Older Homeowners Face a Hard Choice: Sell or Keep Their Paid-Off House?

Gen X has made headlines in recent weeks for a lack of retirement preparedness. According to one report, the average retirement savings across Gen Xers — or those born between 1965 and 1980 — is about $130,000, despite the numerous surveys that show people generally believe they’ll require $1 million or more to enjoy their golden years.

But there is a silver lining. In 2023, 72% of Gen Xers were homeowners, and many of them are now on the cusp of paying off their homes entirely — or are already living in a house they paid off years ago.

Selling a paid-off home in the current housing market to unlock both record equity and profits looks incredibly appealing, but finding a replacement home in that same market largely means rolling those profits straight into a new home, or even getting priced out.

Take Jeff Inman, who moved into his home in Chesapeake, Virginia, back in 1999. His two-story house has four bedrooms where he raised his three kids. But 25 years later with all of the children out of the nest and the home only one year away from being completely paid off, life is throwing another curveball: His aging mother-in-law needs to move in so he can care for her.

“We have space for it to work, but it’s upstairs,” which is a physical challenge for her, he says. “It’s either build on to accommodate, which we’re willing to do, or sell the house, take the equity we built up, and find a place that has the accommodations that work.”

Appraisals of Inman’s home calculate that he’d quadrupled the money on his home over the past 25 years, and while that’s a hefty profit, he says all of it would go into purchasing a replacement home.

So what is a homeowner to do — sell a home they’ve paid off and try to maximize the profits, or stay in that (often imperfect) spot and live mortgage-free?

Core costs linger

Making the move to build wealth through real estate can hinge upon whether one finds themselves in a buyer’s or seller’s market. A buyer’s market is defined by too much housing inventory where buyers have their pick and can negotiate for a lower price. A seller’s market is the opposite, and what many saw in the years of the pandemic — houses sold lightning-fast, and buyers had to win bidding wars to snag one.

For Erika Villegas, president of the Chicago Association of Realtors, determining whether to sell or save in a seller’s market like Chicago begins with digging into what a client is spending per month to maintain their home, even if there's no mortgage. This is especially important for Gen X and baby boomers who may be relying on Social Security, family or a modest savings account to get by.

“It’s expensive to maintain a home, right?” she says. “The home is paid off, but there are expenses with taxes, utilities, maintenance and repairs.”

Villegas says most clients who are in this position are looking to downsize. And for many people, downsizing yet staying in the same exact area may not make sense financially when living in a different neighborhood, town or state could conserve some of the profits.

Many of Villegas’ clients have traded the Chicagoland area for places like Texas, Arizona, Georgia, the Carolinas, Tennessee and Mexico, which tend to be less expensive and offer warmer weather. But there are still a fair share of clients who simply move out of the city into more affordable suburban condos.

The landlord option

Virginia realtor DJ Parker is a big proponent of homeowners buying their own apartment units, transitioning into one of them and renting the rest. Another option is for homeowners to even rent out their paid-off home, or portions of it, because the rental market is so lucrative and steady.

“Renting is a great idea if people are willing to become landlords, or hire someone to do that for them,” he says. “Passive income, to me, is a very good thing.”

For homeowners who may already have supplemental rental properties, one way to downsize is to sell one rental building for a larger one to live in.

Say a homeowner has a primary residence that is a single-family home but also owns a three-unit rental property. One option to maximize home sale profits could be to sell that three-unit property and get a five-unit one, using a 1031 Exchange to offset capital gains. From there, the homeowner could sell their house, transition into an apartment in the new five-unit building and pocket their home equity for long-term use.

But if a homeowner just wants to sell their home, rent and pocket their profits, the idea can be dicey, Villegas says. Household expenses for a paid-off home are about $700 a month in Chicago, she says, and renting a similar apartment will generally run around $1,200 to $1,400.

Over time, it may cost a homeowner significantly more to leave their home and rent than stay put, though there can be potential for the economics to work.

Trusting your gut

Choosing to sell or save a home is a deeply personal decision — no two homeowners are alike in their family, economical, cultural and health makeup.

“It just depends on your life situation,” Parker says.

Parker warns that one misconception among homeowners is that their house will sell immediately at a slightly inflated price similar to the eye-popping sums that homes fetched during the thick of the COVID-19 buying frenzy. In reality, though, “we’ve seen a halting over the last few months in my area,” he says, and “houses [are] staying on the market longer.”

Plus, the way that families are living nowadays is veering more intergenerational, with adult children moving in with their parents (or the other way around). As a result, many of these sell-or-stay decisions must consider the larger social ecosystem of a homeowner and what will best support them in the future.

To that end, Villegas and Parker both recommend that homeowners connect with financial planners, realtors, estate attorneys and family members to gather as many opinions as possible to make an informed decision.

As for Inman, he ultimately chose to sell his home and move 15 miles away to Virginia Beach. His new spot is a one-story house with an extra 100 square feet of space and a dedicated mother-in-law cottage. Inman’s home did indeed sell for quadruple its original value, and even if all of his profit is getting rolled into paying cash for his new house, he and his wife are at peace.

“There’s a lot of upside,” he says. “I’m still in a high-equity situation with no mortgage. I haven’t lost anything.”

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