The Hidden Costs of Downsizing

Many people purchase who purchase a large home in their 40s or 50s have then intention of “downsizing” when they are ready to retire. That larger house is purchased because their income is typically at it’s highest during those years and many families still have growing kids living with them, so the space is needed. However, one of the biggest problems with this plan is that when it is time to retire, the process of downsizing might not actually save them any money after transaction and moving costs. About 20 years ago a realtor told me that in order to save money when downsizing, there must be a property value reduction of at least 1/3. In other words, if someone’s home is currently worth $600,000 and they want to downsize to save money, they need to find a new home at or below $400,000. If the move is from a house into a condo or townhome, the price reduction must be even greater in order to offset the costs of the new home’s HOA fees.

I’m not suggesting that you shouldn’t move, but I am suggesting that you explore all of the costs before putting the existing home on the market. In many cases, a Reverse Mortgage can free up enough cash flow to hire help with chores or care and allow you to stay in the home you love. It is probably less expensive to hire someone to maintain your existing home and yard that it will be to pay the HOA fees on the new condo. Accessibility concerns can also be addressed in an existing home by using the money from a Reverse Mortgage to consider installing an elevator, chair lift, widening doors or whatever other modifications might make you safer and more comfortable as you age.

Moving may also mean homeowners forfeit their senior tax exemption.

In my opinion, the most important consideration when buying a home, at any age, is to ask yourself if it would be suitable as a last home. I know more than one person who spent their entire adult life in the same home. It has become very popular to think of a home as “temporary”, but I would suggest that returning to the idea of considering a home as a one-time purchase might be a good idea.