Downsizing is a great way your can ensure your residence matches your current lifestyle needs. Plus, it’s a way to free up equity for others investments, major purchases, or retirement.
Whether you’re an empty nester, retiree or just someone looking for a smaller property, you’ll want to plan such a large transition with care so you can find the right property and keep your costs as low as possible.
Reasons to downsize
The most pertinent question you may find yourself asking is why you should downsize in the first place. As much as you may love having a big, sprawling house more often than not downsizing will prove to be a better fit in the long run. As we enter our 60’s and 70’s, having a smaller house is a blessing as it is easier to maintain. For empty nesters moving into a smaller house is a great option to take advantage of as you enter a new phase of your life.
Downsizing also opens up financial opportunities such as the chance to reduce debt, and the money you save can be put to good use in an investment. Not to mention surplus funds can also go towards your retirement or a holiday if you’re feeling adventurous.
Bear in mind, when downsizing you need to do so with the right strategy in hand in order to reap all the rewards. There are several ways to minimise tax, maximise benefits and invest profits as per your own needs, so be sure to explore these options in order to truly benefit from downsizing.
Explore your motivations and priorities
Many people making the shift to a new property don’t take enough time to think about what they actually want and don’t want. This can lead to regrets down the road. You want to be clear about your exact reasons for downsizing before you make the move, and prioritise what’s most important to you when looking for your new home.
Some things to think about include major and secondary reasons for downsizing, what types of property features are most important to you, and what you don’t like about your current property.
List all your reasons and thoughts, and be completely honest with yourself about your preferences. For example, you might take the closeness of family and friends for granted now, and regret moving too far away after you downsize. Or you might be downsizing so you’ll have smaller mortgage repayments and save on utilities and maintenance. Consider everything from maintenance and socialisation opportunities to space for your personal items, as well as the cash savings of renting versus the freedom of ownership.
Take everything that impacts your life satisfaction into account, even if it seems trivial. For example, you might realise that your once-a-week golfing session is you’re favourite leisure activity, and so you’d like to live fairly close to a golf course.
Talk to friends and family who might be able to help you organise and clarify your thoughts. If you know anyone who has downsized, take the time to speak to them about their experience and ask them for advice. Involve anyone who’s making the move with you in the decision making process, including your partner, children, and other dependents or relatives.
Research potential properties
List the features you’d like your new property to have, before you start researching potential new homes. Take into account your financial situation, as well as your motivations and top priorities for downsizing.
Use the internet to source potential properties and research possible suburbs that match your requirements. If there’s a specific type of property you’re looking for, think about the areas in your city, town, or region where you could find these types of properties. Talk to real estate agents in the area and seek their advice. Local agents will often have specialist knowledge about the specific market or region, and are therefore incredibly helpful for anyone looking to buy their new home.
If you’re planning to downsize and move closer to a city centre, start looking for the types of apartment complexes that would suit your lifestyle. Other types of properties for those downsizing might include townhouses, age-qualified community properties, or retirement villages, units, and suburban apartments.
Determine space requirements
If you’re having trouble deciding whether or not a certain property will be too small, practise living in your current home with a reduced amount of available space. Do some measurements and lock away rooms that represent the extra space to which you’ll not have access when you move. If you can live comfortably with less space, your new property will probably be sufficient.
Sell before you buy
In most situations, you should have a buyer or sale finalised for your old home before you take steps to formalise your new property purchase. Without first selling your home, you won’t know the amount of money you have coming in and so will be unable to adequately budget for your downsizing. You also run the risk of having to make mortgage repayments on two properties at the same time.
If you’re retaining your old home and using it to generate rental income, this advice won’t apply. In some emergency situations – for example, if you’ve found a true bargain and simply have to secure the sale before you sell – you might need to use bridging finance to assist you with your purchase.
While over the longer term downsizing to a smaller property will save you money, you will be faced with some upfront costs. These include property transaction fees, stamp duty, legal and conveyancing fees, and more. Make sure you factor in all the costs associated with your downsizing plans, and consider this in the context of how much you will end up saving by moving.
Do your due diligence
You can never be too careful when it comes to major transactions such as selling and buying property. Once you have planned for the costs of downsizing to your new property, work out how your shift could impact on all other aspects of your financial situation. For example, downsizing to a new property can impact your social security benefits, as the money released from your property sale can reduce your pension entitlements.
Similarly, retirement villages – which can be a much cheaper downsizing option for retirees – usually operate under special fee schemes that, over time, reduce the initial lump sum you pay when you first move in. It’s ideal to work with a financial specialist when moving, as the process can involve many complex issues such as tax and social security.
Downsizing doesn’t have to be a stressful situation; you just need to plan your transition with care in order to get it right. Take the time to identify what it is you really want, budget for the costs, and consider the best type of property for you. And finally, work with financial advisors who can help you through the due diligence process.