After watching friends and family fall in love with their downsized homes, you’re thinking of making the move to a smaller abode yourself. But you’re worried: How do you know if downsizing is right for you, and should you really sell the old home you love so much? If you’re curious about downsizing, read on to learn the answers to these tough questions and more.
Why should I downsize?
Everyone has different reasons for downsizing. These are some of the top motivations for a smaller home:
● Get rid of your mortgage. If you’re still paying off your home, downsizing could shrink or even eliminate your mortgage payments.
● Reduce housing expenses. In addition to a lower mortgage payment, a smaller home means you spend less on heating, cooling, and maintenance.
● Reduce home maintenance. A smaller home doesn’t only cost less money — it also costs less time. When housekeeping and lawn maintenance becomes too much to keep up with, a downsized home lightens the load.
● Move to a senior-friendly location. Grantmakers in Aging explains that rural living is typically ill-suited to seniors’ healthcare, transportation, and social needs, while centrally-located homes open up new opportunities for the senior years.
What will I pay for a downsized home?
Conventional wisdom says the smaller the home, the less you’ll spend. However, that’s not always the case. A new home in a central location may cost nearly as much, or more, than a large, older home. That’s especially true if your home hasn’t been updated.
Before committing to downsizing, research home prices to see what houses are selling for. Pay attention to homes in your desired size range as well as houses similar to yours to estimate what your home will sell for and what it costs to get into a new one.
What should I do with my old home?
Before starting your downsize, there’s one more big decision to make: What will you do with your old home? Seniors have a few options for what to do with the family house, including:
Rent it out
If you can qualify for a mortgage on a downsized home without selling, consider turning your home into a rental property. Rental income from your first residence could be enough to pay the mortgage on your second with money to spare. There’s a market for vacation rentals or furnished long-term rentals in your area, you could even keep your furniture. You will still need to thoroughly declutter, however. If you’re not ready to sort through everything now, put belongings in storage to get the home rental-ready. While storage prices in Chicago are high, shopping around nets big savings. Devon Self Storage on Wabash for example, has 5-foot by 5-foot units for as little as $11 a month and offers the first month free.
As PocketSense explains, it’s possible to buy a new home without selling your first by tapping into home equity for a down payment. However, that doesn’t mean it’s a wise financial move. If making payments on two homes would stretch your retirement budget, sell instead. In addition to liquidating funds for a down payment, selling provides an infusion of cash that you can use to travel, pay down debt, or invest for future retirement income.
Keep it in the family
Are finances no concern? If your retirement is fully-funded and you’re downsizing for lifestyle reasons, you may choose to keep your home in the family. However, think twice before signing it over to family now. There could be gift taxes involved, and if your heirs sell, they’ll owe capital gains taxes based on the home’s original cost. A better option might be to put the home in a trust. Many people decide to discuss their particulars with an attorney since things can quickly get complicated.
Downsizing can be intimidating, but that doesn’t mean it’s the wrong move. Downsizing has a lot to offer seniors, from a simpler lifestyle to a streamlined budget, and it doesn’t necessarily have to mean parting with your family home. However, if you have made the tough decision to sell, reach out to learn how you can sell your home quickly and for a great price.
If you have any questions, contact us.
August 20, 2021