Downsizing

11 things to consider when downsizing your home for retirement

woman standing with coffee cup and man sitting on a table

RACV Staff

Posted October 17, 2022

Contemplating downsizing to a smaller property? Here are some key things to think about to make an informed decision about downsizing.

Thinking of downsizing your home? You’re not alone. Thanks to strong property prices, work and lifestyle changes in the wake of pandemic, and new government legislation and financial incentives, downsizing is likely to be something more Australians consider. 

As more and more Baby Boomers turn 65 and cost of living pressures grow, that family-sized home on a quarter-acre block might increasingly look like a lot of hard work. Downsizing can be the gateway to a less stressed and more financially-sustainable lifestyle, and better align with lifestyle changes stemming from the pandemic.

Downsizing is not without its challenges. However, today, services like Homesuite can support Australians in making informed downsizing decisions, including understanding what’s possible, and helping to prepare for the transition into a smaller property.
 

 

What to think about when downsizing

1. The stress of selling

Selling a house can be one of life’s most stressful experiences – and costly too. David Ginnane, chief executive of Agent Select, an online agent comparison platform and RACV partner, says typical agent fees are around $20,000. “Selling a home is one of the most complex and stress-inducing transactions people will ever do,” says Ginnane. “And we find it’s the 55 to 65-year-old downsizers that find it particularly stressful.”

Choose a real estate agent who knows the market in your area and whom you trust can mitigate the angst. Agent Select helps remove guesswork by using a performance algorithm to assess all agents in an area before reaching out to a shortlist of the top two or three. They are then invited to make their pitch to the vendor with a simple one-page breakdown of fees and charges, including photography and advertising. “By virtue of guiding and supporting people we can help them take that first step,” says Ginnane.

2. Unexpected expenses and savings

“Every investment decision has a cost,” says financial guru Noel Whittaker, co-author with Rachel Lane of Downsizing Made Simple. “If you downsize from, say, a million-dollar house to a $600,000 house, it’s probably going to cost you 60 grand and that’s a big loss of capital.” Stamp duty alone is a significant impost on buying a house. Currently, if you were buying a $600,000 property, stamp duty would total more than $31,000, according to the State Revenue Office Victoria.

When contemplating the costs involved in downsizing, don’t forget the incidentals can make a difference to your ledger over time. For instance, it costs much less to heat and cool a smaller home. Liberation from garden maintenance and cleaning a large house can represent a small fiscal fortune as well. Council rates are also likely to represent a healthy saving. Newer properties may also feature solar panels or a solar battery to reduce energy bills, or even electric vehicle charging.

If you’re considering downsizing to an apartment, make sure you check the body corporate fees, which will be considerably higher if the complex includes amenities such as a swimming pool and a lift.

3. Tax and pension implications

After you’ve sold your home, you may have a few investment options to consider. According to the ATO, a primary residence is an exempt asset for age pension purposes but selling it to release cash may reduce or eliminate eligibility for the age pension.

A federal government tax incentive allows some downsizers to top up their superannuation by releasing equity from the family home, and there may be some other ways to lessen the hit, including an investment known as a life income stream.

The bottom line is that unless you’re financially savvy, it’s important to get professional advice from a licensed investment adviser or accountant to guide you through this complex area.

bedroom with white and gray linen and windows

Many downsizers are motivated by the need to find more manageable properties.

 

4. The chance to future-proof your new home

For downsizers at the retirement end of the property cycle, finding a home or living arrangements suitable to the needs of old age is crucial. If you’re thinking of moving in with your adult children, for instance, first test the waters by spending meaningful time in each other’s company on a day-to-day basis.

The layout of the home is important, too. Consider the suitability of a home with stairs for anyone heading into their seventies and eighties. And before deciding to buy into that gorgeous seaside village where you’ve enjoyed holidaying for years, it may be wise to rent a place there for half a year before making the big jump.

