Shrinking Your Home May No Longer Be the Financially Sound Choice It Once Was

Downsizing Your Home Isn’t the Money Move It Used to Be

Introduction

The urge to downsize tends to kick in for many homeowners as they age. Once the kids are out of the nest, maintaining a large home may start to seem less like an asset and more like a burden. A smaller, more manageable space might look like an attractive option. Furthermore, the potential financial benefits from selling a larger home can seem tempting. You might be thinking of shaving off living costs, bulk up your savings, or invest elsewhere.

But hold on and think again, downsizing your home is not quite the money move it used to be. In certain cases, the financial advantages of downsizing might be less than you imagine and forgotten costs can eat into those profits. Safety, comfort, and other considerations may outweigh any potential financial gains.

Downsizing seems like a simple enough concept but it’s more like solving a complex puzzle with pieces that include emotions, finances, lifestyle preferences, and unanticipated future needs. Before embarking on this journey, there are key factors you should consider. Understanding these layers can make the difference between an enjoyable new lifestyle or one filled with regret.

Consider the Real Estate Market

Let’s look at a situation – you’ve lived in a suburb of a thriving city where real estate prices have shot up over time. Now, you’re considering moving into an apartment within the city. But wait! The current real estate market trend might not be in favor.

• The housing market fluctuates, affecting both the price you get for your old home and the cost of your new one.
• Cities have generally had higher demand, leading to pricier real estate compared to suburban or rural areas.
• You might end up spending more – or not saving as much as you thought after purchasing your new home.
• Transaction costs such as realtor commission and relocation expenses can add up.
• Be aware that if the market is super hot, you could be buying at peak prices.
• Rent isn’t a safe bet either. When rental prices are high, downsizing to a smaller rental property may make less financial sense.

Assess Your Current Home’s Value

Are your expectations about your home’s worth based on facts or feelings? Homeowners can sometimes have an inflated perception of their home’s value. Having lived there for years and filled it with cherished memories and valuable possessions, you may see it as more desirable than potential buyers do.

What if your beloved four-bedroom family home situated in a ‘once-desirable’ neighborhood doesn’t fetch the price you are expecting?

• The real value of the house might be less than what you estimate.
• Unless well-renovated recently, old houses may require renovations which devalue the property.
• Neighborhood appeal plays a major role in determining the price of your house.
• In some cases, because of the unique aspects of the house, finding the right buyer might take time.
• A professional appraiser can provide the most accurate valuation of your property.
• Remember, real estate values vary greatly depending on location and market timing.

Analyze The Future Housing Needs

Now, let’s get to planning your future living situation. Maybe a two-bedroom apartment seems perfect for you and your spouse. But what happens when your children visit during the holidays? Or if you plan to have a live-in caretaker down the line?

Future needs are often overlooked in the downsizing process.

• A smaller house means limited space. Can you accommodate guests during holidays?
• If one of the partners need home care in the coming years, is there space for a caregiver?
• Looking further down the line, would you want a house with single or multiple floors considering mobility issues that come with old age?
• Would you miss having a garden? Many people do when shifting from a bigger house to an apartment.
• Also, make sure the new house can support any hobbies or activities that are part of your routine.
• Consult a housing advisor or geriatric care manager, if these considerations seem too daunting to tackle on your own.

Sorting Out Possessions

Downsizing also means sorting through every room full of items owned and deciding what stays and what goes. This process often becomes the biggest hurdle for many.

Imagine, parting with knick-knacks collected over a lifetime – it gets emotionally taxing.

• You may have to spend on storage solutions in case you decide to hold onto more items.
• Selling or giving away items takes time and might cost additionally – think estate sales, advertisements, moving sale etc.
• Some items may yield less than expected, as their perceived value typically falls sharply in second-hand market.
• Items may have sentimental value, letting them go can prove very challenging.
• Your new home may require additional purchases–new curtains, furniture or equipment suitable for a smaller space.
• Remember, the goal is to declutter, not necessarily to profit from sales of your possessions.

