How to Save When Downsizing Your Home

An In-Depth Guide to the Upsides of Downsizing!

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Introduction

You’re considering downsizing your home.

You’re here because your home is your biggest asset, and if you’re looking to downsize then you’re looking to leverage your equity to plan for you or your family’s future, cashing in on the work you’ve put into your home up to this point.

In many cases, the upside of downsizing can be saving time, freeing up equity that is tied down, drastically lowering your mortgage payments, building a nest egg, and peace of mind.

We’ve laid out an in-depth guide on downsizing your home that includes, where to start, best practices, how to save the most money when you downsize, and tricks and trips make the process a breeze.

Where to Start

Let’s start with the two outcomes that need to be front of mind when considering downsizing:

Outcome #1: You need to get the most value from selling your current home.

Outcome #2: You need to buy a home that meets all of your needs.

While these outcomes may seem self explanatory, it’s important to note there are quite a few factors to consider.

You’ve spent years building equity in your current home, it makes sense that you would want to preserve that equity moving forward.

There are multiple ways to list your home, but not all of them are in line with the outcome above. If you consider listing with a traditional agent, you’re going to be giving up 5-6% of your homes value in real estate commission fees, 3% to the agent that lists your home, and 3% to the agent that brings a buyer.

Using a flat fee or discount real estate agent, you can avoid a large portion of traditional commissions costs, paying as little as $3,000 to list and sell your home. In addition, Clever discount agents offer rebates for those looking to downsize, by offering up to a 1% rebate when you buy your home.

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When to Consider Downsizing

If you’re unsure on whether downsizing makes sense, let’s first explore different situations and stages of life where downsizing helps solve financial, lifestyle, and other homeowner related problems.

Retirement

You’ve made it to retirement. Enjoy it! It’s common to downsize after retiring. You’re ready to spend more time with friends and family. You’re ready to do some extended vacationing or travel. Most importantly, you’re looking to save on property taxes and monthly homeowner expenses. Owning a large home is a lot of work, and the extra expenses can make it difficult to travel in style.

Maintenance Costs

Usually unforeseen, rarely planned for, and inevitably a nuisance, maintenance costs and expenses with a larger home are, by virtue of size, larger and more expensive. A good rule of thumb to estimate maintenance costs of a typical home are 1% of the purchase price. Downsizing into a smaller home will drastically lower your maintenance costs, as well as the labor it takes to take care of your home, creating time and freeing up funds to do the things you want to do.

Affordability

If you’ve found yourself feeling stressed over mortgage payments, property taxes, or cost of living expenses (maintenance, utilities, etc.), downsizing may be the answer. Downsizing can significantly reduce the burden of the costs above, allowing you to focus on what’s important to you and your family. You can take the equity you’ve built in your current home to buy a smaller home without a mortgage, or with a drastically lower mortgage. The monthly expenses saved from a smaller mortgage can be life changing in retirement on a fixed income.

Empty Nest

If your children have recently (or not so recently) moved out, downsizing may make a whole lot of sense. Downsizing during the period between sending your kids off to college and retirement can be financially rewarding, allowing you to plan and save for your retirement simultaneously. It’s also very practical to downsize into a smaller house when your kids going to college. Paying for utilities on a large empty house can be expensive, and the savings can help you reach an early retirement.

The Financial Benefits of Downsizing

Lower Mortgage Payments

Often times the biggest expense for homeowners is a mortgage payment. Downsizing your home could help you save considerably month to month, allowing for an increase in savings for retirements, or more monthly cash flow to enjoy your retirement. Depending on the home you’re selling, and the home you’re buying, you might be able to purchase your new home in cash, eradicating your mortgage payments.

Lower Property Taxes

Property taxes are calculated based on your home’s assessed value and state/local tax rates. In most cases, downsizing your home will result in significantly lower taxes. It’s important to check the tax rate for the neighborhood you’re purchasing your new home, to avoid any expensive surprises.

Lower Utility Costs

Utility costs can be expensive, and no one likes paying high utility bills to heat and cool a large house that’s mostly empty. The utility costs of heating and cooling a larger home are no longer required when downsizing. Much like lower property taxes, a reduction in monthly expenses create opportunities to save and create wealth.

Lower Maintenance Costs

Barring an unforeseen catastrophe or a streak of bad luck, downsizing lowers maintenance costs considerably. Appliances, HVAC systems, heaters, new carpeting, you name it, cost less to replace in smaller homes. These are certainly not costs you can plan for as easily as mortgage payments, however, smaller homes require smaller replacements.

The Power Of Compound interest

A $600 reduction in your mortgage payment, utilities, and maintenance costs invested in the stock market at 6% interest would result in XXX in 10 years (can’t do the math on plane). The savings might seem small if viewed on a monthly basis, but over time the financial benefits of downsizing can compound into a nest egg that can drastically change the age you can retire, or the lifestyle you can live in retirement.

The Best Way To Downsize

If you’re downsizing your home, every dollar that you save can be used to lower your mortgage payment, or to build your nest egg for retirement. Selling your current home with Clever Real Estate is one of the best ways to save when you downsize. Clever will connect you with a top rated agent that’s experienced with downsizing that will list your home for a flat fee of $3,000 if it’s less than $350,000 and just one percent if it’s more expensive. Clever works with agents from every major brand.

