If you’ve decided to downsize, you certainly aren’t alone in that decision. According to a TD Ameritrade survey, “42 percent of Americans plan to downsize in retirement.” Downsizing can be a great way to lower expenses as well as reduce the time, money, and effort it takes to maintain a large home. When downsizing, you have a variety of choices as to what to do with your current home.
If you need an influx of money to be able to pay for your new home, the best option is to sell your existing property. If you have a lot of equity in your home or it's paid off completely, you'll be able to purchase a new home while also putting a little money aside for other expenditures. Contact with a real estate pro that is intimately familiar with your area and has sold a number of homes in recent months. You don't want to have your home listed for months and months on end without a buyer in sight. Your realtor will let you know if you should make any improvements to your home before you put it on the market. They will also help you with professional listing photos, staging of the home, and all those other details to get the maximum value out of your house.
Rent it out
If you want to become a landlord and have a stream of income, you may want to rent out your current home. Buying another property and renting out your existing home can diversify your investment portfolio, enabling you to reduce your financial risk. However, it’s not without its pitfalls. According to Zacks, about 44% of older adults aged 60 to 70 are still paying off their mortgage in retirement. If you are keeping your existing home and buying a new one as well, you may have two mortgage payments each month. When deciding whether you should rent your property or not, consider a number of factors that will affect any profit, including mortgage payments, property taxes, insurance premiums, HOA fees, repair costs, maintenance issues, and property management fees.
Let a family member move in
If you want to keep your home in the family, you can allow a relative to move in. You could sell it to them, charge them rent, or allow them to stay for free in exchange for caring for the place. If you choose to go this route, you'll need to lay down some rules before they move in. Who will pay for utilities? Who will maintain the lawn or deal with small repairs? Can you visit the home anytime? Will you take the furniture with you to your new place? Will you store much of your belongings there? Have a frank conversation with your relative to work out all the details. You don't want to damage your relationship over issues with the house.
Keep financial security in mind
If you've decided to downsize and purchase a new, smaller home, but not sell your existing house to pay for it, you must determine how much you can truly afford. Crunch the numbers and assess your financial situation honestly: How much money do you have available for a down payment, what is your monthly spending, and what is your annual income? Also, consider property taxes, HOA fees, repair and maintenance costs, and other expenses associated with the home. Set a budget before you visit with lenders or start shopping for homes, so you won't be tempted to purchase a home outside your affordability. The last thing you want is to be struggling to make your house payments as you get older.
Downsizing can be a very freeing experience for seniors. However, it doesn’t come without some serious decision making. Whether you want to sell your old home, rent it out, or let a family member move in, you need to do some research and explore the financial ramifications and other factors to determine the optimal option for you.