Renting in Retirement

We talk a lot at Jason Cohen Pittsburgh about the benefits of renting for college students or recent grads. But that’s because Pittsburgh has a huge college presence and is a city that’s getting younger. We don’t talk a lot about the benefits of renting a home for retirees.

You usually think of retirement as a time when you’re slowing down, when life is about relaxing and enjoying what you’ve earned in your years of working. But, things are changing. People are living longer, and they are often working well into their golden years. The current economy may not allow for the leisurely retirement of yesteryears. With this climate in mind, renting a home instead of buying can have several benefits for retirees.

Buying a home can give a sense of security. It’s permanent and yours. However, it also comes with additional responsibilities that can offset that peace of mind.

If you’re weighing buying vs. renting in retirement, ask yourself the following questions:

Do you want to use retirement plan money to buy a home?

Unless you sold a previous home for a profit, you may have to withdraw retirement money to use as the downpayment. This cuts into your budget.

Do you want a permanent residence?

Some people retire in their hometown while others want to use their years off the job as a time to explore. Renting allows you the freedom of exploring different areas whereas buying requires more surety. Unless you are absolutely certain of where you want to retire, it may be best to rent first, at least until you’ve done a bit of exploring.

Do you really want a 30-year mortgage to start when you’re 65?

Let’s say you do get to retire at a traditional age — you’ll still have a mortgage until you’re 95.

Do you want to deal with banks and loans and all the other tedium that accompanies a mortgage?

You probably didn’t want to deal with this the first time around.

Above all, isn’t it time to enjoy retirement? That means, do you want a mortgage hanging over your head? Do you want to be responsible for unexpected expenses and unwanted repairs?

Basically, the question of owning vs. renting in retirement comes down to how much work you want to do at this time in your life. At Jason Cohen Pittsburgh, we try to take our residents’ minds off their apartments. That’s the major benefit of renting. It may cost a bit more per month, but that cost is consistent and the burden of maintenance is on us, not you. Ask yourself if that is something you value in retirement.

Limited Liability Landlord. Why to Set Up Your Rental Properties as an LLC.

It’s often the case that a property owner will fall into landlordship. Maybe you have a property that you had to leave when the job sent you out of town. Maybe that starter home just wasn’t big enough anymore and you decided to rent it out instead of selling it.

At Jason Cohen Pittsburgh, acquiring, owning, and managing rental properties is our business. We didn’t just start out by renting out a house as a way to steadily pocket some extra cash by making money by something that was already there. We treated it as a business from day one. So, we operate as a limited liability corporation.

In legal terms, there are four ways of operating a business, two of which — sole proprietorship and partnership — name you as your business. This means that you are personally accountable for them. Your home and assets are all linked to the business. In a corporation or limited liability corporation, your business is a separate entity, so your personal finances are not connected.

An LLC is almost a lighter version of a corporation. It borrows elements from corporation and proprietorship, enabling business owners to choose how they want to be taxed. This business structure also allows you to operate without the formalities of a board of directors and shareholders that corporations require.

The minimal paperwork and meetings of the LLC makes it ideal for property managers and landlords. If you own a few properties and want to make sure that they are considered separate from your personal residence to guard yourself against a professional catastrophe, one LLC should suffice. If you’re a professional property manager, conversely, and you are constantly acquiring new properties, you may want to consider forming several LLCs for various properties.

The reason to form multiple limited liability corporations is the same as the reason for forming one in the first place — to protect your other assets. Say you own 45 properties in your city. Property management is your business. Something goes wrong in one of the properties and it ends in a lawsuit. Having this property set up as its own LLC isolates it from the others. That way, you don’t have to worry about one incident in one rental property destroying your entire business.

A prohibitive factor for many property managers when pursuing an LLC is the cost. It varies by state, but in some it can be $800/year. However, you’ll just have to weigh this predictable, set cost against the risk and unexpected costs if you don’t limit your liability legally. Another drawback is that often banks may not lend money to LLCs, which makes financing more difficult than operating as another type of business entity.

When operating several LLCs for rental properties, run them as if they are separate businesses by setting up separate bank accounts and filing separate tax returns for each.

At Jason Cohen Pittsburgh, our combined decades of experience in property management have enabled us to learn how to best protect both our collective and personal assets. Aspiring and new property managers should consult legal counsel and solicit advice as to how to best handle the legal issues in forming their rental companies.

Why own when you can rent? Jason Cohen Pittsburgh answers

Countless stories out there espouse the opposite. Home ownership is part of the American Dream. It’s a rite of passage. Yeah, maybe when the American worker was able to climb the ranks of a single company, with job security and a pension. Unfortunately, that is just not the case anymore. The economy is volatile. Lay-offs followed by bouts of unemployment are a way of life. Nothing is as steady anymore, so it’s difficult to make your residence be that way.

renting a home

Yes, a recent study showed that in America’s major cities, owning was 35% cheaper than renting. However, that is down from 45% a year ago. The gap between renting and owning costs is shrinking, and with it, the biggest advantage of home ownership. At Jason Cohen Pittsburgh, we’re a lot like other multifamily investors — we don’t promote renting as strongly as proponents of home ownership plug their view. But renting has become quite appealing in today’s economy.

