Is It Time to Downsize?

June 12, 2017

Last week I wrote about why my husband and I decided to upsize our home, so this week I’d like to take on its opposite: downsizing.

Downsizing — selling a larger home and moving into a smaller one — seems much more popular than upsizing these days. Mobile homes and RV trailers have been brilliantly rebranded as “tiny houses,” and there are hours of weekly television programming devoted to stories about families selling larger homes and moving into much smaller ones. In fact, my nine year old son, who is an avid fan of tiny house television, has been campaigning for us to move into a smaller home. (He is not likely to convince me.) However, you don’t have to go “tiny” to downsize. Any home that is going to be less expensive to own and maintain can be considered downsizing.

Why downsize?

Downsizing is a natural response to changes in your family needs and financial priorities. Downsizing to a less expensive and/or smaller home may be right for you if:

  • The kids are grown up and you don’t need that much space anymore;
  • You can’t afford the house you are in with its related costs while still funding other goals such as retirement, paying off debt or building emergency savings;
  • You want to move to a better school district but homes are more expensive there.
  • You are prioritizing financial independence over increasing your current lifestyle;
  • You seek a home that makes it easier to live in as you get older (e.g., single story, walkable neighborhood, etc.); or
  • You want to spend less time maintaining your home and more time enjoying life.

Downsize your costs without downsizing your space

I live in the New York City area, where housing is very expensive. A common topic of conversation between my husband and I, especially when paying property taxes, is whether we should sell our home then take the equity and buy the same house in a less expensive state. We wouldn’t have a mortgage, and all our related costs would be lower.

Our friends recently did just that. They sold their home in a neighboring town and bought a larger, yet less expensive home in a southern state – near a beach! It may be hard to move while you are building your career or putting your kids through school, but not so hard to do when you are empty-nesters like our friends.

Alternatives to downsizing

For new retirees, there are other ways to downsize costs without downsizing amenities. Here are a few ideas:

  • Co-housing: An intentional community with private homes that share common spaces and responsibilities, co-housing is a growing practice among seniors from the Flower Power generation.
  • Share your home: Many retirees are looking to share their homes, either by renting out rooms or apartments in their own homes, in order to reduce costs and have companionship.
  • Move overseas: Adventurous retirees are moving overseas in droves, to less expensive ex-pat friendly retirement destinations where the cost of living is lower but the lifestyle is pleasant.

Why stay put?

If your total housing costs (mortgage, taxes, insurance, utilities, maintenance) are 35 percent or less of your net income (income after taxes), there’s no need to rush to downsize. There are plenty of reasons to stay put for the time being:

  • You may like your current home and its size fits your family.
  • You like your neighborhood and schools.
  • Your home can be easily modified to “age in place.”
  • You want to stay near your grown children or aging parents.

Moving is a big decision and our sense of community is often connected to a physical location. If your housing costs are not breaking the bank and you’re not sure if it’s the right time to move on, it may make sense to stay put until you have a clearer idea of where you want to go and what makes sense for your goals going forward. You can always change your mind in the future.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

Are You Really Ready To Upsize Your Home?

June 05, 2017

Real estate season is in full swing — everywhere I look in my area there are homes with “For Sale” signs. There are some larger homes for sale in my neighborhood, and the families who buy those neighbors’ homes have multiple children and want room to grow and an excellent public school system. Have you been wondering whether it’s time to make a move to go bigger? How do you know if you should stay where you are for the time being instead? Here are the factors to consider:

What can you afford?

You’ll have the most financial freedom in your life if you keep total housing costs (mortgage, taxes, insurance, utilities, maintenance) to 25 to 35 percent of your after-tax income. For example, if your family take home is $4,500 per month, your monthly housing costs would range from $1,125 to $1,575. With a 20 percent down payment and a 30 year mortgage at 4 percent, that’s a purchase range of approximately $212,000 to $300,000 (see calculation here). I realize the 35 percent ratio could be a challenge in an insanely expensive city like Los Angeles or New York, where housing costs can eat up to half or more of a family’s income, but it’s a helpful guideline for maximum financial ease.

Why upsize to a bigger home?

When we moved back to the United States after an overseas assignment in Bermuda, a country with a very high cost of living, it was the bottom of the U.S. housing recession. Great deals on large homes in good school districts were available, so we upsized our living space to have room for three kids and lots of visitors, and still spent less than our previous location’s housing costs. This house will be too large for us once all the kids are grown up, but for now, we’re happy with the decision. Upsizing may be right for you if you can afford it and:

  • You would like the space for all your kids;
  • Grown children or grandchildren are moving in with you;
  • One or more parent(s) are moving in with you;
  • You’re moving to a less expensive state and you can afford more house for the same cost;
  • You need more space for a home office/business; or
  • You’ve always wanted to have a big house – it’s a serious bucket list item.

You’ll upsize a lot more than your mortgage

Caution: with a bigger house or bigger acreage, you’re upsizing more than your mortgage. Everything costs more: property taxes, homeowner’s insurance, home maintenance, furniture, painting, landscape, etc. Make sure you take those increased costs into account when figuring out how much you can afford.

If your mortgage is 30% bigger, your other bills will be as well. For example, if you upsize from a $200,000 mortgage to a $300,000 mortgage you should expect your related costs to go up by a third as well. Upsizing can also prompt “keeping up with the Joneses” syndrome, where you feel like you must compete with neighbors who have a more lavish lifestyle. Finally, if you frequently have visitors, do you really need or want to accommodate them in your home, or would it be better and cheaper to put them up in a nearby hotel over time than to pay the costs of upsizing?

