March 2021

Renting may be coming of age for retirees who want a simpler life on their “back nine.” More and more developers have jumped on the “build to rent” bandwagon, giving Baby Boomers a solid alternative to owning a home. Also this month, the McConnell Golf Group has added to its portfolio of outstanding private courses with its first incursion into Virginia just before 2020 ended. 

Harbor Club, Greensboro, GA Harbor Club, Greensboro, GA

Not-For-Sale Signs: Renting for Retirees Comes of Age

You buy a home for personal or family purposes, you live under the roof for years, maybe decades, and one day you realize it is worth more than you paid for it.  This, of course, is the “marketing tool” that the real estate industry, mortgage banks and others with a vested interest in selling real estate use to convince us all that home ownership is very much at the heart of the American dream.

It was for me and, I expect, you but now we are retired, the kids are gone, the house is too big for our current needs, and we have our eyes on a more felicitous climate in a lower cost of living area.  And, of course, our first instinct is to buy a home that will be smaller, cheaper and less demanding of upkeep than our primary homes.

This is the situation my wife and I face.  Now that the kids are raising their own families elsewhere — both expecting their first children within the next few months — we have too much space for our needs, and too many expenses for the upkeep on a one-acre property and 4,000 square foot house.  

The equity in the house is about double what we paid for it almost 30 years ago. We plan to sell in the next year, but the quandary, even though we own a vacation condo in the South, is whether to buy yet another home or rent one.  I have come around to thinking that renting either one or both homes will be more liberating – personally and financially — than owning two.  And the attraction of renting is growing more interesting because of a recent surge in what is known as “build to rent” developments.

Slim Pickins in Homes for Sale

I have been carrying on for months in this newsletter, at my blog site and in my book, Glorious Back Nine: How to Find Your Dream Golf Home about the inventory shortage of homes for sale, especially in the Southeast.  Those inventories are at historic low levels while demand has increased dramatically thanks to Covid, more people working from home and the still large numbers of Baby Boomers seeking their proper retirements in a warmer climate with a lower cost of living.  New golf community developments are few and far between, and those who might otherwise develop them are still gun shy from the experience of the 2008 recession.  But nature abhors a vacuum, and some national developers, fueled by venture capital backing and the exploding numbers of people fleeing cities for suburban and rural areas, are stepping into the breach by constructing new communities with a twist — single-family houses that are not for sale.

According to a 2020 article in Forbes magazine, “approximately 60,000 houses were being built for rent last year, and it’s not enough. From what [we are] tracking, it will rise to 75,000-80,000 in the next year [2021], and still won’t be enough to meet total nationwide demand.”

The new “landlords” are tapping into millennials’ desires for homes that meet their growing families’ needs and retirees’ needs for budget predictability. Consider that you have a home to sell, one that is larger than you need, more expensive to maintain than you want, and located in a place where winters are a burden.  When sold, it will return a few hundred thousand dollars in equity to you.  But you have to live somewhere, and you want that somewhere to be in a warm climate where you can play golf year-round.  

Nice Problem to Have

For the sake of argument, let’s say the total proceeds from the sale of your home are double the $300,000 you paid for it 30 years ago, or a total of $600,000. You have two choices — buy or rent.  If you buy, you can live pretty comfortably in a home — perhaps in a golf community, perhaps near excellent golf courses — for $400,000 to $500,000.  On your $600,000 sale, that would leave you with a cushion of $100,000 to $200,000 in the bank. Of course, you will have other savings as well to fuel your retirement expenses.

Let us say that, instead, you pocket the entire $600,000 from the sale of your house, you invest it in a portfolio of mostly low-risk investments, and you rent one of those nice, brand new single-family homes being built to rent.  Let us assume that one of those homes is renting for $2,500 per month — the average for these new build-to-rent homes, according to reports, is less than $2,000, but we will put you in one of the nicest homes. Your annual rent payments would come to $30,000.  

I ran the numbers through Vanguard’s “Nestegg Calculator”: $30,000 annual rental cost, $600,000 in the “bank” and an investment mix of 50% stocks, 30% bonds and 20% cash.  According to Vanguard, your money has a 73% chance of lasting 30 years, and a 50% chance of lasting 50 years (a problem if you live to be, say, 120 years old).  Of course, this calculation applies only to the renting of the home, not your other living expenses, for which you will have savings (IRAs, pension income, other investments). You can also run your entire asset base in the Vanguard calculator to see how long all your money will last.

