For many homeowners the idea of downsizing can often mean the beginning of a new chapter in their lives. Perhaps children have grown and moved out, a job relocation is imminent, or an elderly parent has passed away – the extra space once needed is now creating a drain on finances. While the idea of decreasing living expenses by downsizing, may seem logical and well intentioned, some often overlooked factors can hurt financially. Weighing the advantages and disadvantages equally can help prevent any potentially expensive mistakes.
The desire to downsize usually begins with the most obvious and immediate benefit – reduced living expenses – including mortgage payments, insurance and taxes. One of the most commonly overlooked disadvantages we see in new construction home purchases is with higher tax rates based on new development infrastructure. The attractiveness of owning a smaller home in a new or developing area may not be as enticing once the additional costs, fees, taxes and higher financing costs of today’s mortgage interest rates are considered. We recommend putting pencil to paper and including the full cost of selling (commission, moving, etc.) as well as buying (new paint, furniture, landscaping) so you can make an informed decision.
When considering a smaller home in an established community you can realistically assume that living expenses will decrease by having less space, lower tax rates and an established infrastructure. However, consider the additional long-term costs associated with an older home such as an aging roof, A/C unit, hot water heater or inefficient windows because these repairs can add up quickly.
One of the biggest advantages of downsizing, regardless of a home’s age, is the reduction in energy costs. Downsizing to a smaller well-built home with energy efficient appliances and systems is not only easier on your wallet, but also reduces your carbon footprint on the environment. By enlisting the help of a qualified home inspector or energy efficiency inspector, unexpected expenses can be avoided by identifying potential issues prior to buying your new home, and setting a solid foundation for your financial future.