Downsizing Your Home: Renting vs. Buying

Downsizing HomeWhether you are upside down on your mortgage and trying to hold on each month or retired with grown children out of the nest, downsizing your home can be a great way to cut expenses. For some people downsizing may mean buying a smaller home; for others it may be giving up homeownership for a yearly rental. Depending on your situation, the right choice is different for everyone.

There are pros and cons to both renting and home ownership. The housing market continues to recover across the nation with home prices rising and interest rates staying relatively low. Therefore, buying a smaller home might seem appealing. However, just because you can buy a home or condo doesn’t mean you should.

Purchasing a house is a big financial decision. Choosing to sell your current home and downsize to a smaller one is not just a financial choice, it’s also personal. There are some things you need to consider to help make the right decision:

  • Can you afford to pay the mortgage, taxes, insurance and other expenses that come with maintaining the property?
  • Do you have an emergency fund to cover a minimum of eight months?
  • How long will you live in the home? If it’s less than five years, financial experts say forget about buying. According to financial expert Suze Orman, “When you buy a home, you owe the real estate agent nothing. When you sell, however, you pay the full agent’s fee, which is typically 6 percent. Add in the other costs of closing a sale and the cost of moving, and it’s very possible that leaving your home too soon could eat up close to 10 percent of its sale price. Here’s something else to consider: Depending on where you live, it could still be a year or two before home prices stabilize. And even once they rebound, it’s wise to anticipate average annual increases in line with or slightly ahead of the rate of inflation, or about 3 percent. So if you have to sell a home in fewer than five years or so, the cost of selling may exceed any potential price appreciation during the time you owned.”

There are many free, online rent-to-buy calculators that can help up you weigh your financial options. These calculators add up items such as rental payment, the price of a home, the mortgage and tax rate, and estimate whether you would save more by renting or buying a home. According to Orman, The New York Times online calculator shows you how many years you’d need to own before your home “pays off” relative to renting.

According to an article in the Chicago Tribune in April 2013, the stigma of renting is no longer the case today. “When it comes to living the American dream, the overwhelming response (is) renting is just as appealing… People may aspire to own a home, but most are still reeling from the housing crisis, and some believe the hard times either aren’t over or the worst is yet to come. As a result, they may welcome the small inklings of a real estate recovery but they just aren’t confident enough yet to consider ownership a long-term play.”

Survey research firm Hart Research Associates conducted a survey for the MacArthur Foundation and found that 57 percent of adults believe that buying a home has become less appealing and 54 percent view renting as more appealing. In addition, 45 percent of homeowners can see themselves as renters at some point. Interesting to note is that much of the increasing appetite for renting, as opposed to purchasing a home, is among consumers 18 to 39, the survey found.

According to the Tribune article, helping erase the renter stereotype is a big uptick in single-family rental properties, as investors pay cash for foreclosures, rehab them and hold them as cash-generating rentals for consumers who don’t want to, or can’t afford to buy a home. Also helping nudge up the appeal of renting is the continued difficulty in securing a mortgage, the flexibility that renting brings and the collateral damage inflicted on people, particularly younger consumers, who may not have been harmed personally by the housing bust but who watched others go through it.

Is renting the right decision for you? There are a lot of pros to renting, including:

  • Lower costs upfront. As a renter you are generally required to pay a security deposit along with first and last month’s rent. That’s a lot less than the costs associated with buying a home.
  • Flexibility to invest money elsewhere. The money that would have been used for a down payment on a home can be invested.
  • No major expenses. Whether you rent a home or apartment, the landlord is responsible for major repairs and purchases like heating and air conditioning systems and broken pipes and appliances.
  • Incidental expenses. You may be required to take care of the property and utilities like garbage, sewer and water.

The “rent vs. buy” question requires you to examine all the elements of the decision, since where you live is both an emotional and economic decision. Consulting with an independent financial advisor will help you stay within your means while working to achieve future goals.

For more information on Summit Brokerage Services, an independent broker-dealer, visit or contact us at (800) 354-5528.

This blog and website are for informational, educational and discussion purposes only. Summit Brokerage Services, Inc., Summit Financial Group Inc., and any of its affiliates are not a law firm or an accounting firm. Even though topics may be discussed on this blog that may involve legal, accounting, or investment issues, nothing on this blog shall be deemed to constitute the practice of law, legal advice, investment advice, and/or tax advice. You should consult an experienced professional regarding tax consequences of specific transactions.
No reader should act in reliance on anything discussed in this blog without prior consultation with a licensed professional who is qualified to evaluate the reader’s individual facts and circumstances and offer an informed professional opinion with respect thereto. If any reader takes action or makes decisions based solely on the information on this blog without prior consultation with a qualified, licensed professional, the reader does so at his or her own risk and agrees that Summit shall have no liability resulting from such unilateral action or decisions by the reader.
Summit makes every effort to provide accurate and truthful information in its posts on this blog, but in no way expressly or impliedly warrants or guarantees the accuracy of its postings and/or the information posted here by others. All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy.
Summit may, on occasion, post links to information maintained on other websites. Such links and the information thereon are not under Summit’s control.  The mere appearance of a link to a third party site does not mean that Summit has undertaken a review or approval of the link and/or its contents.  Readers must treat information from third party links at the reader’s own risk, and Summit accepts no liability with respect to such third party information. Please note that the third party’s privacy policy and security practices may differ from Summit Brokerage Services, Inc., Summit Financial Group, Inc. and its subsidiaries’ standards. We assume no responsibility for nor do we control, endorse or guarantee any aspect of your use of the linked site.

Stay Connected

Subscribe to Summit Brokerage

Personalized Industry Newsfeed For You

Thank you. You are now subscribed.


Thank you. We will get in touch with you shortly.