If you are looking to downscale but are not sure if you should rent or buy a property here are some tips. When you feel that you should downscale from a home to an apartment or a smaller property it is hard to determine whether you should rent or own the property. Many factors go into making this decision.
For example, let us look at George. George is newly retired and wants to move to a smaller home. The home he owns right now is appraised at $500,000, and after fees and other home expenses his home is now worth $450,000. George wants to invest any proceeds from the sale of the house. These investments, after taxes would give George $5000 of monthly income. If George would like to rent, this income would help him pay the $1500 required for monthly payments. Now if George decided to buy a property instead, he would have to pay a monthly fee for utilities of $3000 monthly.
What Should George Choose?
If George were to live on rent, he would still have $4500 left over from his investments, he would essentially be living rent free. However, investing in a property has its advantages as well in the long run. Property value is always increasing so in time the property George bought could be worth double the amount he bought it for based on the rate of appreciation. So if George bought a property for $400,000 with a fixed rate over the next 10 years, the property could then be worth $800,000 and he would have a gain of $400,000 tax free since it would count as their principal residence. However based on the information from the example the best option is to rent for George.
What should YOU Choose?
If you would like to live basically rent free then investing in proceeds is the better option for you, but if you would like to make an economic gain and continue to do so then buying a property is a better option for you if you are in it for the long run. You should always look at your financial decisions, contact your local tax accountant or any local accounting firms for a better decision.
The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Muhammad Nasrullah and Muhammad Nasrullah CPA Professional Corporation will not be held liable for any problems that arise from the usage of the information provided on this page.
Muhammad Nasrullah,CPA, CGA, LPA
Chartered Professional Accountant
Licensed Public Accountant
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