Or should you stay put?

A bigger house is a bigger financial commitment. If you can’t afford the total costs, you’ll be “house poor.” If you just can’t decide what your next home purchase should be and at what price it makes sense, there are plenty of reasons to stay put instead of upsizing to a larger home:

  • You like your current home and its size fits your family;
  • You enjoy your neighborhood and your neighbors;
  • You and your spouse don’t agree on what to do next;
  • You don’t want your kids to have to change schools;
  • The costs of selling a home and buying a new one may not make it worth it to move right now; or
  • You believe real estate prices will rise on your street over the next few years, so you are willing to wait to sell.

Moving is a big decision. Our sense of community is often connected to a physical location. You may find that going bigger gives you a more spacious and satisfied feeling, assuming you can swing the additional expense. On the other hand, if you’re not sure if it’s the right time to move on, it may make sense to stay put until you have a clearer idea of where you want to go and what makes sense for your goals going forward. There’s always next spring to revisit the question.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

Downsizing Your Retirement Expenses

October 12, 2015

As people get closer to retirement, priorities change. The financial resources spent on home improvements and the time and energy necessary to maintain a full-sized home often become a little more of a burden. As kids leave the house and launch into their careers and start building their own families, there’s often a bunch of unneeded space. Continue reading “Downsizing Your Retirement Expenses”

Is Smaller Better???

July 24, 2015

Have you watched HGTV recently? They have a show called Tiny House Hunters (spoiler alert – it’s not about termites looking for a new place to destroy) where people are on the hunt for ultra small houses. Most of the houses showcased are less than 200 square feet. That is smaller than the average US standard hotel room. I watched each episode with wonder, trying to imagine living in such a miniscule space.

A few buyers wanted to be free to move around. These tiny houses allowed their owners to move anywhere a truck could haul it. Others wanted to live more eco-friendly and have a small carbon footprint.

But the episode that really grabbed my attention was about a single woman who wanted to simplify her life and retire early. She figured out that she could afford to live in her dream location as long as she kept her housing costs under $60,000. So she quit her job, sold her lovely house in Colorado and set her sights on a tiny house on Hawaii’s Big Island.

So is this just a fad? While it is extreme, there is a definite movement towards smaller houses. Per this article, the National Association of Home Builders states that the average house size has shrunk from over 2,500 sq ft in 2007 to 2,152 in 2015. After decades of expanding house sizes, it looks like the days of the McMansion are waning.

What’s driving this trend? More Americans have decided that working 12 hour days plus an hour commute just to afford their big house isn’t worth the trade offs. Then there are the Baby Boomers – a large population of empty-nesters who don’t want the expensive and time-consuming maintenance required for their big houses and big yards. Lastly, millennials are demanding smaller, more eco-friendly homes in the urban areas. Home builders are listening and are building new single family houses that are smaller.

While I doubt I could live in a house smaller than the average dorm room, I am in the process of downsizing my life. My children are in college at Ohio State University so I sold the big suburban family home and bought a smaller single family house in the city. It’s large enough to comfortably accommodate them when they visit for the holidays but too big for just me.

A short term goal is to downsize even more in four years to a place with two bedrooms and water views and use the proceeds plus my savings to help fund my retirement. Every year, I check my plan with this retirement calculator to make sure I’m on track. Of course, life can throw curve balls but hopefully my plan to cut expenses now and even more in the future can help me dodge most problems.

I don’t know what drove the lady in Tiny House Hunters to retire in her mid-50s and pursue her dream of living in Hawaii. She bucked society’s norm by giving up her big house and fancy job to do something as radical as living in a tiny house. Extreme? Yes, but I admire her courage and dedication.

 

 

Using Real Estate to Supplement Your Retirement Income (Part II)

May 14, 2014

Real estate can be a great asset for retirement planning. Last week, I explored a couple of ways you can supplement your retirement income using real estate, namely by owning rental property or investing in REITs.  This week, I’d like to take a look at a few other ways you can use real estate to supplement your income by tapping into the equity you may have in the home you are living in right now. Continue reading “Using Real Estate to Supplement Your Retirement Income (Part II)”

7 Ways to Reduce the Single Biggest Expense for Retirees

February 27, 2012

Housing costs and related household expenses make up the single largest spending category for Americans over fifty, a recent study by Employee Benefit Research Institute reports.  This has many pre-retirees concerned because for most retirees’, their income declines or is fixed but certainly doesn’t grow.  At the same time, expenses just keep on coming.  While household expenses eventually decline with age as Americans reach their mid–eighties, health care costs increase substantially for that age group, wiping out any advantage of the cost savings. Continue reading “7 Ways to Reduce the Single Biggest Expense for Retirees”

Is a Reverse Mortgage Right for Me?

March 03, 2011

It seems that every retirement planning workshop I do lately, this question rears its head.  Used to be not too long ago many people didn’t know what a reverse mortgage even was (Quick definition of a Reverse Mortgage: A special type of home equity loan for persons 62 and older.  The loan proceeds can be in the form of a lump sum, cash advance, or a line of credit.  The loan does not usually have to be repaid during the homeowner’s lifetime, which is why it is often used by retirees.)  Now that people are aware of this investment product, it has suddenly started becoming a first choice answer to retirement security for some people. Continue reading “Is a Reverse Mortgage Right for Me?”