Downsizing Your Home is not for the faint of heart. The kids are on their own. They are financially independent and maybe they started a family of their own. You are living in a 4k square foot home. It’s time to downsize your home, right? Fewer expenses often come with a smaller home. But when is the right time?
- Does your home currently fit your lifestyle?
- Does the home support a senior lifestyle if you have health issues?
- Are you starting to fall behind on maintenance projects?
- Can you save money by downsizing?
- Does your current budget allow for having more fun and travel?
- How often do you have visitors?
- Are you the oldest person in your neighborhood?
Figuring out the right time to downsize your home completely depends on your personal goals. How quickly do you want to retire? Have the children moved out? Will your children be visiting and bringing their families? Is your home close to being paid for or is there still mortgage debt? There are many questions that are highly personal and will need some thought.
How We Made the Decision to Downsize Our Home
We made this decision earlier in our lives than most and there are some days I regret it. But not for long. We own rental properties and I wanted to be completely debt-free with them by the time I was 50 so we could travel and ENJOY LIFE! So we made the decision to move into one of our rental houses. It was a 2k square foot 3 bedroom home in a neighborhood close by. We gave up the rent on that home but lost the expenses of the larger home.
I loved our home, it was perfect for entertaining and we loved living there. The reality was it was a lot to clean and things like the roof and plumbing would have to be replaced in a few years and I did not want to deal with it. My kids had moved on and we were only using a couple of the rooms for just the two of us.
Utilities, taxes, insurance will all be lower since it is much smaller than our other home. The money we saved from downsizing our home could go towards our debts. We kept our cars a little longer, stopped any unnecessary spending and decided to bite the bullet. Freedom was now our priority over having big holiday parties and friends over for summer cookouts. We wanted to travel!
Here are the financial benefits of downsizing! When you reduce the monthly expenses you can put that money towards other things!
You can pay off your debt.
When you reduce your monthly payments you can easily put that money into use in better places. Like paying off debt. You should never go into retirement with debt or you may find yourself struggling with increasing property taxes and inflation.
Whenever we paid something off we took that payment and put it on other debt. We were able to pay over $500,000 of debt off in 6 years. Here is an example:
Choose your highest interest rate loans or credit cards to pay off first. We never carried credit card debt so for us it was our cars. If you are in more serious debt choose the debt with the lowest balance to get the debts you can pay off quickly, knocked out. Take that payment and add it to another debt balance.
According to the Harvard Business Review, people are more motivated to pay off their debt when they can focus on smaller accounts over high-interest rate accounts. You will need to be honest with yourself when considering your options.
We paid off our cars. We then took that $700 per month and paid down additional principal on our mortgages. This can have a snowball effect on your debt in a huge way.
Save money for emergencies and your retirement.
Once all of our debt was paid off, I increased my 401k contributions which helped lower my tax debt. When you are over 50 the IRS allows you to make higher contributions to your 401k and you should absolutely do that if possible. I also added additional funds to my health savings account for additional tax benefits.
Preparation to Downsizing Your Home Is Key
You have made the decision and you start looking around at all of the stuff you collected over the last 15 years. It is funny how you gloss over the amount of stuff you have until you have to move it. I had enough horse tack to start a riding team.
My husband is a bit of a collector of items from tools to trinkets (can you say, hoarder). Plus if you live in a larger home you realize that you typically limit yourself to certain areas. You forget about the kid’s rooms. The attic. The garage. The closets stuffed with sheets and toiletries you never used. All loaded with items you could not part with but have long since forgotten.
You are ready to downsize. You have a garage sale. The younger couples in the neighborhood stop by and pick up great deals on toys, board games and other items for their kids. Husbands are talking tools and they can glean from my husband’s wisdom on how to care for their homes while he sells them a spare ladder. This will help, right? Oy! 4 garage sales later maybe! It is a slow process. I thought to myself… the proud purger…. what happened to you? Why didn’t you maintain this throughout the years? It is easy to ignore the rooms you do not frequent.
You will want to look at the best places to donate your items. Here is a list of libraries that take books! We had a lot of books!
So after a lot of garage sales, donations, Craigslist ads and trips to the dump we are ready for the truck. I debated hiring a moving company but we are literally moving 3 blocks away. Frankly looking back it was a mistake.
