Downsizing - Can it be done?
23 May 2013
A number of my retiree clients ponder the issue of downsizing. Most tend to wax and wane but a few end up taking the plunge to move to something smaller.
There are a number of reasons to consider this strategy, with the most common being:
Ongoing concerns over the maintenance of the property
Typically older people become concerned that the gardens and gutters are becoming too much to manage and worry that the next time they or their partner go up the ladder they may live to regret it!
Accessing capital and equity tied up in the property
This is one of the great Australian myths that people view the equity in their homes as 'their superannuation'. My experience is that this never happens as people are so entrenched in their community that they are reluctant to leave. My parents recently considered the downsizing option and realised that if they sold their quarter acre block in a leafy suburb they could swap it for a nice apartment in the same area. Sure they would end up in a great apartment but the thought of swapping 1,000 square metres of dirt with an adequate but large house for a small apartment in the same area was too much to bear for them.
Only one of my clients has ever sold their house and moved to a retirement village. It worked out well for them and their kids were all for it. There are however issues to consider when moving from freehold land to a retirement village that for some has too many variables and hooks to seriously consider.
Two issues that I see that people face and often sight as a deterrent for downsizing are:
- Where are the grandkids going to play?
- Where are we going to fit the caravan and boat?
Most males have accumulated a number of 'toys' by the time retirement hits and the caravan is a classic example of a toy that takes up a lot of space. I have lost track of the number of times my clients have said, "We can't sell the house! Where would we put the caravan?"
Most of my retiree clients are part-time child care workers as their kids are forced to work to maintain their mortgages and lifestyle commitments. My children love to visit my parent's house and play in their huge backyard and it is one of the major draw cards for their cousins as well. Most retirees are reluctant to give up to the space whilst they have young grandchildren coming to visit.
I noted to one client recently that the estimated $100,000 in changeover costs (stamp duty and real estate agent fees) to downsize their property could fund a gardener and a cleaner for years to come. These are real costs and simply by thinking through these issues the client was able to understand that it was perfectly reasonable to spend a little more each month on hired help to keep her in the property that she never wanted to leave. As is commonly the case for baby boomers, it was her guilt over the additional costs to maintain the property that was forcing her to consider downsizing. By considering the potential costs of downsizing she was able to free herself from her issues associated with spending more money now! This is without even considering the stress of selling and buying, which for some is terrifying as they may have lived in the property for 20 to 40 years.
Downsizing is a big lifestyle decision that often involves the whole family. You need to carefully consider your current and future lifestyle needs when it comes to real estate and ensure that a decision made today is not regretted down the track. We all know how much it costs to buy or sell property so you don't want to be in a situation where you buy and sell and do it again two years later!
By discussing the pros and cons with a professional adviser they can take the emotion out of the issue and hopefully a solution can be found. Tread carefully and go slow!
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