Dear Liz: I have high credit scores, no debt, a large retirement fund including a generous pension and a home I own free and clear. I plan to retire in four years and am thinking of moving to be near family.
Should I buy my retirement home now while real estate values and interest rates are low? I could make a 20% down payment and rent it out until I can move in. I should be able to sell my current house and pay off the loan when I retire.
Or should I just be patient and buy a place after I retire? If I wait, I could pay cash for the next house, but property values may rise, and I suspect they’ll rise faster in my future town than in my current one.
Answer: Getting a loan to buy a rental property is difficult these days. Although your high credit scores and solid finances will help, you may have to come up with a down payment larger than 20%, and your interest rate almost certainly will be higher than if you planned to live in the home right away.
Then there are all the issues associated with being a long-distance landlord. You would need to screen tenants, respond quickly to repair requests and keep a substantial reserve fund to pay the mortgage when the property is vacant. A property management company could help, but such outfits typically take 10% or more of any rent payments.
Also consider that your plans could change. Although being close to family is important, you may decide you don’t want to give up ties to your current home or its environment.
If you haven’t spent a substantial amount of time in the area where you plan to move, consider taking a long vacation there when the weather is at its worst so you have a good idea of what life there might be like.
That’s not to say your plan can’t work, but you need to do some research, carefully go over the numbers and think about whether you’re up to this task.