Tuesday, August 7, 2018 / by Brent Deptuck
When the last time you bought a home was far enough back that your mortgage is paid off, or nearly so, can we give you some advice? A lot has changed in the real estate industry since the 1980s, in both the selling and buying process.
First, you’re no longer looking for areas with good schools for the kids or a strong job market for Mom and Dad. So, your priorities have changed as well and you have far more freedom now to live where you want and how you want.
It’s liberating, isn’t it?
If you’re considering downsizing your home, read on.
Right now, half of the “most viewed” articles on AARP’s website deal with romance, sex and vacations. Retirees — or those contemplating retirement — don’t have a one-track mind though.
When they aren’t reading about hooking up, or the birds and the bees, they think about their finances. And downsizing a home isn’t just a way to save on home maintenance costs but also a way to free up all that equity you’ve built up to use during your retirement.
Whether you’ll be shopping for another, albeit smaller, single-family house or a condo, downsizing doesn’t really differ that much between the two. Since it’s a major life event, however, it’s a bit scary, “like having an empty nest after the children leave,” says gerontologist Karen Owen-Lee.
Be that as it may, baby boomers are a hardy bunch and it takes a lot to frighten them off what they truly want. In fact, of the 14 percent of Americans age 65 and older who say they plan on moving in the next five years, 67 percent say their priority is to move to a smaller home.
My best advice to you is to first consult with your accountant or financial adviser before taking any concrete steps toward that new future. Armed with his or her good advice you’re in a far better position to make this move, sans the emotions.
Then, you’ll need to consider whether you want to try to time the sale of your current home with the purchase of the new one. It’s a tricky process but we’re happy to walk you through it.
Consider the advantages and disadvantages
With the home paid off, you’re in a far better financial position than many retirees but you should still consider the costs of selling a home. You’ll pay real estate fees, perhaps concessions to the buyer and mortgage fees. These can add up to a big chunk of money.
The advantages to downsizing, however, may just offset those costs
First, if you don’t pay cash for the new home, you’ll have a mortgage payment. Since you’ll be buying a smaller home, however, your payments may be far lower than they were when you had a mortgage on the current home.
And, because the home will be smaller, you’ll save money on utility bills and, if you choose a condo, home maintenance chores may be picked up by the HOA.
But, before you can make a plan for the future, you’ll need to consider both sides of the issue, the good and the bad.
Yes, there are disadvantages
In a perfect universe there would be perfect timing in all that we do. Selling your current home would coincide with a hot sellers’ market which would magically morph into an equally fiery buyers’ market when you look for the new home.
Ah, that dratted universe – nothing is perfect
And, the late Steven Hawking agrees. “One of the basic rules of the universe is that nothing is perfect. Perfection simply doesn’t exist … without imperfection, neither you nor I would exist,”
The upside to this, however, is that one of the markets will prevail so you are ensured of saving money on at least one of your transactions.
Next, consider that condo living offers many advantages (low maintenance, amenities you might not find in a single family home community, etc.) but it has drawbacks as well. Chief among these are the HOA fees and any special assessments which may crop up in the future.
It’ll work with a good plan
My advice is to plan on selling your home as soon as possible. We are still in one of the best sellers’ markets we’ve seen in decades, but interest rates may hike again this year, locking many buyers out of the market.
To make the most money possible on the sale of your current home, get it on the market soon
Then, to really get the most bang for your home-buying buck, consider moving to a less expensive community.
Downsizing, coupled with a move to a less expensive city or even a cheaper community right here in our hometown, may just mean all the difference, financially, during your retirement.
When considering downsizing, it’s important to consider not only the type of neighborhood and home in which you want to live, but the financial aspects of the move as well.
Again, I can’t stress enough how important it is for you to seek counsel from your financial planner or accountant before making any decisions. Then, call me and we’ll get started on the real estate part of your plan.
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