Now That the Kids Have Moved Out, Are You Thinking About Downsizing? Why Not Rent?

With the Australian population changing so rapidly; in the past decade people aged 60 years plus has increased by a whooping 35% to over 4.5 million people and this accounts for around 20% of the population; we are certainly seeing the Baby Boomers shifting to smaller and more manageable forms of accommodation. We are also starting to see the beginning of the Gen X making a similar shift as they are now starting to become “empty nesters”.

What we are starting to see is the beginning of the paradigm shift towards the European way; where most people rent (long term) and fewer own property portfolios. This isn’t a bad thing at all, and as purchasing property is becoming out of reach, many people are shifting their sights towards renting, and why not?

My interest in this shift is with the Gen X crowd. Gen X has done well out of Real Estate over the years – they often live in nice family homes in the affluent areas of the major cities; they have numerous bedrooms for each of their 2 – 3 children (or more); and are now looking to embark on the next journey of life and winding down towards retirement and relaxation.

So what are they to do? Sell the family home in the ‘burbs and buy a “dog box” to retire into? Maybe they have a little shack by the beach for weekends (or a not so little shack), or even a country retreat, so that don’t mind the idea of living mid week in the city in a moderately sized apartment. While the idea of selling the home, downsizing and buying an apartment or unit is very doable with quite a bit of change, it is not necessarily an appealing option for all. Some Gen X folk are very conflicted with this idea because they know that the real value of property is in the land value, and unit in a sky high apartment complex doesn’t give you any of that.

So what’s the solution? Its simple, rent! With renting there is no need to tie yourself down to the downsize purchase, particularly if it isn’t really an appealing option for you. Renting also removes the risk of regretting the downsizing purchase decision – what if you or your partner doesn’t like living in an apartment complex after all? Then you are stuck with an over priced apartment with enormous Body Corp levies that might be difficult to resell. To me, it seems that renting is a great, low risk option.

In this current economic environment where dividend yields (on high yielding quality stock) on the stock market far outweigh all other asset classes as far as income is concerned, why not rent and put your money into equities; that alone will most likely pay your rent – and maybe even groceries! (please note that I am not providing financial advice here, and you should seek expert financial advice for your individual circumstances).

So, that brings us to the next point. What if Gen X moves into the city rental apartment and loves it – loves the CafĂ© lifestyle, low maintenance buildings, location, proximity to events, concerts and sporting activities? Well simple, buy it! Every landlord has a price. Sure, you may need to pay a little premium but so be it, at least you know that you have made the right decision because you had the opportunity to “try before you buy”.

Finally, the cost of renting is coming down due to such high over supply in the apartment space, with 50,000 new apartments hitting the market each year in Melbourne, Sydney and Brisbane. It just makes sense to seriously consider renting as an empty-nesting Gen Xer or get-amongst-it-all Baby Boomer, you never know, you might enjoy it!