Pros and Cons of Downsizing Your Home
When downsizing, there’s a lot to size up.
While downsizing to a smaller home can decrease homeowners’ mortgages, insurance rates, and tax payments, hidden expenses and hurdles may arise, particularly when selling and buying a home in a volatile housing market.
Fortunately, comprehensive financial planning and insights into the advantages and disadvantages of downsizing a home can equip homeowners with the tools they need to navigate the process with ease.
The Upsides of Downsizing Your Home
There are a lot of unexpected benefits of downsizing your home, and lessening your living expenses is the primary boon of downsizing, but it’s not the only advantage of reducing your space. You may also:1
- Increase financial stability – Downsizing your home can help cut costs associated with monthly mortgage payments, homeowners insurance, maintenance, and property taxes. It also allows you to diversify your assets. Converting a home’s equity provides you with opportunities to expand your investments and safeguard your assets against the volatility of the housing market, since you’ll likely invest less in a smaller home. Likewise, converting your home equity to cash through a residential sale-leaseback program can eliminate the need to take out a loan on your new home, as you’ll likely have leftover equity to pay the home value in full.
- Decrease utility costs – Heating, cooling, and energizing a home with a surplus of unused space can add up. If you’re looking for downsizing tips for empty nesters or after a divorce, downsizing your home may reduce utility costs, and finding a home without a yard can also help decrease your water bill payments.2
- Reduce maintenance and upkeep – Larger homes typically require regular repairs and tidying. One day you’re fixing the leaky faucet in the guest bathroom; the next, you’re splitting your time between dusting your shelves of tchotchkes and weeding your lawn to avoid an Aspen takeover. Fortunately, downsizing your home may reduce the time spent managing your house, which can become particularly difficult for those with mobility issues or of retirement age.
- Declutter your space – Moving creates an ideal opportunity to downsize your belongings, too. Oftentimes, our homes pile with unnecessary items, from old clothes to duplicate kitchen utensils. Sort through every room in your home, aiming to keep only the items that are necessary, practical, or adored. Then donate or sell your remaining items online or in a garage sale.
- Align lifestyle needs – When moving to a new home or location, homeowners can reprioritize what’s most important to them, whether that’s financial security, travel, outdoor adventure, or visits with family and friends.
The Downsides of Downsizing Your Home
Though it may come with some benefits, downsizing from your current home can also require some serious adjustments. As such, before you move, it’s important to understand the potential disadvantages of changing homes:
- Limited space – Ironically, downsizing may increase your clutter if you choose to bring unnecessary items along with you. While you may have had an extra room or closet space in your old house to store your prized memorabilia, seasonal decorations, and exercise equipment, your new home may not come with a surplus of storage space. Smaller spaces, unfortunately, mean less privacy, too.
- Letting go – Leaving your home behind often means you’ll be leaving meaningful memories, too—from hosting summer barbecues in the backyard to witnessing your baby’s first steps. And, oftentimes, you’re parting ways with sentimental items as well. While your vast garage and storage spaces could fit your daughter’s first bike and your son’s elementary school art projects, a smaller place like a two-bedroom condo may only have room for your most treasured possessions.
- The housing market – Today’s housing market is a seller’s market with limited inventory. What does this mean for downsizers? Once you’ve sold your house, finding a new home that fits within your budget and checks off each of your boxes may be difficult. Additionally, long-term homeowners may have to pay a significant capital gains tax, depending on the value of their home.3
- Moving costs – Moving into a smaller space can cost you. A local move can start at $800, while a long-distance relocation can cost up to $1,000 a room.3 Moving expenses may also include movers’ fees, closing costs, HOA fees, and storage rentals. Depending on the state of your home, you may also need to budget for renovations to increase your home’s value, whether you’re updating the kitchen or adding a wrap-around porch to improve curb appeal.
How to Decide If Downsizing Is Right For You
Homeowners downsize their living space for many reasons. Downsizing for retirement is common as longtime homeowners who are reaching retirement age often move to smaller, more accessible homes. This helps reduce daily upkeep tasks and avoid expensive bills.
But younger homeowners downsize too, often for the same reasons. Downsizing can reduce monthly expenses and home maintenance costs, but it also provides an opportunity for younger homeowners to begin saving to start a family, finance a college fund, or initiate household renovations.
In a nutshell, if you’re looking to decrease housing expenses and allocate more of your income to other priorities, downsizing to a smaller house may be something you and your family want to consider.
What Is the Best Age to Downsize Your Home?
There’s no right age or time to downsize your home. That said, downsizing is particularly popular among homeowners aged 74 to 94—they make up 24% of buyers looking for smaller homes.4
Retirees, divorcees, and empty-nesters in their 40s, 50s, and 60s are also looking to relocate: 12% of homeowners aged 45 to 64 are downsizing.5
Streamline the Downsizing Process With a Sale-Leaseback
Before listing your home, consider the pros and cons of downsizing. Downsizing your home can play a critical role in reducing your housing costs and maintenance needs. However, it can be difficult to leave a family home, and today’s housing market may make it difficult for downsizers to find their next dream home.
Fortunately, homebuyers can bypass the roadblocks with a residential sale-leaseback solution. Convert your home-equity to cash, but stay in your home as a renter. If you’re looking to downsize, you can also use a sale-leaseback program to get the cash you need for your house hunt while remaining in your current home so you can avoid moving, storage, and temporary housing costs.
If you’re contemplating when to downsize your home, it is important to consider the pros and cons. While moving into a smaller home can reduce housing expenses, reduce maintenance and repairs, and create an opportunity to declutter, it can be difficult to move into a new home, particularly when faced with moving costs, limited privacy, and a fluctuating housing market.
- U.S. News. The Do’s and Don’ts of Downsizing Your Home. https://realestate.usnews.com/real-estate/articles/dos-and-donts-of-downsizing-your-home
- Experian. Financial Pros and Cons of Downsizing Your Home. https://www.experian.com/blogs/ask-experian/pros-and-cons-of-downsizing-your-home/
- U.S. News. Why Downsizing Could Actually Upsize Your Bills. https://realestate.usnews.com/real-estate/articles/why-downsizing-could-actually-upsize-your-bills
- National Association of Realtors. Silent Generation: Retiring and Downsizing. https://www.nar.realtor/blogs/economists-outlook/silent-generation-retiring-and-downsizing
- Press Connects. Ready to downsize? These are the biggest things to keep in mind. https://www.pressconnects.com/story/news/2018/08/22/downsizing-common-strategy-older-homeowners/673084002/