As baby boomers downsize, a small but growing number of them are choosing to rent rather than buy a home. The number of Americans between ages 50 and 74 who rent has increased by several percentage points between 2004 and 2013, according to data from the Joint Center for Housing Studies of Harvard University.
Kevin Finkel, executive vice president of Resource Real Estate, which owns or manages approximately 30,000 apartment units, expects to see this trend accelerate even more in the coming years. “We are seeing an increase in this type of renter, albeit still not a majority,” he says. “[Baby boomers are] living longer and tapping into their home equity to pay for that extra 10 years of retirement [that previous generations have not had to fund due to shorter life spans].”
Interestingly, Finkel says, older renters and the younger generation of renters live alongside each other quite well. “Older people love the fact that there are younger people in the apartment communities because it makes them feel young,” he says. “Young people love having older neighbors because they know they’re around all day long.”
However, landlords and management companies usually want to see that prospective tenants have sufficient funds to cover the rent. Retirees may have amassed significant assets or they may be skating by on a fixed income, but they don’t typically have employer pay stubs to prove their income.
“It’s more of a common situation than you’d think,” says Tim Gagnon, an accounting professor at D’Amore-McKim School of Business at Northeastern University and a practicing certified public accountant at Coleman & Gagnon. “In the snowbird case, they may want to go rent in Florida for the winter, or maybe they’re going to rent in both places.” He’s seen some rentals offer a checklist of items that can be used to verify someone’s ability to pay the rent: W2s, pension letters and so on.
The process is similar to — but perhaps less sophisticated and less standardized than — qualifying for a mortgage. “In a mortgage situation, it’s easier to quote what Fanny [Mae] and Freddy [Mac] parameters are,” says Laura Williamson, senior vice president at Digital Risk, which provides risk and compliance management solutions to the mortgage industry. “For rental situations, it’s harder to say universally how every leasing company is going to look at it because there’s not a collaboration or an agreeance.”
Here’s how retirees can give landlords or management companies peace of mind.
Documentation of financials. Depending on the landlord or management company, you may be able to provide copies of statements for IRAs, 401(k)s, Social Security or bank accounts or pension letters, according to Williamson. Continuance of income is another consideration. For purposes of a mortgage, Williamson says the lender would want assurance that any income needed to cover the mortgage will continue for at least three years. For a lease, the management company would want to see 12 months of continuance.
Third-party statement. For prospective tenants who’d rather not share detailed financials with their management company, a letter from an accountant, banker or trust beneficiary may suffice. An accountant like Gagnon might prepare a letter stating that he has “been their accountant for 20 years, and based on their tax filings and income, they would be able to meet their obligation on a monthly basis. I’m assuring them based on the paperwork, but I’m not going to tell you what they have or how much they’re worth.”
However, this may not satisfy every management company. “Any statement by anyone about what is in their bank account is great, but it’s also a moment in time,” Finkel says. That money may not be there when the rent check is due (for instance, if it was borrowed from a relative or later given to charity), and if that happens, the retiree may not have the ability to go out and earn more.
Larger deposit. While money sitting in a bank account can be a moving target that the management company can’t control, Finkel says providing a larger deposit to cover any potential future shortfalls is more attractive to landlords because “that’s something that we do have control of. That renter has a lot of skin in the game.” Or rather than giving a large deposit to the management company, funds could be saved and conservatively invested in an escrow account.
Adult guarantor. If these other options don’t work, perhaps an adult child or other relative can provide a guarantee that they will pay the rent in the event that the tenant cannot. However, this option should be considered a last resort because of the potential complications for the family. “Now it has an effect on the kids,” Gagnon says. “If there’s multiple children, how do they work that all through? That would be my least favorite idea because it opens up so many other issues.”
More from U.S. News
The Best Cities for Retirement Jobs
10 Affordable Places to Retire Overseas in 2016
10 Social Security Claiming Strategies That Work
How Retirees Can Prove Their Income for Renting originally appeared on usnews.com
