What to consider when downsizing

What to consider when downsizing

Upgrading may not necessarily mean moving to a bigger house. Downsizing is often associated with retirement or empty nesters, but downsizing has a number of benefits for whatever stage in life you’re at, and can help homeowners achieve lifestyle or financial goals.

Downsizing shouldn’t be an impulsive decision, and certainly shouldn’t be done on a whim. Take the time to consider why you are wanting to downsize, what your options are, where you want to move to, and what kind of home will suit your lifestyle.

To help you with the process, let’s take a look at what the pros and cons of downsizing are, and what else you need to consider.

Pros of downsizing

  • Increased cash flow: Selling your larger, more expensive property, for a smaller, less expensive one, could free up money to pay off your mortgage, invest or spend.
  • Easier to maintain: A smaller place takes less effort to clean and maintain, giving you time to do other things.
  • Better suited to your desired lifestyle: You can choose a layout and fittings that better meet your needs and wants, or a location closer to family, transport and services.
  • Less expensive to run: In general, a smaller home costs less to insure and is cheaper to heat or cool.

Cons of downsizing

  • Less room: You may have to make some hard choices when it comes to reducing belongings.
  • Less versatile: Smaller properties will have less privacy, fewer guest rooms, or less space for entertaining.
  • New neighbourhood: Be prepared for adjusting to a new area, finding new health care and other professional services, social life etc.
  • Emotional connection: Family homes are often full of memories, and it can be hard to say goodbye.

The costs of moving

There are always moving costs, regardless of the size of property. These include:

  • buying and selling in the same market
  • real estate agent fees
  • stamp duty
  • legal fees
  • furniture removal

Finding the right property

Moving house is a massive undertaking, so you need to be sure you’re moving to a property which is right for you. Like any move, there are some basics you need to think about:

  • Location

What’s important to you? Proximity to your friends, family, and workplace? Do you want to be near the ocean, and what about nearby amenities like shops, schools, hospitals, and transportation? As well as the financial perspective, you’ll need to look at what’s important to you, and what your lifestyle expectations are.

  • Type of property

Are you looking to downsize to a smaller house, townhouse, apartment or unit. Each will come with its own advantages and disadvantages, and costs.

  • Your financial situation

Before you downsize, properly review your savings, income, and the reasons why you are downsizing. Do you want some capital to travel and/or buy an investment property to generate an income? Or are you looking at it from a purely change in lifestyle choice aspect? Once you have determined your financial needs and goals, you can work out your budget for buying your property.

Is there an alternative to downsizing?

If the thought of moving is too much, and/or after all the considerations, like where you live and you want to stay in your home, there are some alternatives to consider:

  • Renting out space: Consider renting out a room or taking in a boarder to increase your income.
  • Converting to dual occupancy: It might be possible to convert your home so that you live in one half and rent the other half.
  • Consider equity release: There are options such as reverse mortgage or home reversion, but there are risks and long-term financial impacts, so get some good independent financial advice.

You’ll also need to check the tax impact and whether it will affect your government benefits.

Other financial implications

There are some other financial aspects you’ll need to consider such as the impact on your Age Pension or other government benefits. Your eligibility for the Age Pension depends on the assets test (value of your assets) and the income test (income you receive).

Your home is not included in the assets test. When you sell your home, the proceeds are exempt for up to 12 months if you plan to use them to buy, build or renovate another home.

The proceeds are ‘deemed’ in the income test. This means they are assessed as income from financial assets. This may affect the amount of government benefits you get.

Speak to a financial specialist to find out how downsizing could affect your income.

Whatever the reason for moving, if you are thinking selling your property, get in touch with us and we’ll come round and give you a free, independent and non-obligatory quote. We’ll also suggest ways in which you can add value.

Call in and see us in the Cardiff office or give us a call on 02 4954 8833. Or send us an email to: mail@apnewcastle.com.au.

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