How Expensive Is Downsizing?
It seems smart to downsize a home when the extra space isn’t needed. Whether for an empty nest, financial reasons, or less maintenance obligations, selling and moving to a smaller, less costly place often feels right. Experts, however, are now cautioning those bold enough to make the move because of hidden costs commonly unconsidered, which can make downsizing less appealing. This article will discuss some of these notions, as well as offer other options to downsizing that can be more cost-effective.
Preparing a House for Sale
Even though most of us would love to think our homes are perfectly ready to be sold as they are, the truth is that what is comfortable to us may not be appealing to the average buyer. This, unfortunately, means time and money must often be put into a home to make it marketable by today’s fast moving standard. Repairs such as leaky roofs, broken windows, and even cracked floor tiles need to be fixed before a sale. If a house lacks curb appeal, invest in landscaping, house paint, or even a new front door. The “as-is” selling mentality is a cost and time-saving idea, but it comes with a smaller profit, decreasing the amount earned on the sale and, often, the attractiveness of downsizing in the first place.
Paying Realtors and Selling Fees
When a sale goes through, all parties involved get excited. The buyers get a new home, the sellers get a hefty payday. The process of putting a home on the market, however, comes with many unconsidered fees that can quickly eat up profits. Most know that realtors charge around 6% in commissions on the sale of a house, but in addition to those costs come recording fees, escrow fees, title search fees, and notary fees, not to mention lawyer and home appraiser costs. If margins for property earnings are already slim, the added costs leave a lot for a seller to consider before inking a final sales contract.
Packing and Moving Costs
If you are anything like me, you refuse to pay for cardboard boxes when they can be had for free at any big box store, but other not-found-for-free costs of moving can be startlingly expensive. Things to consider are movers, moving truck rentals, replacement costs of items lost or broken in transit, and additional insurances. Also, as with any downsize there will be things thrown away which may require a Dumpster rental—another cost incurred by the process.
New Location Cost
Renting an apartment is expensive; there is no doubt about it. Building fees, insurances, and the rent expense itself add up fast, and while many prefer the stability and long-term advantages of a condominium, they too come with fees and hidden expenses.
Like a house, a condo requires a down payment, and while smaller than a house, an owner still pays property taxes. In addition, tenants must pay a percentage for landscapers, association dues, and for added features that come with some properties whether utilized or not including pools, laundry facilities, and fitness centers on site. When all considered, fees and expenses can sometimes rival current mortgage payments, making the idea of downsizing less financially responsible.
Rent it Out
If you have a home that's just too big for your current needs, moving into a smaller house or condo can be a great option. If the costs of doing so don’t add up in your favor, however, here is an idea for you: why not lease out the current “big house” to monthly renters, which in the right circumstances can actually bankroll the move and major costs of attaining a downsized property? Though this involves a lot more work and business savvy on the part of the current house occupant, the notion of a flowing passive income is attractive.
Though old in actuality, the notion of a implementing a reverse mortgage as an alternative to downsizing a home has been recently blossoming in popularity. The current homeowner sells their home to a bank that pays for it in increments over a number of years. The stipulation is that the current occupants are legally allowed to stay in the home for the rest of their lives and, upon their passing, the bank officially claims ownership of the property. Though this isn’t ideal for those with living descendants who hold an interest in attaining the house, it is a great way for the elderly to avoid the downfalls of downsizing while enjoying their lives comfortably.