Consider the Cost of Living

Thinking that the cost of living will automatically decrease with the size of your home is a common misconception. A small house doesn’t necessarily mean lesser expenses.

In reality, certain expenses might remain constant or even increase.

• New communities could have higher property taxes and homeowners association fees.
• You may face higher utilities if moving from a home with energy-efficient updates to an older, less-energy-efficient property.
• The cost of services such as cable, internet, etc. may vary by location.
• Transportation costs could change, particularly if you’re moving further away from frequently visited places or family and friends.
• If switching from suburbs to city living, expect increases in terms of food, healthcare, entertainment, etc.
• It’s important to compare your current cost of living to the one anticipated in your new community.

Total Cost of Downsizing

Often people focus solely on the profit potential from the sale of their homes and overlook the additional expenses that arise during the downsizing process.

Consider Jake – he sold his family house for a decent sum but didn’t realize the ripple of costs following the house sale.

• Real estate agent’s commission, closing costs, moving, and other sale-related expenses add up.
• The expense of preparing a house for sale can be significant, especially if it includes major repairs or renovations.
• Purchasing a new home comes with its own set of costs like inspection, conveyancing, stamp duty and more.
• Certain one-time costs are also associated with the move itself, like cleaning, moving van rental, possible storage space expenses, etc.
• Do not neglect the financial implications of buying new furniture or appliances for the new home.
• Have a clear understanding of both – revenue from the sale and total expenses – before deciding whether or not to downsize.

Assess Emotional Impact

Downsizing your living space is not just a financial decision. It’s almost always a highly emotional process.

Imagine leaving behind a home filled with memories – it’s like leaving behind a part of yourself.

• Leaving a familiar neighborhood and moving to a new community can feel disorienting.
• You might miss your neighbors, local market, your garden, and even your old routine.
• The process of sorting through decades worth of goods can be emotional and stressful.
• If moving into a condominium or apartment, you may miss the privacy and space offered by a house.
• Don’t underestimate the potential for feelings of regret after downsizing.
• Weigh these emotional costs against the benefits before making the final decision.

Rethinking Retirement

Downsizing is also about how it affects your life in retirement. A smaller home or an active adult community might come with perks that could positively impact your life.

Consider Mary who chose to downsize, not for financial reasons, but for a lifestyle upgrade.

• You don’t necessarily need to consider it only as a cost-saving move.
• It may provide access to better amenities, reduce chores and maintenance responsibilities.
• A location closer to city centers or cultural attractions can lead to a more vibrant social life.
• New communities often offer opportunities to forge new friendships and engage in new activities.
• You could potentially be closer to family and friends, reducing travel time and expenses.
• For some, approaching retirement might mean looking beyond dollars and thinking more about comfort, convenience, and interests.

Prioritize What Works Best For You

The decision to downsize isn’t as clear-cut as it once was. It demands careful thought and thorough exploration of all options available. There isn’t a one-size-fits-all solution here because it depends largely on individual circumstances and personal needs. Hence, make sure you prioritize what works best for you.

In the end, it might mean staying put, or moving to a smaller place in the same area, or an entirely different lifestyle in a new city. Remember, the goal is to improve your lifestyle and financial situation.

• Analyze your current and future housing needs.
• Consider both financial implications and emotional impact of downsizing.
• It’s not always a question of less space equals less cost. Dig deep into the potential costs involved.
• Have a clear financial plan ready that includes profit from sale and total expenses.
• Consult professionals like real estate agents, appraiser, housing advisors depending on your needs.
• Most importantly, think about how the decision will influence your overall well-being and happiness.

Summary Table

When it comes to downsizing, the bottom line is: ensure the move aligns with your lifestyle and financial objectives. Don’t rush into the decision—take your time to explore all aspects. After all, you’re not just changing where you live, but how you live.