Renting during retirement - a no brainer?

MikeJXE

Pat38493 said:

Voyager2002 said:

Have you allowed for inflation, which would increase your rent by far more than the costs associated with living in a house that you own?

Yes - the rent is automatically adjusted for inflation using historical scenario stress testing (although I think it uses general inflation rather than specific rental rate inflation).

pterri said:

…and the landlord deciding to sell etc. for me a pension is about having enough money to do what I want to do within reason and SECURITY, the second is perhaps more important? 

In reality this wouldn't be a long term thing - highly likely we would end up buying a house again at some point.  There are also advantages to this if you retire early in your 50s - you can move between rentals for a decade to live in different places, then buy a property when you want to settle down.

It's more a thought experiement based on the fact that we have sold our house, and have not found one to move to yet - it gives me some reassurance that we could live in rentals for a year or 3 until the right house comes along.

Let's say I retire now (wife already retired).  I am 56.  I spend 10 years renting out places in different parts of the country.  30th percentile (lower likely) scenario says I have £1.25m at age 67, versus £485k if I buy a 600K house this year.

i.e. - it's highly likely that after touring around paying rent for 10 years, I would have enough to buy the house I was going to buy anyway.

(figures are in real terms, adjusted for historical inflation in the same way that SWR stress testing is done).

Further, I don't have to feel any pressure to find my dream home this year.

To be clear, this only works if you have an expensive house to sell

at the start of retirement so you have the best part of a million pounds extra to invest at the start.

Haha had to click on it when I saw the title, To be clear it doesn't have to be an expensive property 

I was already retired but not with a 1m+ property more along the lines of £150,000

I did the maths and discovered I would be fine if I bought again but where ? how many places would I get wrong ?

The money would last me 20 years if I rented and at 78 years old that was plenty long enough so thats the path I took, I am not a big spender and want for little. 

I am now on my 4th rental in 6 years and now have found my forever home.

4 years ago I did the maths again and realised the money would last another 40 years, not as bad as I first thought so I gave my 4 grandkids £60,000 

Now because we have higher interest rates on savings I could easily be here till 2050, well in my head probably not my body.  

I am happier now than I have been in the last 15 years 

Storcko14

It's an interesting idea and a variation on one we've thought about which is to trade to a lock up and leave flat whilst travelling / staying longer in various places we've always wanted to go but still having a base in the UK.  We live in a fairly sought after commuter town with good transport links and schools which isn't a priority for us now so whilst we'd release some capital, the main benefit isn't really financial but more about adding a wee bit of excitement to the go-go retirement years.  

pterri

Pat38493 said:

Voyager2002 said:

Have you allowed for inflation, which would increase your rent by far more than the costs associated with living in a house that you own?

Yes - the rent is automatically adjusted for inflation using historical scenario stress testing (although I think it uses general inflation rather than specific rental rate inflation).

pterri said:

…and the landlord deciding to sell etc. for me a pension is about having enough money to do what I want to do within reason and SECURITY, the second is perhaps more important? 

In reality this wouldn't be a long term thing - highly likely we would end up buying a house again at some point.  There are also advantages to this if you retire early in your 50s - you can move between rentals for a decade to live in different places, then buy a property when you want to settle down.

It's more a thought experiement based on the fact that we have sold our house, and have not found one to move to yet - it gives me some reassurance that we could live in rentals for a year or 3 until the right house comes along.

Let's say I retire now (wife already retired).  I am 56.  I spend 10 years renting out places in different parts of the country.  30th percentile (lower likely) scenario says I have £1.25m at age 67, versus £485k if I buy a 600K house this year.

i.e. - it's highly likely that after touring around paying rent for 10 years, I would have enough to buy the house I was going to buy anyway.

(figures are in real terms, adjusted for historical inflation in the same way that SWR stress testing is done).

Further, I don't have to feel any pressure to find my dream home this year.

To be clear, this only works if you have an expensive house to sell at the start of retirement so you have the best part of a million pounds extra to invest at the start.

Long term renting, or even life long renting, is a thing in other countries. It’s the precarious nature of the tenancy laws in this country that would over ride the £££ calculation for me.  I’d want to have some permanency quite early in my retirement so I’m not scrambling to find somewhere new when some vital bit of my body needs some maintenance. Also, I live in London (love it) but not a location where you want to be playing games with rents or ideal locations. 

Cobbler_tone

Something deemed a ‘no brainer’ would normally be adopted by the masses. Have you seen the state of the rental market? There are 6 properties to rent in my town of 50,000 people. £1,100 for a crumby 2 bed terrace, no thanks.

MikeJXE

It depends where you want to live

I live in a lovely market town with posh shops  because it's monied, lots of pubs and even more coffee shops, A park with cricket at weekends in season, Tennis, junior football club, Bowles club, museum, used to be a railway station till Beeching got his hands on it, theatre, lots going on. 15,000 population 2023

Mine is a lovely 1 bed ground floor flat £625.00 a month, no increase since I moved in just over 2 years ago, suits me perfectly 

cfw1994

MikeJXE said:

It depends where you want to live

I live in a lovely market town with posh shops  because it's monied, lots of pubs and even more coffee shops, A park with cricket at weekends in season, Tennis, junior football club, Bowles club, museum, used to be a railway station till Beeching got his hands on it, theatre, lots going on. 15,000 population 2023

Mine is a lovely 1 bed ground floor flat £625.00 a month, no increase since I moved in just over 2 years ago, suits me perfectly 

Does that rent include all bills (council tax, heating, water, tv, etc etc)?
If yes: sounds great 😎
If not: well, the price is okay, but it is £7.5K on accommodation that a homeowner doesn’t pay 😳

I can see it working as a stop-gap, but I would prefer a “lock up and leave” to let you go travelling, as Storko14 suggested above.
Rentals in an area you want might be tough to find 🤷‍♂️

Pat38493

Storcko14 said:

It's an interesting idea and a variation on one we've thought about which is to trade to a lock up and leave flat whilst travelling / staying longer in various places we've always wanted to go but still having a base in the UK.  We live in a fairly sought after commuter town with good transport links and schools which isn't a priority for us now so whilst we'd release some capital, the main benefit isn't really financial but more about adding a wee bit of excitement to the go-go retirement years.  

