Things To Consider When Downsizing Your Home
Throughout life, circumstances change — kids leave home, retirement looms, marriages end, lifestyle choices vary, and as such, the size of the home you need may change. Downsizing your home is an excellent way to save money, to move to a better location and make positive lifestyle changes, or to make capital gains for further property investment.
Downsizing is a major step in your property journey and has many benefits and advantages. No matter what your circumstances though, you’ll want to make sure you plan the transition between properties well, working closely with your team to find the right property for you, keep your costs as minimal as possible and to ensure other investments in your portfolio are secure.
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What Will Change?
A number of things will change when downsizing your home, many of them positive:
• Downsizing can have a huge impact on your financial situation. Depending on where you buy, there’s a good chance that downsizing will dramatically, if not completely, reduce mortgage expenses. Furthermore, smaller homes tend to have lower upkeep costs (utilities, for example) which frees up positive cash flow.
• Downsizing frees up equity for other investments, so the potential for portfolio growth will present itself.
• Downsizing will also have a number of lifestyle benefits. With lower maintenance cost, a smaller space and less financial responsibility, any number of lifestyle opportunities will open up (travel, hobbies, social interests and so on)
• Downsizing may mean you can afford to live in a better location, closer to family or friends, or closer to social attractions.
While the prospect of downsizing homes may be exciting, careful planning is essential to ensure financial security throughout the process. Working with your team in unison will help to ensure a smooth and stress-free transitional period.
Depending your intentions, different key team members will be able to guide you through the entire process. If you are looking to downsize and seek out further investment opportunities, your property strategist can advise you on where to find the most suitable properties, where to invest, and assist with the sale of assets. Your strategist will reduce any risks with downsizing and future investment and can help you avoid some costly mistakes in the long run.
Other key members in this transitional period include your accountant and financial planner who are crucial in minimising costs and ensuring the maximum return on your investment. For more information who the key members in your investment team are, see our article on how to build your team.
Getting Rid of Things
Downsizing can be particularly emotional, especially if you are moving out of a family home or somewhere you have lived for a long time. Choosing what to get rid of can be hard, but also quite liberating. Fewer items means that you can live somewhere smaller, saving you money for more important things.
Family homes can accumulate a lot stuff overtime, much of it that you will not need after downsizing. Clothing, books, furniture, art, appliances, toys, tools, old paperwork, photographs, files — all of these items have the potential to be tossed out before moving.
Again, this will require a degree of planning and a can take many months to sort through entirely. Leave yourself enough time and be rational about what you will actually need in your new home.
Sell Before You Buy
Depending on your situation, it may be a wise decision to sell your home before you purchase a new one. This means having a finalised buyer so that you can budget effectively for downsizing. You also risk the possibility of having to make mortgage repayments on two properties at once (perhaps more if you have multiple investments) which can create unnecessary financial turbulence.
You may also be in the position to keep your existing home as an investment while you downsize to another, this may mean you need to negotiate rental agreements before you can finance the move. Again, working closely with your team is crucial in this period. Your financial planner and property strategist can help you navigate these waters and guide you towards your financial goals!
Read more on Optimal Property.