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How to Downsize Successfully

Quinn Waddington - Oct 10, 2016
With the current housing market in the Lower Mainland, it is no surprise that many baby boomers are considering locking in some of the large gains they have made in real estate over the last few years by downsizing their homes.

How to Downsize Successfully

With the current housing market in the Lower Mainland, it is no surprise that many baby boomers are considering locking in some of the large gains they have made in real estate over the last few years by downsizing their homes.  Although the idea seems simple enough, sell a larger more expensive home for a smaller less expensive home and use the proceeds to fund retirement, there are many important considerations to account for.

 

-Why are you moving?

Is the decision solely financial or is there a practical reason to downsize?  Are you living in a largely unused home now that your kids have moved out or do you have extensive travel plans that would make maintaining a house difficult?  There are plenty of good reasons to downsize but it is important to know what yours are to help you choose a new home and to mentally prepare yourself to leave your current one.

 

-What do you need?

Look at your lifestyle now and try to imagine what it will be like in the future.  If you will be travelling a lot then perhaps you want less to maintain.  Another thought is accessibility.  Many townhomes are built with lots of stairs but that may not be the best option as you age.  Some other considerations are lighter doors, easy to reach and open cabinets and parking and storage accessibility.  One big issue with downsizing is space.  Do you still need 4 bedrooms?  Do you need a crawl space full of old clothes and decorations?  You want enough space to be comfortable but maybe it is time to donate some of those long lost treasures to family, charity…or the garbage can.

 

-Where do you want to live?

This is a big one.  Many people dream of leaving city life behind and moving to the country or even to a tropical beach but once they arrive they realize they miss the action and more importantly, miss their family and friends.  If you are considering moving to another city, it may be wise to rent for a year to make sure you enjoy it in all seasons.  Many would love to be lake side in the Okanagan during the summer months but will you still enjoy it when you have to dig your car out of a foot of snow in the morning?  If you prefer to stay close to where you are then ask around town and do your research on the different options and complexes available as the rules, amenities and strata councils can vary widely.

 

-Know all the costs and cost savings

Although it may seem simple to sell a house for say $1.25M, buy a condo for $750K and put away $500K for your retirement, there are many other costs to consider.  The most obvious are the costs to selling your home which could be as high as $50,000 for that $1.25M home.  You will also have closing and moving costs as well as transfer and property taxes.  Then when you move you will likely have costs for renovating or at least decorating your new home and you may have to pay monthly maintenance if you are in a townhome or apartment.  One more thing that is definitely worth mentioning is paying off any existing mortgage which will come directly out of the profits from downsizing. 

On the flip side, there may be some costs savings by the way of lower utility bills and if you are able to get away with one car by moving closer to amenities then you can save a significant amount.  Although you may still be left with a large sum to use in retirement, it may not be close to your original number so be sure to calculate all the potential costs and cost savings, and leave room for error.

 

-Is renting an option?

As mentioned, renting for a year or two is a great option if you are moving to a new city to allow you to experience all the seasons and make sure you are exactly where you want to be.  This isn’t the only case for renting though.  Some may enjoy the flexibility to move around, perhaps to follow children or just to spend time in different parts of the country or world.  Renting gives you this flexibility and also gives you full access to your money which can be invested for income or to fund your home purchase down the road.

 

-Know the emotional issues

This is one of the largest hurdles to overcome when deciding to downsize.  For many, you have lived in your home for a long time, your children grew up in the home and you have a lifetime of memories there, so it can be difficult to walk away from.  Although it can also be looked at as a fresh start and creating new memories, the emotions of selling your home and potentially leaving your neighbourhood and friends will be a big factor, so be prepared.  As mentioned before, knowing why you are moving is a good place to start.

 

-Draw up a financial plan before you sell

Once you have done some research on how much your home is worth and, if you will buy again right away, how much you will likely spend on your new home, it is time to get a Financial Plan in place.  Speak with an advisor who can put some scenarios together to show you how the timing and costs will affect your finances.  If part of the reason you are downsizing is for financial security or to help fund your retirement then it only makes sense to make sure you have a plan in place to achieve your retirement goals.

 

-Stick with the plan and enjoy your retirement

Once you have a plan in place then all you have to do is stick to it.  Obviously the last thing you want to do is squander the profits you received from downsizing as that will likely impact achieving your retirement goals.  Once you and your advisor have agreed on a plan, it is time to enjoy all the hard work you have put in to get to where you are and make your retirement dreams come true.

 

If you have any questions or want help even starting to think about downsizing please give me a call (604) 699-0874 or send me and email (quinn.waddington@canaccord.com).

 

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