It seems that real estate is in the news a lot these days. With tight inventories, high prices, and rapidly rising interest rates many millennials and Gen Z folks are looking at home ownership as a fleeting possibility if not an unattainable dream. Through decades of cultural norms and government subsidized mortgages we are a nation with an ownership culture when it comes to housing. While most of the attention is focused on young families looking for their first home, what attention is being paid to older Americans is largely derogatory given that Boomers have a high rate of home ownership. I can chalk a little bit of that up to generational jealousy, but all is not well in home ownership among older Americans.

            The median net worth among the “65–74” year-old crowd is $266,400, the highest of any cohort in the data. That makes sense. These folks have likely just left the workforce and haven’t spent down many assets yet. What isn’t commonly realized is that this cohort has the largest percentage of any age group tied up in their primary residence. That also makes sense, the Boomers are the transition generation between pensions and the self-funded retirement plan. Many under saved in IRAs, 401ks, and brokerage accounts and rely on outdated, underperforming pensions that simply haven’t kept pace with inflation or social security. They also overspent considerably on housing that has appreciated dramatically. 

            That’s both good and bad. Home equity is a positive on a net worth statement, but it comes with a couple of big negatives. The first is home equity doesn’t produce cash flow. You may have several hundred thousand dollars of home equity but the only way to access it is to borrow against it (expensive) or sell it (leaving you homeless). The second is that equity isn’t fixed. Unlike your brokerage account, a home requires constant maintenance and upkeep to maintain its value and occasional updating to maintain its marketability. A home also incurs insurance costs and taxes that provide a steady drag on the cash flow of its owner, cash many seniors simply don’t have or can ill afford. 

            From a risk perspective, retirees are on fixed incomes and houses come with a world of variable costs.

            Older homes recently vacated by seniors are seen as a tough sell in the real estate business. Brass fixtures, paneling, and shag carpet might have been on trend in the 1970s and honey oak and wallpaper borders very much modern in the 1980s but in 2023 are a couple generations out of date. Deferred maintenance is also present in many of the homes- leaks, stains, poor paint, and damaged cabinets are common in homes lived in for years by people who simply lacked the funds or energy to fix them. Like it or not, aging in place is not particularly easy nor cheap. Those homes are typically sold below market to “flippers” or rehabbers who will modernize the house and hope to make a little profit in a short-term sell. 

            I’ve talked at length to several seniors, most of whom have a disproportionate amount of their net worth tied up in their house struggling to afford repairs or perform maintenance tasks on aging properties. Many occupy family sized homes as singles- widows and widowers rambling around in large homes with large yards where once 4, 5, 6 or more people used to live. Some deal with physical impairments that make upstairs bedrooms or that den in the basement all but abandoned. It is always a little bit sad, looking at the situation as an impartial third-party observer, seeing people struggling to maintain and afford a house that no longer suits their needs. 

            Home ownership culture is so ingrained that few of these folks ever really think to do what might make the most practical and financial sense, which is to sell that appreciated asset and use the proceeds in a more productive way. 

            While renting has some very real negatives in terms of rising rents, there are some very real benefits to renting for seniors. 

1. Rent tends to be relatively stable. While rents do tend to rise over time, they are predictable throughout the course of the lease. It is true that some markets see aggressive rent increases, that’s the exception rather than the rule. Rent is a fixed cost for the term of the lease. 
2. Maintenance costs and responsibilities fall on the landlord. No aging roof replacements and surprise furnace repairs to deal with. Most rental complexes will include lawn care, landscaping, trash removal…basically, anything other than routine housekeeping.
3. Flexibility. A senior is only committed to the term of the lease. If a rental becomes unsuitable for any reason, moving is straightforward as life situations change.
4. Accessibility. Many apartment complexes are built to ADA standards by code. Elevators, single level units, and ramps are common features a lot of single-family homes lack. As seniors experience declining mobility, many rental complexes can accommodate wheelchair or walker bound individuals as a matter of course.
5. Freedom. For seniors who want to travel, it’s simply the matter to lock the door and just go. No need to arrange someone to look after a property while you’re away. There’s also a much-reduced cognitive load to renting. You simply don’t think about things like you do as a property owner. 
6. Community. Many complexes have a built-in community that simply isn’t available in most single-family homes. Some complexes have planned social events but even the ones that don’t have a required degree of interaction with your neighbors in proximity. For newly widowed/widower residents, that interaction can help prevent loneliness and isolation. 

While selling an appreciated residential home and using the proceeds while renting housing won’t be the right solution for everyone, it’s an option worth exploring for many seniors. Particularly those seniors with highly appreciated homes and few liquid assets available or those seniors who are struggling to maintain and utilize their properties.