7 Hidden Costs of Buying a Retirement Home and 2 Ways To Avoid Them

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If you’re buying a new home in retirement, you might be planning on saving money, such as by downsizing or moving from a high-cost to a low-cost area. However, even with the best intentions and experience, buying a retirement home can come with a variety of costs that tend to get overlooked.

“Most people in retirement are more in tune to costs than first-time home buyers. This usually isn’t their first rodeo” said Jeff Lichtenstein, CEO and broker at Echo Fine Properties. “However, people who buy homes in retirement often buy in a different era of time and different area. Different eras have different rules and different areas have costs that a retiree might not be accustomed to.”

So, to help make the most of your move and stay on track with your retirement plan, consider the following hidden costs of buying a home.

Insurance

If you’re moving to a new market, insurance costs could be an overlooked source of budget strain. Even if you’re downsizing, and therefore have less to insure, it’s important to understand that issues like climate risk affect insurance costs differently across the country.

“For example, the insurance cost of New York versus Florida — where insurance appreciation is taking place faster — can be surprising,” Lichtenstein said.

Not only might the costs be higher, but you also might have to change insurers, which could add to the expense.

“A northern carrier may not insure in Florida, and seniors get surprised that their longtime loyalty doesn’t pay off,” Lichtenstein added.

HOA Fees

Another hidden cost of buying a new home in retirement is that you might end up paying more in HOA fees.

While you might not be totally caught off guard by the monthly fees, you could still face other hidden costs and complexity.

“[A retiree] might be accustomed to a low-cost HOA and now moves to an HOA with different rules and different cost structure,” Lichtenstein said. Special assessments can also add significant expense.

Or you might not be able to recoup some costs due to HOA rules.

“Sometimes seniors want to rent a home out for part of the year, especially if they are snowbirds, and some communities don’t allow that. Know your HOA rules,” Lichtenstein explained.

Taxes

In theory, taxes such as property taxes and income taxes are transparent and can be calculated ahead of time. However, sometimes homebuyers make the mistake of looking at what the previous owner paid, which might not reflect issues like a reassessment after a home gets sold.

“An unseasoned senior may think their total taxes will be lower looking at what a 20-year Florida resident pays and be stunned at how much it goes up,” Lichtenstein said.

Style

Shifting trends in home styles aren’t always just about personal preferences. You might end up in a situation where your retirement home ends up becoming outdated, thereby lowering the value, which might hurt if you want your children to sell the home later as an inheritance, for example.

“Style changes are a hidden cost,” Lichtenstein said. For example, you might buy a Mediterranean-style home, but if styles shift to favor more Modern homes, “you could be out a lot of money in having a dated home,” he added.

Maintenance

Maintenance costs can also sneak up on you, especially if moving to a new area. For example, Lichtenstein pointed out how a roof in Florida generally won’t last as long as some homes up north, due to the presence of salt in the air.

Also, you might be in for a surprise if buying a home with more modern appliances, versus having ones in your old home that lasted for several decades.

“In 1990, an appliance might have been built differently and lasted 40 years. My mother-in-law just replaced a dryer that was built in the 1960s,” Lichtenstein said. So, you might have the wrong expectations of how long new appliances will last if you’re used to longer-lasting ones.

Closing Costs

When budgeting for your move, you might underestimate closing costs, especially if you’re unfamiliar with practices in a certain area.

For example, you might be unaware of whether the buyer or seller pays for title insurance, Lichtenstein explained. Also, some states require a real estate lawyer to be part of the transaction.

Medical Expenses

Lastly, medical expenses can be a hidden expense, as you might move to an area that ends up not having the care you want, which can add cost in the long run.

“Not living near a good hospital or strong medical community can prove to be expensive if lots of traveling is involved,” Lichtenstein said.

Ways To Avoid These Expenses

While being aware of these types of hidden expenses is important overall, below are some more specific ways to avoid them — or at least avoid the surprise of them.

Go Over Costs With Your Buyer’s Agent

“This can be on Zoom if out of town and coming into an office if in town. Meet on the subject of this before you start looking,” Lichtenstein said. “Create a spreadsheet of what the rules of the road are and all costs involved. Do an interview of a buyer’s agent the same as you would a listing agent.”

Create Spending Buckets

Setting aside money into different buckets can help you avoid surprise expenses, even if you still end up paying them. For example, rules of thumb like setting aside 2% of the home’s value for remodeling and 2% for maintenance annually could be helpful, Lichtenstein explained.

By diligently saving money, he added, you can avoid the challenge of getting hit with a big payment. That can help you save money by avoiding taking out a loan, for example.

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