The nicest thing about renting is that there are few surprises, unless a pipe bursts but, even then, you are better off having a landlord to fix it than to have to negotiate with and pay a local plumber.  Upkeep on the exterior of the home is the landlord’s responsibility, which frees you to play as much golf as you like without having a lawn waiting to be mowed afterwards.  You can still enjoy the benefits of living in a planned community, including an active social life — although most of the new build-to-rent developments do not have golf courses.  But there are plenty of good municipal and private country clubs nearby.

Is Renting a Waste?

I can almost read your mind, at this point. “But Larry,” you are thinking, “you are asking me to throw money down an empty hole.  At least I can be sure the house I purchase will appreciate in value over time.”  And my response is a simple “Will it?” The opposite occurred during the period 2008 through around 2012, and it took a good five years for prices to come back to where they were before the recession. (Ask folks in Naples, FL, for example, or Las Vegas). In retirement, should the market collapse again, do you have 10 years to recoup what you lost? Is it worth the risk?

The positive feelings about home ownership can be, for the most part, misplaced.  Consider that home you have owned for 30 years in the example above.  How many repairs did you make over the decades, for example, and what did they cost?  Did you redo the kitchen or the bathrooms during the time you owned the house?  Add it all up and you may be surprised that the net from the sale of your house is a lot lower than you thought.  My wife and I are fairly serious cooks, and a dozen years ago we undertook a massive and expensive redo of the kitchen in our now 35-year-old house. The skylights in our sunroom roof began to leak 20 years ago; that was another $5,000.  My recollection is that a replacement of our central air conditioning system eight years ago cost something like $20,000.  And we’ve added a deck off the sunroom which was another extreme cost.  We are contemplating whether to embellish the master bathroom and adjoining area to make the house more attractive to buyers, but that will involve a low five-figure expense.  All in all, when we sell the house, I do not expect to net anything.  In fact, maybe we will lose a bit. 

From an “investment” standpoint, how different from renting is that breakeven scenario?  But my wife and I would not do a thing differently.  The three primary homes we have purchased over our 40 years of marriage were based on their locations and suitability to a growing family’s needs.  We never looked at each other and said, “This is a great investment” because, quite frankly, we didn’t know it was — and making money from our primary homes was beside the point anyway.  We loved our three houses, we raised our two children in them and we entertained 30 family and friends every Thanksgiving for 25 years until the pandemic interrupted that tradition. Our inherent sense was that real estate always does well if your time horizon is on the long side. Ours was.

Gimme Shelter

To compare renting and ownership on the basis of financial returns is a fallacy. They both provide shelter and whether a rental or owned-home is appropriate for you is more a fact of timing than financial benefit. As financial advisor Darrow Kirkpatrick wrote at his website, CanIRetireYet.com, when you own a home, “you are not in control of your monthly budget:  A large home repair expense could materialize at any time. 

“On the plus side,” he added, “a home is a relatively safe place to park your money: Houses are hard to steal, courts don’t like to seize them, and insurance is typically easy and cheap to obtain.”

In the last couple of decades of life, do we really want to be shackled to an asset that needs constant attention, burdens us with taxation and other costs, some of them an unpleasant surprise, and whose fragility in terms of potential repairs can fill us with anxiety?  Not me, and certainly not now as I have started my eighth decade. 

Of course, there are a few downsides to the rent-in-retirement approach, chief among them what your heirs will think.  Buying a home that appreciates over a 20- or 30-year period — a likely proposition — means you should have equity that can be passed on once the property is sold (if you haven’t over-mortgaged it).  You will need to balance that kind of legacy against the predictability and comforts of a retirement in which you rent rather than own. Also, another negative of renting is that your landlord can raise your rent at any time, probably annually unless you sign a longer-term lease.  But you can accurately predict annual rental hikes.  With a home you own, even with a mortgage, you also know what your annual payments will be — assuming no major repairs or a property tax hike or a mortgage whose payments are pegged to bank rates that change.  

There is one other benefit to the rental scenario. Many retired couples are moving south from their homes in the northern tier of the country, leaving family and friends behind.  I have written about the “two-home solution” as a way to play golf year-round in two locations.  Renting one home makes it easier to live north (in summer) and south (in winter), avoiding a large cash outlay for a second home.  You will still have two homes, either of which you can run to when the weather or an emergency compels you; but at least one of those homes has a fixed cost attached to it that makes financial planning more predictable.

