortgage, which can be paid off, a new home purchase can add costs if it’s in a more expensive area.
Increased Home Maintenance Costs
Homeownership comes with additional maintenance costs that add up, Pasternak said. Older homeowners may also struggle with the physical demands of property upkeep while living on fixed budgets.
“I think you should avoid the stress of home ownership however because roof replacements cost $25,000 and HVAC systems fail at the worst times,” Pasternak said. Most retirees can’t afford these surprise expenses without going into debt or selling investments.
Renting, on the other hand, places the risk of large maintenance expenses on the landlord. Chervenka said, “Having a landlord and property management team to rely on can relieve stress for those retirees that want the freedom that renting can provide.”
HOA and Condo Association Dues
If you move into a community that has a homeowners’ association (HOA) or condominium association, you may have to pay additional fees on top of a mortgage and property taxes. In some states, like Florida, these fees can change annually.
Chervenka explained that while states are working on legislation to hold board members responsible, many residents are seeing their dues double and triple to cover necessary costs associated with deferred maintenance.
It Reduces Flexibility
Flexibility is a huge benefit in retirement, as health changes often force people to move closer to family or medical facilities, Pasternak said. He stresses to his clients that selling houses “takes months and they do not have time to wait for buyers when medical situations need immediate relocation to assisted living or different states.”
In his opinion, renting gives retirees more freedom because landlords handle repairs, property taxes and insurance costs that can surprise homeowners.
While there may be times when buying a new home in retirement is necessary — for downsizing or health related purposes, for example — unless there’s an urgent need, most retirees are better off staying in their current housing situation.
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This article originally appeared on GOBankingRates.com: 6 Reasons You Should Probably Not Buy a House When You Retire