When boomers on the cusp of retirement or beyond look at soaring real estate values, they may realize just how sweet is home.

Capturing large home appreciation and renting, downsizing or moving to a part of the country where living expenses are more modest may offer a way to stretch retirement dollars, advisors agree. But, they add, there are no pat answers and any discussion should cover both the financial and emotional impact on clients.

Starting in first quarter 2004, rental vacancies have ranged from 10.1% to 10.4%, according to the U.S. Census Bureau. The high compares with a low of 6.9% in fourth quarter 2003. The period examined covers first quarter 1992 through first quarter 2005.

And U.S. home ownership rates, the Census Bureau says, were 69.1% in first quarter 2005 compared with 65.5% in first quarter 1980.

“The best thing for all people, in general, is to look at it in the context of personal life needs,” says Keith Newcomb, a certified financial planner and wealth manager with Full Life Financial, LLP, Nashville, Tenn. The home is a center place of our lives, he continues. So, the first question to ask is whether “current housing meets my needs,” Newcomb says.

There is a tendency to want to “stay put,” according to Newcomb. That may be a good thing because “speculation with a primary residence is not necessarily a good strategy, he says. When you speculate with, what is for many, their single largest asset, it creates more risk,” Newcomb continues.

If a decision is made to sell and then buy rather than rent, Newcomb says, a net present value analysis has to be completed to determine whether it is better to pay in cash, take out a mortgage, decide on how long the mortgage should be, or decide on a combination of both cash and mortgage.

An advisor has to help a client determine whether it is worth paying $1 in mortgage payment to save 25-35 cents on that dollar, he adds. And, Newcomb continues, as the note amortizes, the deduction will go away. So, what might be a good plan in the first 5 years, might be a bad plan in the last 5 years of a mortgage, he continues.

If a boomer is looking to downsize, then it can be an opportunity to secure a client’s financial future, Newcomb says. For instance, some of the assets from the sale of a home can be redeployed to the purchase of long term care insurance, he says. This can be important, he adds, because although many boomers are freeing themselves of “ball-and-chain items” such as college costs and the cash flow looks great, 20 years down the road major health care expenses could impact cash flow.

This is a major investment that a client is making and it is important to present him or her with the whole picture, according to Elyse Foster, a certified financial planner with Harbor Financial Advisory Inc., Boulder, Colo. Before deciding on whether or not to sell and then rent, she adds, clients need to decide on a time line: Will they rent while parents are still living in the area or until children finish up school?

If a client is going to remain in an area for less than 5 years, it probably will make more sense to rent than to buy because of fees and expenses related to selling and then buying another property, Foster says.

While appreciated real estate prices may encourage individuals to rent rather than buy after they sell a home, Foster recounts the experience of a woman in Tucson, Ariz., who sold her home, rented and lost ground to inflation. “Rents ate up her reserves” and forced her to move three times, she adds.

But if a baby boomer downsizes and relocates to a less expensive community, then that boomer can have a reserve of cash and continue to participate in a real estate market that Foster says on average, nationally has experienced a 6% return.

Ricky Grunden, a certified financial planner in Dallas, says that lifestyle can be a big factor on whether to stay in a home or downsize. He says that he is working with a couple who has just downsized and they love the fact that they no longer have yard work.

But, most people want to stay in their home and when they sell, it is often because they cannot keep up with the maintenance and renting takes care of that, he says.

Michael Kitces, director of financial planning with Pinnacle Advisory Group, Columbia, Md., says that if a boomer’s home has appreciated significantly, then it might be worth downsizing to a smaller home or to rent in order to “take equity off of the table.”

Such options can be ways for baby boomers to make the numbers that will get them to retirement, he adds. But, Kitces continues, the discussion has to be broached carefully because for many clients, a home represents safety or holds emotional ties.

In some areas, home prices have outpaced rents and it may be better to rent, Kitces says. But, he adds, “the reality is that people do not make decisions just on money.” So, it may be difficult for people in their late 50s who haven’t rented for over 25 years before they got married to decide to rent, he says.

“Should I stay or should I go?” is the question boomers are facing

Decisions, decisions

==resale value;

==access to transportation hubs;

==a growing urban center 1-3 hours away;

==a new, growing urban center;

==commercial activity nearby (for instance, turning a farm into a shopping center).

==Keith Newcomb, Full Life Financial