There are many reasons for downsizing your home. Since downsizing is a major undertaking, most people who decide to do so have more than one reason in play. These reasons fall into two general categories. The most obvious reasons are financial, but people downsize because they are also seeking a change in lifestyle.
There are many financial advantages to downsizing your home. Collectively, they can result in a better lifestyle by significantly decreasing basic overhead costs.
Banking money from the sale of your home…
Over the past 12 years, quite a few people have come to me with the idea of downsizing in mind. Most had visions of banking a large sum of money from the sale of their home as their primary or even exclusive raison d’être.
Downsizing to a home without a mortgage…
Many people who want to downsize are still burdened with a home loan. By downsizing to a less expensive home, they can pay off the loan when they sell their present home and purchase a smaller home with the remaining funds.
Lowering property taxes…
In most parts of the country, property taxes are loosely based on the resale value of the home. The bigger the home, the higher the taxes.
Some may underestimate the impact of property taxes, but that can depend very much on where you live. Looking at active listings in the area where I live, the property taxes are roughly 300% higher for a 5000sf home then for a 1500sf home.* In areas of the country with nose-bleed property taxes (and NY definitely qualifies for that dubious honor), this can make or break a budget. Hint: in the city where I live, that difference in overhead amounts to roughly $20,000 a year.
Lowering general overhead costs…
That’s another big financial draw of downsizing. As my parents used to say “there is always something with a house!” And that “something” is bigger and more costly when you have more house.
Cooling and heating, as well as general utility costs, top this list. Heating a 5000sf is far more costly than heating 2000sf. As for cooling, I’ve seen houses with 3 compressors for central air ($$$). Also, try paying for outdoor lighting on a 5000sf home at night, every night for a year. Delving into this further can open a can of worms, but the bottom line is that it gets expensive.
Upgrades and repairs:
There are also inevitable repairs and upgrades. A kitchen upgrade in a smaller home is not going to be as epic (or as expensive) as it would in a McMansion. How much more are you going to spend on insulating a 4000sf home than a 2000sf home? I don’t have an exact estimate, but a reasonably accurate guess would be “a lot”. If you have 3 central AC compressors, you are 3 times as likely to need major repairs/replacement on one of them.
Larger homes usually come with larger lots. Not only is their mowing and basic day-to-day maintenance, but plantings tend to have a mind of their own. The ones you intended to plant often over-grow while weeds tend to invade and make a happy home in your carefully tended beds.
Initial landscaping costs can run very high, but many people overlook the significant costs of maintenance. Unless you have a lot of time on your hands, the chances are you are going to have to outsource this.
A smaller space, with a smaller footprint, minimizes this cost. For those you have the DIY gene, a smaller yard may provide an opportunity to take over the task yourself – or not. Either way, less property lowers expenses. Of course, if you move into something like a condo, the expensive is included in your monthly maintenance. Outsourced forever – so to speak.
The big picture…
Potential downsizers often tend to look at only one metric when they consider the benefits of downsizing: how much money can they bank from the sale of their big home following the purchase of their new, downsized home.
The reason for this is that luxury condos often cost a good deal more per square foot than a single-family home. This is particularly true of new construction that many of my clients have their hearts set on. This has often stopped would-be downsizers dead in their tracks. If my clients weren’t willing to cut their square footage by about 50% or settle for less than a high-end luxury townhouse or condo, the move is essentially a lateral one in terms of price.
On that basis, many have decided not to downsize and to just stay put. In some cases, this was the right decision, but in many other cases, this can be shortsighted. The overhead costs that can be modified even by a lateral move to a similarly priced condo are far from trivial. Losing your mortgage payment, reducing your property taxes, cutting your energy uses by 50% or more all bring with them big savings.
People don’t tend to notice those monthly expenses until something happens. Someone loses a job, gets sick and is forced to retire before they planned to. These financial shocks bring the month-to-month outlay into sharp focus.
Downsizing is about more than banking profits from the sale of a larger home. It’s about creating a home and lifestyle that has a lighter financial load across the board.
Moving to a less expensive location…
For those who still want a home in a large luxury complex, moving to a less expensive area is something that should be considered. Yes, most people want to try to downsize in a nearby location. But if you are retiring and are not tied to a particular employment hub, this is an alternative deserves some thought.
The point is that there are many ways to reach your financial and lifestyle goals. When one pathway doesn’t bring the desired results, there almost always another route that can be taken. Yes, there will always be tradeoffs. It’s all about making those tradeoffs work for you.
** This data was based on a search of active listings from the HGMLS (Hudson-Gateway MLS) during July of 2018.
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