5. Granny flat legislation in Victoria

Granny flats can be a useful addition for housing dependents who want to be close by but enjoy the privacy of their own space, however there are few legal steps to consider.

Under Victorian law, only one person can live in a granny flat at any time. That person must be dependent on the person/s in the main home – usually this is because of an economic, social or medical disadvantage. Make sure to check your local council’s guidelines for any further restrictions on granny flat size, privacy requirements, and other guidelines.

Learn more about granny flats here.

6. Sense of community 

Many downsizers are motivated by the need to find more manageable properties, but people shouldn't discount the rewarding intangibles of community. Proximity to family, friends, sporting and social clubs is important, and it can be hard to establish a new social circle, particularly when you’re older. Again, trying before buying can give a realistic idea of what living in a particular suburb or town is like.

On the plus side, many modern high-spec apartment developments aimed at downsizing owner-occupiers offer communal facilities such as rooftop gardens, outdoor barbecue areas and even wine cellars which can be a great way to meet the neighbours and become part of your new community. In fact, opportunity to expand social networks can be one of the benefits of downsizing.

7. Need for personal space

How much personal space do you need? Do you want to live solo – or, if you’re moving with other people such as a partner, child or even a friend, do you need an ensuite, walk-in robe, study nook or a small sitting room to call your own? It’s worth thinking about how much you entertain, too. If you love hosting dinner parties, you’ll need space for a dining table, and if you’re making a sea-change or tree-change, you might want to factor in a spare bedroom for all those friends who’ll be clamouring to visit.

 

living room with white and red furniture

Downsizing your home means downsizing your stuff, too. Image: Getty.

 

8. Adapting to lifestyle changes

Downsizing is often synonymous with apartment living – and judging by the number of high-spec apartments aimed at the downsizing market, Australians have lost their traditional aversion to this European style of living.

Before you embrace the considerable freedom of the lock-and-leave lifestyle, stop to consider the proposition of privacy and neighbour noise. Moving from your own freestanding home to sharing a party wall with strangers can be confronting (if sound proofing is inadequate), and doubly so if you choose the wrong block and find yourself subjected to holiday rentals and late-night parties. Due diligence, including casing out the area on a Saturday night, may avoid a lot of sleepless nights and angst later on.

9. Reducing your possessions

Stuff. We all have it. Some have more than others. But when downsizing, the amount of stuff you possess is likely to require a keen cull. Professional home organiser Britta Reinecke of The Urban Organiser recommends triaging your possessions into three categories – definitely leave, maybe leave and definitely take.

“Many people get to the other end on a move and find they have simply taken too much with them,” she says. “It’s a very emotional thing to go through.” A professional such as Homesuite can guide you gently through the streamlining process, but if you choose to go it alone, remember that there’s little use holding onto things that haven’t been used in years. “Choose to see this as an exciting fresh start,” says Reinecke. “It’s a great opportunity to begin again without all that clutter.”

10. Finding the right furniture fit

If you’re downsizing to save money, you probably won’t want to take a chunk out of your profit by having to buy new furniture to fit the new space. Take a step back from the initial excitement of embracing a new lifestyle. Before committing to a new and modern abode, think about how your collection of antique furniture would look in such an ultra-modern setting. If it’s too much of a mismatch, it might not be quite right – for your furniture, or for you.

11. Alternatives to downsizing

If you’re feeling pushed reluctantly into downsizing, it’s worth pausing to weigh up different ways of living. There may be other options. If you’re suffering empty nest syndrome and an unsettlingly quiet house, you might consider renting out a spare bedroom to generate some extra cash, as well as company. It’s becoming increasingly popular for retirees to share a home. Alternatively, renting out your home long-term and striking out on the wide-open road as a grey nomad could be another winning idea.

 

Thinking of downsizing? Homesuite makes it easier.
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RACV has partnered with Homesuite to help guide members through the property buying and selling journeys.