In the end, renting rather than owning during your retirement years may provide you with what you have always wanted and deserve — the most relaxing retirement possible.

Larry Gavrich
Founder & Editor
Home On The Course, LLC

 

Yes, Virginia, There Is a McConnell Group

You too Wilmington, NC

The ever-growing, ever-opportunistic McConnell Golf Group struck again in 2020, adding three courses to its already robust portfolio of private golf courses. Just before the end of the year, the organization announced a deal to purchase The Water’s Edge Country Club and The Westlake, both located alongside Smith Mountain Lake in the southwest corner of Virginia, the first McConnell properties in that state.  Those purchases in December followed by a few months the acquisition of Porter’s Neck in Wilmington, NC, a solid Tom Fazio layout surrounded by mature trees and landscaping and one of the more popular communities in the growing Wilmington area. McConnell courses now span the Carolinas, Virginia and Tennessee.

The three new courses for the McConnell Group bring its portfolio to 14, all under its ownership umbrella except for the Grande Dunes Members Club in Myrtle Beach, which it manages for the development investment firm LStar.  

If you are a serious golfer or golfing couple contemplating a rental home in retirement (see main feature); you like the idea of having easy access to fine private courses in the Southeast Region that were designed by legends like Donald Ross, Pete Dye and Tom Fazio; and you don’t mind driving a few hours to enjoy a day or a weekend of golf, a McConnell golf membership is worth considering. A member of any of the McConnell clubs retains privileges at all the others for no payment of green fees, just a cart rental.  Initiation fees are based on which club you decide to join and range, roughly, from $10,000 to $30,000. (The amount, generally, is based on the proximity of your course to other McConnell courses; the more courses you can get to easily, the higher the initiation fee.)

For example, a couple living in a nice apartment, say, in the vicinity of Durham, NC, can count on play at Durham’s Treyburn Country Club (Fazio), Hale Irwin’s Wakefield Plantation 40 minutes away, and Donald Ross’ Raleigh Country Club, also McConnell Group headquarters, just over 50 minutes away.  Slightly further afield in Greensboro are The Cardinal, a Pete Dye design, and Sedgefield, another Donald Ross classic. Greensboro is barely over an hour from Durham.

For those who prefer to own their home in retirement, many of the McConnell clubs are inside the gates of high-quality communities. (McConnell, a former software developer, has no business relationship with developers or owners of those communities but he has been invited by residents in the past to “save” their golf clubs, as he did at the floundering Reserve in Pawleys Island a decade ago and Porters Neck more recently.)  The high-end nature of the private McConnell courses tends to reflect their surrounding neighborhoods and the price of homes.  At Brook Valley Country Club in Greenville, NC, for example, the four homes for sale a week ago were listed in the $400s. At The Reserve in Pawleys Island (SC), the few homes listed for sale start in the $700s.

 

Correction

Last month I referred to the Harbor Club on Lake Oconee as “Grand Harbor,” another fine club located on a lake, in their case Lake Greenwood in Ninety Six, SC.  Harbor Club is located in Greensboro, GA, a few miles from Reynolds Lake Oconee, the giant development owned and operated by Metropolitan Life Insurance Company.  What Harbor Club lacks in comparative size it more than makes up for in personality, including ongoing construction of new homes at affordable prices, an active clubhouse scene and a sleek golf course designed by former PGA Tour player Tom Weiskopf and Jay Moorish. Harbor Club’s fairways were once the playground of baseball hall of famer Mickey Mantle, a one-time Harbor Club resident. Harbor Club is worth a visit should you find yourself in the area between Atlanta and Augusta anytime soon.

Now on Sale

 

Now on Sale

Glorious Back Nine 

Buy It Now at Amazon.com or BarnesandNoble.com.  

  • The only book about golf communities in the last 10 years.
  • 156-page step-by-step guide to finding your dream golf home.
  • Info on nearly 100 golf communities the author has visited.
  • Paperback version costs less than a sleeve of Pro VIs.

 

If you are considering a search for a permanent or vacation home in a golf-oriented area, please contact me for a free, no-obligation consultation at This email address is being protected from spambots. You need JavaScript enabled to view it.