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Four Steps Seniors Can Take When Considering Downsizing

Tomi Mccarthy by Tomi Mccarthy
September 29, 2020
Home Real Estate
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Rayan is COO/CFO at Fraction and advises several startups. Previously, Rayan was COO/CFO at Unison and ran a major Canadian pension fund.

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One of the eventualities of life is that at some point we will all consider downsizing our home. The trigger could be anything — children moving out, a spouse passing away, financial reasons or a medical situation that makes it challenging to manage your current home. Whatever the reasons may be, it is a big decision. A home is our place of belonging. It gives security and comfort. It often has most of our life’s best memories, and it is part of our identity. At my company, we’ve helped many clients who have sorted through the many factors impacting a decision to downsize — or not. In my experience, it can be helpful to apply some guardrails and heuristics for making such a difficult decision.
Know Your Costs
What were your costs for your home last year? Consider all relevant expenses: utilities, property taxes, mortgage, insurance and maintenance.  
Compare these to the costs you may have if you move, including upfront expenses like closing costs, moving expenses, realtor fees. Then consider long-term costs which may depend on your state. For example, will you see a big bump in property taxes? How about maintenance fees or HOA fees common for condos and certain neighborhoods? Will there be a meaningful change to your insurance and maintenance costs?
If you are moving geographies, what impact will that have on your costs? If you are moving to an urban location, will parking be additional? Will your food and transportation costs go up? If you are moving to a more rural area, will you have to take more plane trips to visit family? Will your cost of gas go up? 

Think About Your Lifestyle
Do you have outdoor space? Will you have access to outdoor space in your planned move? If you have grandchildren or family visiting, are you moving to a place where this is permissible? Many condominiums that are age-restricted vary in their limitations for family visits and the use of any shared facilities. Would you be okay having grandchildren only visit twice a year or being unable to host all of your children and their families? If people come to visit you, they may have to get a hotel. If you entertain often, think about having to use shared facilities versus being able to host people in your own home.
Conversely, if you are regularly partaking in activities like golf, exercise classes or swimming, it may make sense to be in a residence that offers these amenities at home. 
If you have lived in a neighborhood for a long time, are you prepared to establish new connections and make new routines? Is this something exciting for you? 
Consider Estate Planning
For most Americans, the home is the largest component of net worth. It is important to step back and think about what that amounts to and what you would like to happen with that equity. Does your decision on how to support your retirement through downsizing allow you to give the money that you would like to a cause you believe in or your children and significant others?
Consider Alternatives
There are several options at most homeowners’ disposal as alternatives to downsizing. It is essential to think about the universe of choices available to you before making a big decision to uproot your lifestyle.
If the primary driver for the move is to save money, ensure that you have considered all costs with the move. Also, consider other options such as an appreciation mortgage, home co-investments or reverse mortgages as ways to take cash out of your home without incurring monthly payments. In many cases, leveraging finance products may yield the same cost savings as downsizing. Always speak to a trusted advisor for your unique circumstances and the risks/benefits of any financial product.  
If the home is too big for you, but you love living in it, consider taking on renters. Co-living is increasingly popular and has many benefits for both the renter and the landlord. A tenant could help you take care of the property and also provide some cash inflow. It can be nice to have people to live with and also is an excellent way to fully utilize the space. If you like cooking, you can also offer room and board and make a little bit of extra money. There is a significant home affordability issue in much of the country. Alternatives for tenants such as this are not only better financially for both, but can also be a great way to feel like you are part of a community and build deep, lasting social bonds. 
As long as you plan ahead, you won’t need to feel rushed by your decision. If you plan well and understand the trade-offs, even unexpected life events like medical emergencies can be financially manageable. Speak to people you trust: friends, family, advisors, lawyers/accountants. Make sure you are comfortable; whatever you choose is right for you.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?

Tomi Mccarthy

Tomi Mccarthy

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