This week, we’re continuing the downsizing theme by taking a deep dive into its financial impact.
I’ve learned over the years that people often downsize only to find that it doesn’t generate the cash flow they expected.
Consider, for starters, what you expect to have left over from selling the old house.
I’m not referring to the gross selling price, but rather the net price. You’ll probably have to put some money into the house to prepare it for a sale, and you need to be realistic about the work that needs to be done and what it will cost.
Of course, you need a good idea of what a buyer is likely to pay. Get the opinions of several real estate agents before making estimates.
It is best to have a range of probable prices, from best case to worst case.
Determine the selling price at which downsizing doesn’t make sense, and how likely the house will fetch more than that price.
Remember, there will be selling costs, such as the real estate agent’s commission and other costs.
For example, does your locality have a sales tax or other transfer tax that applies to home sales?
Of course, even after paring your possessions, there’s a cost to moving everything remaining to the new residence.
That cost is going to depend on how many things you plan to move and how far you move.
Another cost of downsizing is setting up the new home.
People often find that furniture that was fine in the larger home doesn’t work in the new home.
Or perhaps the old stuff now seems too old, in the wrong color, or style for the new place.
In other words, carefully consider how much of your current stuff you’ll be able to take to the new home and how much you’ll have to pay to outfit the new home.
The final piece of the puzzle is the monthly cost of the downsized home.
Will you really save a lot on utilities and other regular expenses? Some people find that amenities or services they had in their long-time homes cost extra in their new homes, or they find the utilities and other ongoing expenses aren’t as low as they anticipated.
Some people find they’re traveling to visit family and friends more, or dining out more, because the downsized home isn’t suitable for hosting or entertaining.
Don’t take any of these details for granted. Develop realistic estimates of your new lifestyle and living expenses.
Sometimes downsizing is essential, because the house is simply too big, or too much work at this stage of life.
But when downsizing is optional, and you’re doing it primarily in expectation of financial benefits, take the time to objectively assess the likely results.