How to Make the Correct Housing Decision When Downsizing in Your Golden Years
Downsizing to a smaller home can be a great choice for seniors who want to reduce expenses and maintenance hassles. When an older adult is ready to downsize from their current home, they may face a conundrum regarding how to proceed. Before selecting a new place to live, seniors need to figure out what to do with their current home. Due to the various financial and family considerations, it’s a decision that needs to be thoroughly studied.
Ensure Your Home Stays in the Family
If a person doesn’t need to sell their existing home in order to afford their new home, that opens the possibility of allowing family members to move in. If the goal is to keep the house in the family for generations, this is the safest way to do that.
However, it’s important to make sure the math checks out before allowing relatives to move in. Seniors can withdraw approximately 4 percent of their savings per year after they retire. Also, factor in any pensions or income from Social Security to get a clear financial picture.
Additionally, it’s important to do homework regarding the new home. Seniors should look at the housing market in order to create a reasonable housing budget. Not only should they figure out how much house they can afford, but they also need to make sure there are suitable houses on the market that fit within their budget. When calculating the housing budget, consider the advantages of a 20 percent down payment. If the math checks out and a new home is attainable without selling the current home, that’s when it’s suitable to allow your family to move in. When doing so, it’s important to set rules regarding upkeep and whether they will be obligated to pay any money toward the ongoing costs of homeownership.
Sell Your Home to Finance Your Downsizing Efforts
In most cases, seniors will need to sell their current home in order to finance their new place. Before beginning the home selling process, it’s easy to calculate the expected net proceeds. First, look at the local housing market conditions to estimate how much the house will sell for once it’s placed on the market. Next, subtract 10 percent to account for fees for the real estate agent, seller concessions, staging, and other miscellaneous costs. Finally, subtract whatever is needed for mandatory repairs and to pay off the remaining mortgage amount.
Rent Out Your Home to Create an Income Stream
A midpoint between allowing family to move in and selling a home is renting it out. Not only does this option allow for the possibility to eventually pass the home down to the next generation, but it also produces a stream of income that can help pay for the new house.
To estimate the expected rental income, research the local housing market for comparable homes that are currently available for rent. Not only should the comparable house be in the same general location, but it should also be close to the same size.
While renting out a home may sound like the perfect middle ground, it doesn’t come without downsides. Landlording can become a time-consuming job. Plus, landlords are still on the hook for property taxes, repairs, home insurance, and routine maintenance. If a quality tenant isn’t found, the costs can continue to pile up. According to TransUnion SmartMove, evicting a tenant costs approximately $3,500 and takes an average of around four weeks.
When a senior is ready to downsize, the first step is to decide what they want to do with their current house. With the right research and calculations, it’s possible to make a smart decision that factors in all financial and familial considerations.
Article written by Jim Vogel, Elder Action, [email protected]
Photo via Pixabay