There are many reasons that people might decide to downsize property. That basically means selling your larger home to find a smaller (and less expensive property) instead.
It might be that your children have flown the nest, or you’re looking to free up cash for retirement and enjoy a more manageable home size but with more money to spend.
This is a major decision for anybody, particularly when you take into account all the memories we often have wrapped up in a house.
But moving to a smaller house can also be an important step to free up time and finances. If you’re going to do it, do it smart. So, without further ado, here’s our smart guide to downsizing in property!
1) Consider Your Finances
With any big property decision, the first step to begin is with your own finances. Living in a big home can be expensive, with higher land taxes such as quit rent and assessment rates, as well as simply the cost of maintaining a larger property.
A good starting point when it comes to downsizing is understanding your monthly expenses and your monthly income, then seeing how they match up.
This is particularly important when thinking about times in life such as retirement, where your income might just dry up.
When you understand the affordability issues of staying in the current property, you can better assess the benefits of moving out.
2) Understand The Value
The next big step is to understand just how much cash you might secure by selling your home. This is where a professional property valuation comes in!
If you’ve owned a property for a long time, it’s likely that you’ve made adjustments, suffered wear and tear, or just generally made it your own.
That can impact the value in both positive and negative ways. That is, of course, aside from the fact that if you bought a house 20 years ago, it’s likely gone up in value rather a lot since then!
Getting a professional property valuation will help you understand what you might receive in way of profit when you sell it. That’s essential if you’re downsizing because of finances.
3) Research Where You Might Buy
There’s no point thinking about freeing up cash selling your beloved family home, if you’re dreaming of buying property in an area where it’s twice as expensive.
Be realistic about what you want to buy, as well as do some research to understand the area and kind of price you might pay for it.
Knowing the difference between what you sell your own home for, and what you pay for your new compact property, will give you an idea how much cash you can expect to free up.
You would also need to think about your location in proximity to the local community, and your family (if any).
It can sometimes be challenging downsizing from a specific property in a neighbourhood to a smaller property in the same immediate area due to the availability of suitable houses.
4) Don’t Forget The Other Costs!
Okay, if you’ve not sold a property for a while you might have forgotten all the other costs, such as legal fees for the Sale and Purchase Agreement (SPA).
Everything you spend on these essential costs would mean less profit when it comes down to it, so make sure you're aware when downsizing a house to save money.
Simply put, you'll earn a little less of a nest egg for those awesome round-the-world trips you’ve got planned, or even just the simple pleasure of a meal out with family.
5) A Question Of Space
For many people, downsizing property isn’t just about the cash, it’s also about practicality. Rattling around in a big old house can be tiresome, with plenty of chores (or cost of domestic helpers), and lots of unnecessary space just filled up with things. Don’t even get us started on the garden!
There’s a kind of freedom in downsizing to something more manageable, providing a practical solution, particularly in retirement houses.
A word of caution, however! You’ll be amazed how much stuff you’ve accumulated over your life. Thinking about downsizing and actually doing it can be two different things.
Make sure to carry out a good assessment of the things you absolutely cannot live without when you move, and don’t buy a tiny condo overlooking the sea in Penang, only to try and stuff it with everything from your massive KL bungalow.
6) Consider The Clutter
Downsizing inevitably means you need to get rid of items, especially if you’re trying to fit into that lovely sea-view condo in Penang! But that doesn’t mean you have to give up on your memories.
Make sure to do a good stock take of what you have, what you want to keep, what you would like to keep if you can find storage, and what you can sell for extra cash.
You need to be a little ruthless here – there’s simply no room for everything you had before, if you’re successful in downsizing.
If there’s a family heirloom piece you really can’t bear to part with, you can always consider putting it into storage somewhere else until the family is in a position to take it.
While that adds a little extra cost, it’s worth it for peace of mind. Equally, selling excess furniture and items you don’t want can add a welcome injection of cash to your overall savings. Time for a superpowered junk sale!
The Pros And Cons Of Downsizing
Downsizing really is a question of balancing benefits and cost. That’s not simply financial, but the emotional journey of potentially saying goodbye to a family home. There’s no easy answer, but here’s a simple guide to pros and cons to consider:
Value of Property
Cash tied up in property.
Free up cash value of existing property.
Stay in (often) beloved family home with many good memories.
Fresh start in a new location, with flexibility on where you live.
No direct transaction costs.
Must factor in legal fees and Stamp Duty, etc.
Larger homes have higher tax and maintenance costs.
Smaller homes should have lower tax and maintenance costs.
Larger home with more space for possessions.
Smaller home means more limited space for possessions.
Larger home requires more maintenance and upkeep.
Smaller home is potentially more practical to maintain and manage.
Established community potentially with long-lasting relationships.
Potentially moving away from community, although also opportunity to establish new networks.