Downsizing in retirement is often the smartest choice for seniors who own property. Living alone in a large house, or paying to maintain your home, can prove stressful and expensive. But there are options for downsizing, and each has its benefits and drawbacks. Here’s what to consider when downsizing as a senior.
Selling Your Home
You might want to sell your current home to purchase a new one. But before you list your house, some research is necessary to ensure you’re making a thoughtful financial decision.
First, investigate your neighborhood listings and recent sales. Looking at comparable properties—including the most recently sold ones—can help you determine what homes similar to yours are selling for. Comparables aren’t the only factor in pricing your property, however.
A thorough property value analysis involves other valuing factors, like the desirable features and traits in your home. Market conditions and the neighborhood (and its amenities) can also influence the final estimation of your home’s value.
Deciding Whether to Become a Landlord
If you plan to move away from your existing home but aren’t ready to sell, renting can be a worthwhile endeavor. After all, almost 37 percent of people in the United States rent their houses, the Pew Research Center notes, which means plenty of potential renters for your property.
Plus, becoming a landlord means you’ll enjoy a consistent monthly income. Rental income is helpful if your monthly income from Social Security or retirement is low. If you still have a mortgage on your house—or even if it’s paid off—having that monthly financial boost can be instrumental for your financial future.
Serving as a landlord does involve keeping up your property or paying someone to handle those responsibilities. Consider the potential benefits and weigh them against the work required to decide if renting is right for you.
Keeping Your Home in the Family
While renting is one way to keep your home and help boost your income, if your primary concern is keeping the property in the family, that’s a feasible option, too. If you’re downsizing from a too-big home, it could make sense to pass the property to loved ones with larger families.
At the same time, you don’t have to deal with maintenance and upkeep on the home—and you can rest easy knowing the house is in good hands.
The downside to keeping the house in the family is that you could face a high tax bill if you give up ownership. For example, if you let a family live in the home without paying rent, you can’t claim tax benefits as a landlord.
Further, selling your home for less than fair market value can mean a tax bill for your family if they decide to sell the property. They must live in the house for two years or more to avoid heavy capital gains taxes on the proceeds of the sale, Nerd Wallet explains.
For seniors who are downsizing without selling a home to finance a new property, affordability is a crucial consideration. Calculate what you can afford by tracking your monthly spending, estimating down payment amounts, and considering your income. To avoid overspending, set a comfortable budget, and stick with it.
Whatever you decide to do with your home, downsizing can be both liberating and stressful. But with careful preparation, you can make the decision that’s right for your retirement lifestyle and your finances.