The New Smaller House
Out of 8 properties, we only have one that will remotely fit our needs. It is a 3/2/2 with an office. We had a 3/3/2.5 with inside laundry, 2 living rooms with one living room that was so large it was an office and family room. A sauna room that once it lost its luster became a room for more storage.
I did not want to get different furniture or get rid of a lot of it either since you never get your money out of it. I also inherited some antiques and those had to fit because they had been in my family since the 1800s.
Although we were losing half of our square footage I thought this may work. This house was a mini version of what I had. Unfortunately, I was losing the inside laundry room, I was now stuck in the garage and I lost my large pantry, wet bar, and closet space. The rental house did not have a linen closet. No linen closet? Did I actually buy this house? I kept looking around thinking it has to be somewhere! Nope. Only one small closet off the kitchen that I had to use as a pantry.
I ended up making the third bedroom in the new home a storage room that doubles as a guest room. We are lucky to get one visitor a year since most of our family and friends are right here. We have tons of antique books and photos that have been passed down for generations. I have confirmed that my kids want them but do not have the space to store them in air conditioning so I am going to have to hold on to them a little longer.
The Furniture
The dining room table expands so we will just not extend it anymore. I had Jack close off a door to the office to create more wall space for the living room so one set of sofas could work there. I decided to put the leather sofa in the office with the desk and piano and put the chairs for that in the master bedroom sitting area. We got rid of the 65″ TV we never watched that sat in the office/media room and upgraded to a flat-screen that takes less room.
Where the hell were we going to put the bird!? Let’s squeeze her in this corner over here next to the antique buffet and sliding glass doors. Thank God we never bought a large china cabinet because ours fit right behind the dining room table…. kind of. Just make sure you do not push the chair out too far back. Let’s put the wine, Menorah and Challah plate on top of that. Whew! We made much of it fit and had to re-purge again.
It really took about 2 months for us to get everything in order. Giving up family heirlooms and other sentimental items will be more difficult than you think.
What You Need to Consider When Downsizing Your Home
Think about what you love about your house and would hate to give up. I hated giving up the fireplace, closets and inside laundry. But you also have to be realistic. Are you moving into a condo? Maintenance-free villa?
Think about the layout. I have a difficult time entertaining more than another couple or two at the most. During the holidays we pack ourselves in at the dining room table. We are able to extend it but it extends into the living room area and other things have to be moved to make it fit. We make it work.
Think about the neighborhood. A smaller house does not mean a bad neighborhood but you will want to consider this. Are there planned activities? Amenities? Like-minded people? Is there a free clubhouse for you to use for larger parties?
Location, location, location! Make sure you are close to the services you want like restaurants, movie theaters, and medical services. I know people who moved to a rural area and regretted it. Many stores closed on Sunday and they had to drive 20 miles to go to a movie or get to department stores.
Do the math. It may not be that much cheaper to move once you factor in taxes on a new real estate purchase and your existing home is mortgage-free. Maybe you want to move to something maintenance-free and that is the draw. But maintenance fees are variable and go up. Many will look at other areas where taxes are less or they do not have a state income tax. Prices keep rising and you may get less house than you thought. No one should take on debt to make this happen either unless you earn significantly more on your portfolio than you would pay in interest. And that is a risk most should not take.
Hire the moving company. I swore when we moved into the big house I would never move again without professional help. Memories fade and I wanted to save a few bucks. This was probably my biggest regret. Even if it is a local move and all your friends and family offer to help….. just hire the moving company.
In Conclusion
I do not regret downsizing too soon. We were able to pay off all of our real estate debt and I was able to leave the corporate life and semi-retire so we can travel more. There are times when I miss entertaining and if I think I will ever be able to fit my kids and their kids here all at once for an overnight stay, it won’t happen unless someone agrees to sleep on the floor but fortunately they live in the area so it is not a problem. Those are the trade-offs.
Having a second home on a lake for everyone to gather on vacation is more important to me now than the size or layout of where I live. And having the freedom to do what we want is the big payoff.
Downsizing your home is a big decision but it can bring both physical freedoms from work and cleaning as well as financial freedom.
Are you ready to retire early? Learn about why I was glad I planned to retire early!
