DOWNSIZING – A GUIDE


JULY 6, 2021 THECOURYTEAM.COM

A Must-Read Guide To Planning & Preparing A Downsize

Many empty nesters, retirees, and seniors consider downsizing every year – but not at the numbers we’re seeing right now. Based on the feedback we are hearing from our own clients, Covid 19 and its aftermath have spurred a newfound revolution in housing for Gen X, Baby Boomers, & their parents. Many people just don’t want to be burdened with the expense and upkeep associated with larger homes they’ve owned for years, that they originally bought to raise families in or when they were building careers earlier on in their lives. Coupled with shifting priorities, the tremendous growth in home values over the past 18 months makes this a great time to downsize for most people at that stage. In today’s blog, we will explore the most common reasons people are downsizing, some of the pros & cons of doing so, and provide tips for planning to downsize.

The Most Common Reason People Are Downsizing

The cost of maintaining a larger home can be pretty high when you consider square footage, upkeep of aging homes, and rising utilities. Not only are taxes higher, but if you are still paying a mortgage on a larger house, that can be a significant chunk of change for people living in or planning for retirement on a fixed income. When you factor in the costs of utilities like heating or cooling a larger home, it gets even more expensive to maintain a larger home. And one of the biggest out-of-pocket expenses many people face with a larger home is the upkeep – like new roofs, new siding, etc. Not to mention, if you’ve been living in a home for 20+ years, there is likely some deferred maintenance that will need repair. Talk to your Realtor before doing any major projects to see if it is even worth doing the work in this market, and you might be pleasantly surprised.

Benefits of Downsizing

One of the biggest benefits of downsizing from a larger home to a smaller one is that- if you have lived in your home long enough & been a good steward of your finances, chances are you have built a lot of equity in your home. Equity is the amount of value you have in the home over and above what you owe on the home. For example, if you owe $100k on a home that you can sell for $550k, you have $450k of equity. Many sellers are using that equity to buy smaller homes or condos with cash (or two homes for snow-birding), with the goal of eliminating a mortgage payment and lowering all of the other bills associated with owning a home.

Additionally, with a smaller home comes smaller upkeep. The time it took to clean that 3000 square foot home before, may be reduced by 2/3rds for a 1000 square foot home. Perhaps the yard is smaller, or in the case of a condo, the association cares for the exterior. People also look for the benefits of single-level living in retirement. These types of homes make it so one can age in the home and not have to worry about climbing flights of stairs as they grow older.

 
Also, many people that downsize, do so to make life easier. With larger homes, comes more work. As we age, and as the house ages, it takes an increasing amount of work to renovate, update, and repair aging structures and décor in the home. The work often feels too daunting for people planning to retire, or that are already in retirement, not to mention the amount of money it takes to complete the work is rising.

 
The Need To Connect

Another common reason people are downsizing is that they are moving closer to family and friends, or they are moving back to a town they grew up in after having been away for work for many years. Also, people are leaving areas with a high cost of living (like major cities) and moving to cheaper suburbs. Some are even leaving states completely for a lower cost of living elsewhere. This seems to be associated with the rise in our ability to work from home but is also driven by retirements. From my perspective, both appear to be motivators that have increased since the pandemic.

There also appears to be a larger paradigm shift going on across the country. A lot of people, in my opinion, after experiencing the past year, are reassessing their lives, their work, and their goals. Many are realizing that they may have felt trapped in jobs or careers that really didn’t make them happy or are reassessing their relationships, living arrangements, or career track as a whole. In fact, in the state of Rhode Island, there were more small businesses started during the pandemic than ever before. Perhaps, many people were able to address goals they were too busy to address before. Whatever is occurring, it is dramatically changing the real estate and housing market.


The Challenges of Downsizing

There are many positives that can come out of downsizing a home – from a windfall of money to significantly lower bills to more age-appropriate single-level living and less work. But that doesn’t come without some challenges. One of the biggest challenges we have seen when our clients have downsized is the overall stress of moving. (Which is difficult for anyone who is moving, but it is a lot harder when you have a lifetime’s worth of items that fit your home.) Packing, disposing of unwanted items, and loading and unloading are no fun, and often stressful. However with the right Realtor, like a Senior Real Estate Specialist, they can guide you through the process or even connect you with contacts they have made to make it easier. Ask your agent for help and guidance on your move.

