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10 things to consider when downsizing
Want to downsize your house? Here are 10 things to think about before you do.
Thinking of downsizing your home? You’re not alone. More than half of Australians over the age of 55 are open to the idea of downsizing, according to a 2018 report from the Australian Housing and Urban Research Institute – and thanks to our ageing population, it’s a trend that’s on track to grow.
As more and more Baby Boomers turn 65, that family-sized home on a quarter-acre block might increasingly look like a lot of hard work. But for people of every age, downsizing can be the gateway to a less stressed, more financially fit lifestyle. (More: How COVID-19 could impact housing and design.)
But before you take the jump, here are 10 important things to consider when downsizing.
Downsizing can be the gateway to a less stressed, more financially fit lifestyle.
10 important things to consider when downsizing
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 David. “And we find it’s the 55 to 65-year-old downsizers that find it particularly stressful.”
Choosing a real estate agent who knows the market in your area and who 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 David.
“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 is a significant impost on buying a house. Currently, if you were buying a $600,000 property, the stamp duty would be $31,070. But when totting up the sums, 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. But if moving to an apartment, make sure you check the body corporate fees, which will be considerably higher if the complex includes mod-cons such as a swimming pool and a lift.
The profit factor
After you’ve sold your home, what to do with that fistful of dollars? As Noel Whittaker explains, 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. “By selling a house worth a million dollars and buying one for $600,000 you’ve converted $400,000 of exempt assets into assessable assets. Every $100,000 of assessable assets costs you $7800 a year in pension, so the loss of pension, in this case, would be $31,200 a year." A federal government tax incentive allows some downsizers to top up their superannuation by releasing equity from the family home, and there are other ways to lessen the hit, including an investment known as a life income stream. But the bottom line is that unless you’re a bonafide financial whiz, it’s important to get professional advice from a licensed investment adviser or accountant to guide you through what is a complex area.
Many high-spec modern apartment developments offer communal facilities.
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. Noel recommends a ‘try before you buy’ approach. 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, try renting a place there for half a year before making the big jump, says Noel. “That place you’ve always enjoyed your Christmas holidays [in] might not feel the same when it’s a permanent move.”
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 wine cellars, rooftop gardens and outdoor barbecue areas which can be a great way to meet the neighbours and become part of your new community. (More: Suburb features that add thousands to your property value.)
How much personal space do you need? Like Greta Garbo, do you want to be alone – 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 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.
Choose your village wisely
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. But 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, 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.
Make sure your future home will still accommodate your lifestyle.
Edit your stuff
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 edit. 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 Britta 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 Britta. “It’s a great opportunity to begin again without all that clutter.”
Find the right 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 that minimalist concrete and glass box, 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.
Consider the alternatives
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.
Selling your home? RACV can help you navigate the property journey. Visit: racv.com.au/selling-a-house