Everything you should know about downsizing your home
The word ‘downsize’ can elicit a very emotional response. It can conjure images of tiny homes or apartments, noisy neighbours and relinquishing the family home that holds so many memories. There are financial worries too with the costs of buying and selling, and the family home is often seen as a financial legacy to be left to the children.
Downsizing is poorly named. It should be called ‘rightsizing’, as it’s about having a home that suits you and your lifestyle. If you are weighing up the costs and benefits of downsizing, here are a few things to think about.
‘Downsizing’ can conjure images of tiny homes or apartments, noisy neighbours and relinquishing the family home. The reality is quite different.Credit:Peter Rae
Moving will cost you money, whether that’s a few thousand or more than a hundred thousand, it will depend on the house you are moving from and the one you are going to. The biggest expenses of moving are often the renovations for the home you are selling and stamp duty on the home you are buying.
It’s important to check if stamp duty applies. For example, most retirement villages have leasehold or licence contracts where stamp duty doesn’t apply, potentially saving you tens of thousands of dollars.
Not moving isn’t necessarily free. To stay at home you still may need to undertake some renovations and there may also need to be modifications to stairs, doorways and bathrooms to make sure it is safe.
And while upfront costs are one element, it’s important to also consider the ongoing expenses. You have to factor in regular costs such as rates, insurance, and utilities, as well as ad hoc expenses like replacing appliances and renovations. Estimating ad hoc expenses over a 10-year period and then dividing it is a good way to make sure they are accounted for.
If you downsize to a retirement village, there will be a weekly or monthly service charge. Make sure you know what that includes so you can adjust your budget accordingly. Many people view it as an extra fee, but it often includes expenses you are paying at home such as rates, building insurance, garden maintenance, use of the gym and other facilities, and in some cases replacing appliances, utilities and meals.
Downsizing can enable you to repay debt, have extra funds to spend or invest and reduce your ongoing expenses, all of which will change your long-term wealth position. If you downsize into a retirement village, then you will also need to factor in an exit fee (if any) and the timeframe of any guaranteed buyback.
It’s easy to fall into the trap of thinking that staying at home is a good investment. But downsizing isn’t all about money, it is also about the investment of your time. Some people want to spend their time with like-minded people, sharing in activities and social events. Others want a low-maintenance home they can lock and leave to spend more time travelling, for others, it is about accessing care and support to stay independent for as long as possible.
The appropriate downsizing decision is the one that’s right for you.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Rachel Lane is the principal of Aged Care Gurus and co-author of Aged Care, Who Cares?
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