Today’s guest post was written by Katie Conroy from Advicemine.com.
Downsizing your home in retirement is a popular and wise decision. Many seniors realize that they have a larger house than they need. Kids’ rooms become large storage closets, and the living room starts to feel redundant. Between energy costs, insurance payments, and taxes, holding on to a house that’s too big your needs can wind up having a substantial impact on your monthly expenses. For retirees on a fixed income, every penny spent counts.
Moving to a smaller space can lower your costs and bring a sense of simplicity into your life. However, there are a few common mistakes seniors make when downsizing. Keep your eye out for these road bumps so you can avoid them on your way to your perfect home.
Ignoring Your Budget
Once you decide to move, looking at listings gets very exciting. However, jumping into a search before you’ve figured out exactly what you can afford is a very big mistake. It’s easy to accidentally fall for something outside of your budget.
If you’re not selling your current home in order to purchase your new one, it’s especially important to figure out what sort of house you can financially manage. Take a look at your current income and monthly expenses, and use that information to come up with a feasible price range. Once you have that range, search for average sale prices in the area to see if you can afford to live there.
Assuming Smaller Always Means Cheaper
If you’re downsizing, your new house should cost less than your current home, right? Not necessarily. Among the most common mistakes downsizing homeowners make is assuming that a smaller home is always a cheaper home.
As a senior, you have to keep accessibility in mind in your search. Deals like fixer-uppers or houses with odd architecture may not be an option for those already seeking a more senior-friendly home. Remember that it may take longer than you expect to find a smaller, accessible house in your price range. You’ll also need to factor in costs of installing your own upgrades. Be patient if you can and wait for the right deal to arrive.
Jumping Into Being a Landlord
If you’re considering renting your old home, don’t romanticize the benefits of turning the house into an investment property. Although it’s possible to make a tidy profit off the monthly rent payments, there can be serious downsides to dealing with renters.
Even the renters who give the best first impression are something of a gamble. You cannot guarantee that they won’t miss payments, cause damage, or leave their lease early. These situations will wind up costing you and may negate the profit you’d made up to that point.
It’s also likely that seniors renting out their old home may need to hire a property manager. This is a person who is trained to handle tricky tenant situations and reduce the burden on the property owner. However, paying them will take a chunk out of your profits, and bringing in this additional help could make it less worthwhile.
Gifting Too Generously
Keeping the house in the family is an appealing option for many seniors. However, try to avoid the temptation to give your family too good a discount. You can certainly sell it to them for less than you might to a stranger — however, price it too far below its market rate and you can wind up paying dearly come tax time.
A good compromise can be renting it to a family member and designating ownership to them in your estate. However, this too can cause problems, as this dynamic has the potential to harm your relationship with the family member in question.
There are plenty of feasible options for downsizing to a smaller space, each with their own pros and cons. Do your homework and avoid making idealistic assumptions about the choices you need to make. By staying informed and keeping a level head, you can make the transition to a smaller home as smooth as possible.
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The information presented in this article is for educational purposes only and should not be considered legal, financial, or as any other type of advice.