For the Young
The young generation is taking longer to settle down. They switch jobs more frequently. It’s more difficult to tie them down. That even applies to your daily time. If you never want to spend a weekend cleaning grout, or spackling, or re-staining a deck, you may be better off renting. The property manager will pay someone to do those things while you’re camping, or studying, or working. It won’t be your hours spent on home repair.

For the Unstable Job Market
If you don’t know where you’ll be in five years, it’s best to not have a house answer that question for you. Worried you may have to relocate for your career? Maybe renting is the way to go. Industries bubble and burst — the next big thing may be nothing soon, and you may have to move to find something else.

For the Commitment Phobes
Buying that home is pretty close to permanent. You better like the schools, the neighbors, that dog that barks at the moon every night — you’ll be there for a while. If you’re sick of the neighborhood or the people or anything else, you usually have only a matter of months before you can move out. Renting enables you to test different neighborhoods and living spaces to test what you like. You could try a split house in the suburbs or a high-rise in the city — figure out what you prefer before you make the investment.

For Retirees
Enjoy your retirement. You’ve earned it. Spend it relaxing, vacationing, exploring those interests that a 40-hour work week made impossible all those years. Unless you enjoy mowing the lawn, re-caulking the bathtub, and searching for contractors to repair the larger problems, renting may be a much less stressful way to enjoy retirement.

Outside of changing your light bulbs, while renting, you’re not only paying for living space but also for a team of professionals to jump at your every maintenance request.

Renting is kind of like having insurance. Sure, you’re paying extra each month, but that covers something that does break. As a homeowner, when something breaks, you have to fix or replace it with expenses out of pocket. When you own your home, you must manually put money aside to cover expenses as they arise. When you rent, it’s covered in your monthly payment. However, you do run the risk of putting the repairs into someone else’s hands. Just make sure you rent from a reputable company that is on top of things.

Millennials as Perpetual Renters: What this Means for Multifamily Real Estate Investors

The Millennials, aka. Generation Y, graduated college with $1 trillion in student loan debt. They graduated into an economy where jobs were scarce, lay-offs routine, and competition high. They are aware that spending their entire career with one company is likely an archaic notion. They remain single for longer. The get a job, get married, buy a house, raise a family, and retire from the company  template doesn’t apply anymore.

Amongst other names, they have been called Generation Rent. They are a viable demographic for multifamily real estate investors like Jason Cohen Pittsburgh to target when repositioning real estate as apartments.

Jason Cohen Pittsburgh apartment

Why Millennials Are Renting:
They may rent forever. Already saddled with debt and often working lower-paying jobs, Millennials are reluctant to take on more loans, like a mortgage.

Jobs are few and far between and the competition is high. And, many employers haven’t exactly proven themselves to be stable or loyal. Gen-Y’ers may need to move frequently to find employment. They can’t be tied down to a house. So they rent.

They also know that a start-up may quickly be brought down, the corporation may lay off a floor of employees, or their job will just be outsourced overseas to save money. Jobs are volatile and Millennials don’t want to worry about paying a mortgage, and possibly facing foreclosure, during the next bout of unemployment.

They also entered the workforce either just prior to in the middle of the housing collapse. They heard the horror stories of burst bubbles, foreclosures, toxic loans. It just doesn’t seem worth it to many when they can rent for a set cost per month without getting hit with unexpected home improvement expenses that they haven’t budgeted for (with obligations like repaying student loans). They’ve also seen houses sit on the market for prolonged periods of time. They can’t wait indefinitely for a home to sell that if they have to relocate for work.

Take note multifamily real estate investors — this young generation may already be too jaded as a whole to do anything but rent.

What Millenials Want in an Apartment:
Millenials are often willing to sacrifice space for convenience when it comes to apartments. When targeting this market, multifamily real estate investors would be wise to reposition buildings in prime locations into hip apartments. An often itinerant generation, Millennials don’t have the amount of stuff of other generations. They will take a smaller apartment if they city can be their living space.

Their unwillingness to take on more debt often extends to cars, and many Millennials choose public transportation, biking, or walking. Smaller apartments within walking distance or on bus lines are often preferable than expansive units that require a car for accessibility to work and their social lives. Also, a place to store their bicycles is a huge plus.

This is also a generation almost defined by its technology. Millennials are responsible for many tech start-ups and are known for never being without their devices. Wireless Internet is huge for this population. Many Millennials drop cable because everything they want is accessible online.

The major competition to multifamily real estate investors when aiming rental properties to Millennials comes from an unexpected source. Parents.  Sometimes, the rent is too damn high, and Millennials have demonstrated a willingness to move back in with their folks.