Know the costs, consider the trade-offs and prepare for changing circumstances when downsizing.
November 27, 2017
The biggest house isn’t always the best house, especially if you’re hoping to simplify your life and save a few bucks while you’re at it. Often as people age, the desire to cut back and streamline in order to take a step up in lifestyle can mean taking a step down in home size. The reasons to downsize your home are many. They include shrinking expenses, reducing upkeep and maintenance, moving closer to family or starting a new adventure.
In fact, new single-family homes continue to decrease in size in 2017—according to the National Association of Home Builders—which creates more options if you’re looking to downsize your home to save money. Among baby boomers, 37 percent plan to move from their current home, with 54 percent of those moving also planning to downsize to a smaller home, according to the Demand Institute, which tracks consumer demand.
“A lot of people might wake up one day and realize that their home is just too big,” says Judy Dutton, deputy editor at realtor.com. “Oftentimes it is because the kids have gone off to college or because your aching back can’t handle raking up the fall leaves one more time.”
While there are many reasons to downsize your home, it’s important to thoroughly understand how downsizing will impact your finances and lifestyle before packing up those moving boxes.
Know the costs
If you’re considering downsizing your house to save money, you’ll want to be clear about the potential hidden costs before making any moves. Although a smaller home typically comes with a smaller price tag, if you’re subject to capital gains tax on profits from the sale of the larger home, those can potentially reduce your savings.
“Just because you’re moving out from a big house into a smaller one doesn’t automatically mean that you will be rolling in dough,” Dutton says. “Everybody assumes that downsizing will save you money, but oftentimes there are surprise curveball costs that creep in.”
The cost to move and furnish a new home is one of these common curveballs. The price of shipping household goods in 2014, for example, was nearly $13,000, according to Worldwide ERC, which tracks relocation data. Depending on the size and layout of your new space, you may also need to purchase new furniture and pay for storage for items that don’t fit in your new home.
It’s also critical to consider the cost of living in the smaller house when you downsize your home to save money. Many retirees, for example, relocate from the country or the suburbs to more expensive cities where they can walk to places easily and have access to culture and restaurants, says Bill Gassett, a Realtor at RE/MAX Executive Realty in Massachusetts.
“I am seeing a lot more millennials moving out from the city into the country, while the older folks are doing the opposite,” Gassett says.
People who downsize into a condo or a property with a homeowners association (HOA) will also need to factor in the cost of monthly HOA or condo fees, Dutton says. Check the association’s finances to make sure that it has a healthy reserve fund and won’t need to raise fees right after you move in, she adds.
Do your homework if you want to downsize your home to save money and assess the true costs before making any decisions, Dutton suggests.
Consider the trade-offs
Like most things, downsizing your house to save money comes with trade-offs. Downsizing your house to save money may reduce some expenses, including your mortgage payment and utility bills, Dutton says.
One reason to downsize your home is to reduce property taxes. “There can be a pretty big difference in property taxes between one community and the next based on things like school districts and access to highways,” Gassett says.
Source: discover.com