Downsizing to a smaller home is not without its challenges. Big regrets can become a reality if you don’t weigh your options carefully.
Good candidates for downsizing are people who have a home that no longer meets their needs. It could be that one has a home with all the bedrooms upstairs and, for mobility reasons, it is a real problem and difficult to get to the bedrooms. A smaller single level home with a smaller yard, or no yard at all could be a good move for individuals in a situation such as this. Having an empty nest can also precipitate a look at downsizing.
Others who should consider downsizing to a smaller home are people who feel they are living beyond their means and desire a less expensive lifestyle. Or maybe they just feel they are using more resources than they should and want to adopt a more Earth-friendly way of living.
A very positive thing about downsizing is that it can give you a fresh start; it's an opportunity to de-clutter and reallocate your time and financial resources. However, if you like to entertain a good number of people at one time, or you love to spend time in your yard and garden, a lack of space could be more limiting than you anticipate.
Another way to evaluate whether you should downsize involves considering the practice of unrelated Baby Boomers moving in together. This could reduce each individual’s housing expenses significantly and allow one to continue to live in the home they love.
Hidden Costs of Downsizing
In terms of specific financial concerns, one needs to be aware that you might have to pay taxes on the sale of a home that has appreciated radically since you purchased it. A prime example of this can be found in the homes on Mountain Avenue in Fort Collins. Some have actually gone up in value well over $500,000 in the last 25 years. If your home was purchased for $250,000 and it is now worth $850,000 you would have to pay taxes on all gains over $500,000. In this case you would owe taxes on $100,000 of your gain in value.
Also, a smaller property may appear to be less expensive to own than your current home, but HOA fees or Municipal Fees associated with special services, such as double water systems (where the outside of homes are watered with a separate untreated water source), can quickly eliminate any cost savings from downsizing. Property taxes sometimes appear to be low, until you add the Municipal Fees of various kinds into the total cost.
One final consideration is that, for some individuals selling your home and renting is truly an option. The value of the investment in your home becomes more liquid and available to you. You do not have to worry about an unexpected downturn in a volatile real estate market. Renting can become a more predictable and somewhat safer bet.
If you would like to get more information on the value of your home and the costs associated with a potential new type of home, please contact us.