One of the biggest concerns my clients who were considering downsizing have expressed to me was their fear of not being able to find another home. With an experienced agent, you shouldn’t have any problem, even in this market. Your agent should have a number of strategies they can implement to help ensure you have a new home to move into before you close on the sale of your home. In fact, this can often be written into your contracts to ensure you have a new home to move into, and you can even include contingencies to ensure your two closings occur on the same day if you’d like. Many of our clients close on the sale of their old home in the morning, and the purchase in the afternoon. That way the funds are available to purchase your new home with cash from the sale.

*Recently, in order to address concerns from many sellers, some mortgage companies (including our preferred lender) offer loans that include financing a new home before you sell (called a bridge loan) and then refinancing that loan into a traditional mortgage (or paying off the bridge loan with the cash form their sale) after the sale. This option offers some sellers a little more flexibility when trying to secure a new house before selling theirs. 

Additionally, many have expressed concerns about if they will even be able to get an offer accepted on the purchase of a new home. There are a few things to consider here. First, the people who seem to be struggling the most to get their offers are first-time home buyers, simply because many are not in the strongest position to make an offer, and may only be planning on putting 3.5% down. If you are downsizing, and you have the cash to purchase a home outright (or a large down payment), that alone makes you a significantly stronger buyer and generally means you have a much higher likelihood of getting your offer accepted. This is why it is so important to work with a knowledgeable Realtor who you trust. Follow their lead, they do this every day and know the market, and know-how to position your offers for the highest likelihood of success. Our team has a lot of experience with both buyers and sellers (in addition to investors), so we know what a seller is looking for in an offer and can position our client’s offers more effectively.

Tips For Planning To Downsize

First, you must consider the size of the home you live in now, and then consider the size of the home you are moving to. Think about the layout of the new home and what furniture you own that will fit that space best. I strongly advise anyone planning a move like this to write down what you are going to keep and where it is going in the new home Also, write a list of things that you need to get rid of. Talk to family and friends to see if there is anything they want to take for their homes, or that someone may have stored in your home that needs to be removed. Have them help remove the things you cant take to the new house if possible.

Next, you need three spaces. Initially, you need to determine the things you are going to keep – usually those things stay where they are. Secondly, you need a space for things you are going to sell in a garage sale or yard sale. Those things usually go into the garage if you have one, or we have had clients without garages rent a mobile storage container for these items and load them in there until a yard sale. The last space you need is a throw-away area. Personally, when we moved last we rented a dumpster for a week and began loading it with everything that needed to be disposed of. This can be a challenge as people attach a lot of memories and emotional connections to some of these objects, but it can also be liberating.

Packing

I recommend that you allow yourself time to prepare for your move. Don’t wait until the last minute and procrastinate, this can make the move more stressful. Plan to do a few tasks every day over time – so the move is more manageable and less stressful. Pack one room at a time, and pack in categories. For example, if packing your bedroom, you might pack all of your linens and bed sheets first, then lamps and shades, etc. And don’t forget to purge unnecessary things as you go! This allows you to have all of your important things categorized in boxes and will make organizing and unpacking significantly easier. Label as you go. If this is not your strong suit, you can actually hire a “move manager” to help you manage the process, but there is an expense associated with that.

In Summary

In conclusion, downsizing can not only be liberating, but it can result in a windfall of retirement money that can put you in a healthier financial position. Studies have shown that homeowners can accumulate a lot more money from retirement, not only through their 401k’s but also through the equity they build through long-term homeownership. Don’t forget this important financial asset when planning for your retirement. When selling a larger home, you can not only access funds that you have built through equity long term, but you can also significantly lower your bills for the foreseeable future by buying a smaller home, eliminating your mortgage, and shrinking all of the bills associated with a larger home like taxes and heat.

 
We specialize in selling homes, and Eric has earned a special designation from the National Association of Realtors as a "Senior Real Estate Specialist". We have helped many clients who are 50+ transition to new, more suitable housing for their needs.

Contact us today at 401-996-7660 or emails Eric at Eric@thecouryteam.com today to learn how we can help you with the process of selling.

 
**Disclosure: The views and opinions expressed in this blog are those of the author alone and do not represent the views or opinions of Keller Williams or any other party. The contents of this blog are not meant to be interpreted as individualized advice. Please consult your tax advisor, attorney, broker, and/or financial advisor for specifics on your situation. Copyright © Eric Coury, Colonial Classic Realty LLC