Why Downsizing Your Home Doesn’t Always Save Money
Written by
Casey Bond
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Moving expenses: Arguably a negligible expense compared to others, you must still factor in the cost to pack up all of your belongings and transfer them to your new property.
Cost of living: A 2009 Boston College study found that a large majority of older Americans who relocated stayed within 20 miles of their previous homes. However, this means they will pay comparable prices for utilities, food and similar necessities, resulting in little to no savings in this area.
New fees: Opting for a small condo instead of a single family home may result in also taking on new, expensive Homeowners Association fees. Not to mention, downsizing requires finding room for all the stuff you’ve accumulated over the years in your big home, which may result in paying for storage if you’re not comfortable with getting rid of it (which, by the way, is a huge waste of money).
Lifestyle costs: Finally, realize that moving into a small house can cost you in other ways, depending on your previous lifestyle. For example, moving out of the pricey city and into a small town could be less expensive, but also more isolating, requiring more travel to see friends or do shopping. Additionally, a smaller home means less room for entertaining, grand kids to run around in or adult children who may wish to move back in temporarily.
Some homeowners may find that the number of new expenses they could face as a result of moving will far outweigh the potential savings, requiring them to find alternatives to downsizing for saving money in retirement. It’s important to note, however, that you shouldn’t necessarily let a lower home value alone stop you from downsizing. Herigstad also points out, “All things being equal, you’re better off selling one house and buying another in a down market than in a booming one. Many selling and purchasing costs are based on the home prices, so they will be lower now than a few years ago.”
Empty Nesters’ Solution Could be Renting
There’s no rule that says once you’re a homeowner, you must remain a homeowner. Some empty nesters and retirees who decide to downsize trade a house for an apartment to avoid many of the above expenses.
Aimee Elizabeth, author of Poverty Sucks! How to Become a Self-Made Millionaire, advises, “In general, renting is usually cheaper than buying. When you factor in the ever-rising costs of taxes, insurance, repairs and maintenance, on top of a mortgage payment, it’s much less costly and less stressful to rent.”
Since fewer costs and less stress are exactly what the majority of retirees are after, renting may be the solution to downsizing without the money and hassle of buying another property.
Plus, as Jeff Brown of TheStreet.com explained on Yahoo!, “This could be appealing if you had a special need for that extra cash, or if you saw a juicy investment opportunity. If you were willing to risk the stock market, the extra $200,000 might grow enough to offset some of what you’d pay in rent.”
Of course, there’s no one-size-fits-all answer here. So when deciding if downsizing will benefit your savings, and whether you should buy or rent, Elizabeth adds, “For a retiree or empty nester, it really depends on where they currently live to decide if downsizing makes sense right now. Certain parts of the country were not affected by the real estate bubble at all. Other parts, like where I live in Las Vegas, are just starting to recover…you need to run the numbers.”
