A smaller home means less cleaning, smaller utility bills and hopefully lower property taxes. But before you make any decisions, consider the good, the bad and the ugly of starting over in a different home. Here are five things to consider before downsizing your home:
1. Can you leave the memories behind?
You raised your children in your current home, and each room and piece of furniture holds special memories. Will you be able to leave those good times behind without regret? You’ll also have to sell, giveaway and donate a lot of items in order to move into a smaller home. This process can be challenging, but there will be plenty of room for new memories in your new home.
2. What will you owe if you sell?
Downsizing your home and selling it sounds appealing, but did you know that you might owe capital gains tax on the profits you make after the sale? Consumer Reports says that if you have owned your home for decades and receive too large of a gain when you sell it, you might have to pay some tax. For instance, if you make a lot of money, you may have to pay a federal, long-term capital gains rate of 20 percent, plus a new 3.8 percent net investment income tax and any state capital gains taxes. Keep in mind, however, that when you downsize, you will most likely have a smaller mortgage and fewer property taxes, which could make selling worth it. Contact a financial planner to talk about how selling your home could impact your finances.
3. How much will it cost to move?
Whether you plan on buying a townhouse across the street or moving to a condo on a beach that’s four states away, you will be hit with some expenses. If you move your possessions yourself, you will most likely still need to rent a truck and then ask friends and family to help you. If you hire a professional moving company, the cost structure is federally regulated based on weight and distanced traveled, says MoveCentral.com. And if you have heavy items, such as a piano, make sure you’re aware of how much they cost to move. Relocating can be cost money, but it’s often worth the investment.
4. How does this market help or hurt?
The demand is there for homes. As an empty nester, it could be a great time to find a buyer for your home. According to the Wall Street Journal, homes are selling quickly, and the prices of homes are going up. If you want to buy a new home, a limited amount of ready to move in new constructions are limited. So planning ahead so you can build your next home is recommended. But for buyers ready to move now, resale homes work perfectly. They can move around their schedule and not wait on new construction. We are in a very healthy market with a fair number of buyers and sellers. This is always an ideal time to buy or sell!
5. Will you have space to do what you want?
If you are used to having plenty of space to entertain, do crafts or do anything else that’s special to you, then downsizing your home might interfere with your favorite things. However, a smaller space will mean that you’ll have less space to keep clean, and you’ll see a major decrease in your utility bills. Just make sure you get enough bedrooms for your family to visit and enough space for the activities that make you happy.
After the kids are gone, downsizing your home seems a logical choice. However, there are plenty of factors to consider before putting your house up for sale. So before you jump the gun and move from a place that holds so many cherished times, make sure to carefully consider your decision, and make sure the pros outweigh the cons.