One of the objections I often hear from elder clients about moving is: "I own my house. I can’t afford a monthly payment!" It may be a mistake to think that staying put is cheaper on a month-to-month basis than either purchasing a new home or renting. It’s DEFINETELY a mistake to think because there’s no monthly payment, it’s not costing anything to live in the property! Think about this. Henry, an 86 year old widow is thinking about moving because his daughter wants him to move. He shares his concerns about having to pay a monthly payment. Henry owns his home and it’s worth $250,000, What will Henry do with that money once he sells? Presumably he will place it in a low-risk investment vehicle such as a money market account. Henry may earn 4% on those dollars in today’s market. For example, after Henry sells the house for $250,000, he will net about $227,000 after paying commissions, title and closing costs. Henry invests that $227,000 dollars, and there is an earning of $756.00 per month in interest. That’s $756.00 per month that Henry is not receiving because those dollars are tied up in the house. Add that to other expenses of living in the home:
Item |
Cost Per Month |
Homeowners Insurance |
$77.00 |
Taxes |
$208.00 |
Maintenance (lawn care, snow removal) |
$75.00 |
Mechanical Repairs (A yearly estimate broken down by month) |
$100.00 |
Utilities |
$210.00 |
Lost Equity on $227,000 |
$756.00 |
Total Cost to Own |
$1426.00 |
As you can see, although Henry doesn’t pay a monthly mortgage, he has typical homeowner expenses, plus the expense of opportunity lost with that interest money. Henry is not living for free. Now, let’s say Henry does decide to move and wants to rent an apartment in an independent living community for seniors. In this example the house has been sold, Henry has net $227,000 and is drawing $756.00 interest on that money every month.
Item |
Cost per month |
Rent |
$1500 |
Property Insurance |
$20.00 |
Utilities |
$75 |
Subtotal |
$1595 to rent |
Subtract Investment Return |
-$756.00 |
Total to Rent |
$839.00 |
Because Henry is drawing $756.00 per month interest from the proceeds of his old house, his rent is substantially lower. In this example, it is less expensive for Henry to sell his home and rent. Use these formulas to help seniors you know see how expensive it is to stay put!
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