Have too much home? It may be time to downsize.
But when do you know it’s a good time to make the move? While the decision is never easy, there are times where it may save you stress and money to relocate to a smaller home.
When should you downsize?
Typically downsizing is triggered by a life event, like children moving out or retirement.
“It’s all a matter of goals, needs and wants,” said Scott Bishop, certified financial planner and vice president at STA Wealth Management. “It’s about what makes you happy and keeps your financial plan on track.”
Bishop downsized homes after his oldest child began his senior year of college. He and his wife moved from a 4,200-square-foot home on a 10-acre property to a 2,300-square-foot townhouse.
“We were empty nesters,” he said. “I had a goal to be debt-free and travel at age 50.”
Downsizing was how he aimed to meet that goal.
Another time to consider downsizing is if you’re no longer using the space you’re paying for. Take stock of what rooms you frequently use and which ones you don’t to decide if you really need the house size you currently have, said Lisa Duke, financial coach and member of the Financial Independence Retire Early movement. Duke has downsized twice over the past decade.
“We wanted to have an extra room for guests,” she said of her reasons for choosing her earlier, bigger homes. “I didn’t really understand square footage, that when you move up just one bedroom everything is so much bigger. We had so much extra space.”
Bishop recommends thinking about your priorities and how homeownership fits into that picture.
“It’s about asking, ‘Is the value of your lifestyle worth the cost?’” he said. “Do you enjoy living in a big house? Or do you enjoy traveling more, financial security or helping with college costs?”
Why should you downsize?
The financial benefits of moving to a smaller home extend past the lower purchase cost of a smaller home.
There are plenty of hidden fees associated with owning a home, including maintenance and taxes. Not to mention there can be a mentality of wanting to “keep up with the Joneses,” which can financially hurt you in the long run.
Downsizing “gets you to downgrade your belongings,” said Duke. “And insurance is going to be lower. Almost every bill is going to go down.” (Policygenius can help find the best homeowners insurance for your current living space.)
Less space to cool and heat means hundreds off your electricity bill. Bishop said his summer electricity bill went from $500-600 a month to $100 a month after downsizing.
Smaller homes can also mean a smaller tax bill. The 2017 tax bill capped the State and Local Tax (SALT) deduction at $10,000, which previously allowed taxpayers to federally deduct an unlimited amount of state and local taxes paid, including state property tax.
Larger, pricier homes generally carry higher property taxes, so, in essence, the larger your home, the more you could previously deduct. Now that the deduction is capped, owners of larger homes don’t get the added tax benefit.
Interested in downsizing? Start by getting your home appraised and figure how much money it could sell for. The price depends on many factors. Here’s our complete guide on how to sell your home.
Image: Nastia Kobzarenko