I have also considered this idea - not sure if the wife would go for it though.  Taking it to an extreme, we are in the process of buying a caravan so theoretically we could take a year or two touring around in the van, using one of our kid's addresses as the postal address. 

One thing that puts me off this a bit, is that the price of storage for all our furniture seems to be pretty high as far as I can tell (although I don't have any firm quotes yet, I am just going by the prices of self storage locations).  It seems to me that putting all our furniture into storage would cost nearly as much as just renting a house and shoving it all in the house! (although as per below you have to take into account that you have all other bills significantly reduced).

Cobbler_tone said:

Something deemed a ‘no brainer’ would normally be adopted by the masses. Have you seen the state of the rental market? There are 6 properties to rent in my town of 50,000 people. £1,100 for a crumby 2 bed terrace, no thanks.

This is a good point, although I have been looking at the available rentals a bit and there seems to be at least some available - not exactly spoilt for choice.  There is also the option of using relatively short term AirBNB which seems a lot more expensive on the headline price, but the difference is not so big when you take into account that all the bills and council tax are included.  

Also, my wife says that she knows a couple of people who are in a position to rent out a property that they own on a short term basis to someone that they know.

MikeJXE said:

It depends where you want to live

I live in a lovely market town with posh shops  because it's monied, lots of pubs and even more coffee shops, A park with cricket at weekends in season, Tennis, junior football club, Bowles club, museum, used to be a railway station till Beeching got his hands on it, theatre, lots going on. 15,000 population 2023

Mine is a lovely 1 bed ground floor flat £625.00 a month, no increase since I moved in just over 2 years ago, suits me perfectly 

Yes - we have actually been house hunting in a couple of places like that.  However those lovely market towns, nobody seems to want to move out so it's quite rare for a really nice place to come up for sale there in our price range.

Storcko14

cfw1994 said:

MikeJXE said:

It depends where you want to live

I live in a lovely market town with posh shops  because it's monied, lots of pubs and even more coffee shops, A park with cricket at weekends in season, Tennis, junior football club, Bowles club, museum, used to be a railway station till Beeching got his hands on it, theatre, lots going on. 15,000 population 2023

Mine is a lovely 1 bed ground floor flat £625.00 a month, no increase since I moved in just over 2 years ago, suits me perfectly 

Does that rent include all bills (council tax, heating, water, tv, etc etc)?
If yes: sounds great 😎
If not: well, the price is okay, but it is £7.5K on accommodation that a homeowner doesn’t pay 😳

I can see it working as a stop-gap, but I would prefer a “lock up and leave” to let you go travelling, as Storko14 suggested above.
Rentals in an area you want might be tough to find 🤷‍♂️

It's not quite though as a homeowner has capital tied up that could otherwise generate an income.  But given the very favourable tax treatment of your PPR in the UK, it's an advantage.

Cobbler_tone

I’ve owned, rented and owned again so have seen both sides of the coin. The world of rental comes with variable standards of property, potential frequency of moving, different approaches of landlords and unquestionable uncertainty. The only approach I’d recommend is selling your house and travelling the world but the reality is that by that time you wouldn’t have the health and inclination to do so.
The reality is you’ll probably sell your home to fund some 5 star residential set up to care for your every whim…or a basic care home.
The comfort of having your own secured and paid for space is worth more than some tied up equity you may never spend IMO.
I did this with my BTL though. I figured that the £6k net income was outweighed by the sale price, so my profit window (and hassle factor) wasn’t worth it and sold. The tenant wasn’t happy. Harder for landlords these days though.

mr_apple

Pat38493 said:

hugheskevi said:

What are the assumptions about the net return on the capital from the house sale? In particular, the rate of return net of charges, dividend tax, capital gains tax, income tax, etc, depending on how it is saved/invested.

I modelled it using Timeilne software with investing the entire amounts, plus all my pensions and other money, in 100% global equities for the duration of retirement.  CGT and other taxes are calculated by the software.  The software tests the real results of retiring any month since about 1916 or so, modelling real returns and inflation.  I programmed a bed and ISA for the money outside of tax wrappers but frankly this made very little difference to the overall result.  There is also 2 x DB incomes and 2 state pensions in the mix.

For the base case where I buy a new house immediately, my pensions, investments, and the net proceeds of the house downsize are invested roughly 70/30 equities / bonds&cash based on the starting point of a calculated cash flow ladder.

This is really interesting as I have just retired at 60 and am thinking of downsizing or perhaps renting while we travel around a bit for a few years. What software did you use to do the modelling? I’d like to run the figures myself. I’d have around £1.1m to either buy a property or rent and invest the rest - I wouldn’t need to use the proceeds to live off as my pension and existing investments would cover that.