A list of municipalities in which selling a home can reap an enormous amount of rental income finds California (of course) as the prime locale for those who wish to downsize in retirement.
MoneyRates.com, a personal finance website, finds:
- Selling your home won’t cover rent in 80% of U.S. cities
- San Francisco is the best place to downsize even though it has the nation’s second-highest rental rates
- Eight of the top 10 locations are in California, even though it’s one of the most expensive places to live
- In the top 10, proceeds from selling a home and the potential savings (from no longer having to pay property taxes) would finance at least 35 years’ worth of rent on a two-bedroom apartment
In compiling the report, the website compared proceeds from selling the average valued home in 387 U.S. metropolitan areas to the expected change in monthly housing expenses by shifting from a house to a two-bedroom apartment.
Somewhat surprising, the analysis shows it makes the most sense to downsize in metropolitan areas with expensive rent.
These markets tend to have even more inflated home values than they do rents. Essentially, homeowners who have paid off most or all of their mortgages can benefit greatly from selling their homes and renting a smaller residence.
Top 10 Best Places to Downsize in 2019
- San Francisco, CA
- San Jose/Sunnyvale/Santa Clara, CA
- Santa Cruz/Watsonville, CA
- Kahului/Wailuku/Lahaina, HI
- The Villages, FL
- San Luis Obispo/Paso Robles/Arroyo Grande, CA
- Los Angeles/Long Beach/Anaheim, CA
- Santa Rosa, CA
- Salinas, CA
- Napa, CA
The study’s author, Richard Barrington, finds it significant that California’s pricey real estate markets dominate the list.
“People don’t want to be uprooted away from friends and family when they retire, but it can be difficult to remain in an expensive area when you are on a limited retirement income,” Barrington, senior financial analyst for MoneyRates.com, said in a statement. “However, in areas where home prices and real estate taxes are disproportionately large compared to rental rates, the economics can work in favor of downsizing.”
Barrington adds that retirement planning is an exercise in thinking ahead.
“Our study finds that in four out of five U.S. cities, the sale of a home and savings from property taxes wouldn’t finance renting a place for 25 years. That makes counting on downsizing as a retirement strategy a risky proposition in most places. It only makes sense if those expenses don’t burn through the value of that asset too quickly. In most areas, this is a potential problem.”
The study noted some exceptions:
- San Francisco is the city where it makes the most sense to downsize. While it has the nation’s second-highest rental rates for a two-bedroom apartment, home prices are disproportionately higher. When savings from property taxes are factored in, downsizing in this metropolitan area could finance 43 years’ worth of rental expenses.
- Pine Bluff, Arkansas is the area where downsizing in retirement makes the least economic sense. Despite a $707 average monthly rent on a two-bedroom apartment, the area has one of the most depressed real estate markets in the nation. As a result, selling a home there would barely finance 10 years’ worth of rental expenses.
THE COMPLETE LIST CAN BE FOUND AT: https://money-rates.com/research-center/best-places-to-downsize-in-retirememt.htm.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.