Friday, April 21, 2017

Do retirees need to be concerned about continual income qualifications when renting (when they have "enough" assets)? Well, maybe

There is a lot of talk about “downsizing” for retirees these days.  In my current situation, I am considering it myself.

There is also a lot of literature that suggests that many retirees are better off renting than owning, if that frees up a lot of cash for liquidity.

But one problem that so far seems under-reported in the news is that many landlord are skittish about renting (houses or apartments) to people whose actual income would no longer qualify them for leases, even when these people have accumulated considerable assets.

I have found a variety of opinions about this matter on the web.

One of them (a forum on Bogleheads) suggests a lot of difficulty.  Likewise, with a forum on city-data.

But USNews, in a 2016 posting by Susan Johnston Taylor, sounds more hopeful.

I had checked into this question back in 2003, when, turning 60, and having been forced to “retire” from ING (at the end of 2001), I contemplated coming back to Virginia from Minnesota to look after mother. From the period of 2004-2007 I paid myself an annuity from an ING IRA, increasing the rate of payout to a shorter 3 year period, in case I wanted to rent an apartment and needed to display “income”.

At the time, I found that garden apartments (the kind that tend to rent to lower income people and immigrants) were quite strict on the actual income requirements.  I found that the larger highrises (especially one where I had lived before) sounded more willing to consider total assets.
There are a lot of wrinkles on this issue.

In 2010 (July 19), I discussed the concept of "continuing care retirement communities", like the Goodwin House in northern Virginia  Typically there is a large buy in (over $200,000) which may be partially or fully refundable. The resident lives in a normal apartment until he or she needs assisted living, if that become necessary later.  But some building like this (like the Jefferson in Arlington VA) are set up as condos.

This brings up the topic of "senior apartments" when compared to CCRC's (above) or assisted living (ALF), as explained here.   Some senior apartments (age restricted in different ways at 55 (other household under 55 allowed) or 62 (none else allowed) may be cheaper and easier to qualify for than the general apartment market (Griswold).  Laureate uses the term "independent living apartments".

The basic reluctance of many landlords in the more open conventional corporately managed apartment world would come from several places.  One is that they have no idea how the retiree will spend the assets.  If the assets are not liquid or in unsound investments, they could disappear.  Some landlords (larger companies) ironically quote privacy concerns, and also says that FHA rules and anti-housing discrimination laws compel them to treat all applicants exactly the same.  But it would seem that the older the retiree is (especially past 70-1/2, past full retirement), the less reasonable their theories sound. But again, these concerns seem most applicable to a senior that wants a "younger person's" life without the typical senior environment.

In theory, a retiree could set up an annuity that pays enough to qualify. I have such an annuity (from Brighthouse, formerly Met Life)  Let’s say you have about $3000 a month in income from a pension plus social security.  To qualify for a modern high rise apartment, that might cost around $3000 a month (say in northern Virginia or the Maryland DV suburbs, or in much of Brooklyn, Queens or Bronx, or northern New Jersey around New York City) the math would men you’d need to generate $7500 a month income (equivalent to about a $90000 a year job) so the math works out that you’d need close to $1 million in additional assets to purchase a large enough annuity.

But some of the more optimistic settings suggest that you can demonstrate a liquid account (cash or cash-like) of one to three years rent, or possibly set up an automatic payment with such an account.  But three years of such an account would need to be over $100,000.  Some people have set these up and then gotten rid of them once they get a lease.

As you think this through, you can see why it may be easier to purchase a condo with case from a sale of a larger house than find a desirable long term lease. And sometimes it still may be much more advantageous to do so given tax rules.

The state where you live would matter.  A state like Florida that is used to having more retirees (who have some political clout, regardless of party) would logically find a real estate industry better prepared for issues like this.

I wondered about this yesterday while taking a Manhattan tour of “Trump”.  Is the Trump family in the retirement community business?

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