Your clever partner agent will still provide full service, and help you all the way through the process and will provide:

  • A home valuation
  • Professional photos
  • Showings
  • Open houses
  • Negotiations
  • Help with inspections
  • Advice on downsizing
  • All of the paperwork needed to get to closing.

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Downsizing Tips

Understand your budget

Before you start looking at houses, you should do a deep dive on your financials, and speak to a lender if you’re going to be getting a mortgage for your new house. Understanding how the price of your new house will impact your expenses can make it a lot easier to set a target price range that will provide the most benefits to make your downsizing a huge financial success.

Minimize duplicate items

If you’re moving into a smaller house, it’s important to remove any unnecessary items that take up space. It’s common to remove extra chairs, tables, rugs, extra dinner sets, and other items that you might need multiple of in a larger house. It’s always a good idea to start thinking of what duplicate items you are comfortable giving away, so you can plan the best use of your new items.

Host a garage sale

Once you know what duplicate items you can dispose of, or any items that don’t fit the decor of your new house, the best way to get rid of them is to host a garage sale. A garage sale is a fun way to get your house ready for downsizing, while putting some extra cash in your pocket in the process. It’s best to host a garage sale on saturday or sunday morning, and be sure to put signs on the corner of any highly trafficked intersections near your home.

Keep storage space in mind

As you’re evaluating potential houses to purchase, keep an eye on how much storage space is available. Some homes have basements designed for storage, or a garage or attic to store any of the items that might not fit, but you’re not comfortable getting rid of.

Measure your furniture

While this might not seem important when you’re house hunting, nothing is worse than hiring movers only to find that your old furniture is too big for your new house. It’s a good idea to measure your couches and tables so you can better visualise them in your new house, without having to physically move them.

Plan ahead

Downsizing is a big decision, and it’s important to plan the timing of your purchase so you can make sure you’re ready to downsize, to avoid any unnecessary stress. The more things you can line up, and take care of ahead of time, the more enjoyable the entire process can become.

Make sure you’re comfortable with your new neighborhood

Before you purchase your new home, take time to walk around your neighborhood, both during the day and at night. A neighborhood that seems great during the day can be vastly different at nice. You’re going to be spending a lot of time in your new neighborhood, and it’s important that you make sure you’re completely comfortable with your neighborhood.

Remove clutter

Before you begin looking for a new house, it’s best to remove all of the clutter in your current house. This will make it easy to figure out what you actually want to keep, and what you should give away. It will also give a good indication of how much you can comfortable downsize with your new house. There’s no right answer on what’s the best size house to buy when downsizing. It’s just important to buy the best house that fits your needs.

Look for multipurpose furniture

One of the best ways to save space when downsizing is to purchase multipurpose furniture. Your new house might not have as many extra bedrooms as your current house, but by buying a fold out couch for your living room, you can still have a an extra bedroom when you need it. You can also purchase chairs that work for both indoor and outdoor events, and you can always get creative on other ways to downsize.

Don’t be afraid to ask for help.

Downsizing can be a scary process, and sometimes it’s a good idea to talk with an expert who has experience helping hundreds of other homeowners just like you with the process. Working with a top rated agent that has experience with the downsizing process can be a great way to put your mind at ease when you downsize your home.

Saving with Clever

If you’ve come to the conclusion that downsizing is the right move, we’re here to help!

Check out our calculator to find out exactly how much you’ll save listing with a top-rated, full-service Clever Agent over a Traditional Real Estate Agent.

Sell or Buy a Home with Clever and Save Thousands!

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Downsizing Case Studies

The Situation

Mike and Marsha are baby boomers in their 60’s. Their children have long been out of the house, they are on the verge of retirement, and they want to get a small home somewhere warm so they can spend their time enjoying the rays and travelling.

They have always been conscious of putting money away for retirement, and their home was just another asset they planned to cash-in on once they were ready to retire. However, spending 6% of their hard earned equity and retirement savings on real estate commissions is hard to swallow

The couple wants to be sure they can live out the retirement of their dreams without the stress of over-spending.

The Solution

Mike and Marsha contact Clever Real Estate, getting connected to a local agent that can help them list their home for a flat fee of $3,000 fee.

Their home sells for $350,000, and instead of paying 6% ($21,000) in real estate commissions, the couple pays $3,000 + 3% ($13,500), saving $7,500 in real estate agent commissions.

During this process, Clever connects Mike and Marsha with a partner agent on the coast. This agent walks begins to help the couple look for properties, takes them on numerous virtual tours, and finally helps them find the home of their dreams.

Because they are buying with a Clever partner agent, they were able to get a 1% commission rebate on the cost of their new home.

 

The Result

  • Mike and Marsha retained their equity by using a Clever Agent.
  • Saved on their new home with a home buyer rebate.
  • Increased their retirement savings in the process!

Additional Resources

Looking for more information about the decision to downsize?

We’ve got you covered! Check out these related resources to become an expert in all things downsizing!

a complete guide to helping your aging parents downsizeshould i consider downsizing my home
a complete guide to helping your aging parents downsizeshould i consider downsizing my home
a complete guide to helping your aging parents downsizeshould i consider downsizing my home