The Rules of Downsizing | Part 1: Emotional and Practical Considerations
The Nuances of Downsizing: From the Family Home to the Next Stage
Downsizing from a family home to an apartment can offer numerous benefits, including financial savings, reduced maintenance, and a more manageable lifestyle. However, this transition also comes with distinct challenges and costs that must be carefully considered. For a downsize involving a move from a $2.5 million home to an apartment valued at $1.75 million, homeowners need to evaluate the full spectrum of factors involved.
Tourist Alert:
The last time you sold or purchased a home, Bob Hawke may have been the prime minister.
If it has been 20 years or more since you last sold or purchased a home, the internet did not exist.
Prices have changed dramatically during this time, and you have benefited from doing little while seeing the value of your property increase by over $1 million. This doesn’t make you a financial genius; we’ve all been very lucky. Once “ugly duckling” suburbs have been gentrified, and there’s now greater demand for certain lifestyles in coastal and inner-city areas.
So, start here: take a deep breath. Yes, the stamp duty will make you cry, but everyone else, including your children, has had to pay it as well. So, be an adult and just accept it. Remember that $1 million or more you’ve made before complaining too loudly.
Gentlemen, if you think you’re in charge of this, think again. Keep an eye out for my laundry comment later in this article.
Challenges / Hurdles of Downsizing:
Do You Need To, and When? Is Now the Right Time?
The first question is: Do I need to downsize? What are your motivations for attempting this stressful emotional rollercoaster, which every friend and colleague will have an opinion on?
Our experience shows that every five years after age 70, your ability to downsize gets 25% harder, and eventually, it becomes impossible. Your mobility and mental acuity will have diminished to the point of near no return, and you may no longer be able to handle any level of change.
Some of the usual questions are:
Why would you want to move to an apartment?
Your house is lovely—why leave?
What about the grandchildren? Where will they stay?
And the questions go on and on.
Start a list! Use your brain and think a little. This will help remove the irrational “no” from your decision-making process. Treat this like an investment transaction: adjust your list as you become more informed and as facts change about what you want.
Some points to consider are:
Emotional Adjustment: Moving from a long-time family home to a smaller space often comes with emotional difficulty. This change can evoke memories and attachment to the former home, which may take time to reconcile. Additionally, adjusting to a smaller living area can initially feel restrictive.
Space Management: One of the most immediate challenges is accommodating personal belongings. Decluttering and deciding which items to keep, sell, donate, or discard can be stressful and time-consuming. Storage solutions or external storage rentals may add unforeseen costs. How much space do you actually need? That third bedroom in an apartment will cost around $500,000 extra. Will it just sit empty most of the time?
Lifestyle Changes: Moving from a house to an apartment may mean trading outdoor space and privacy for shared amenities and closer neighbours. This shift may not suit everyone’s lifestyle preferences or may take time to get used to.
Parking Issues: Apartments in built-up urban areas often have limited parking facilities. Homeowners accustomed to spacious garages or driveways may face challenges with assigned parking, paid parking spots, or navigating public parking. The availability and cost of parking can impact daily convenience and your budget.
Body Corporate Rules and Fees: Living in an apartment means adhering to body corporate (or homeowners' association) rules, which can regulate aspects such as noise levels, renovations, and the use of shared amenities. Additionally, body corporate fees can be significant and vary depending on the building's facilities and maintenance needs. These fees should be factored into long-term budgeting. Is a smaller block the right option, or would more units with more owners to share costs be better? Consider these in light of your ongoing maintenance costs for your own home. Use $5,000 per annum for each $1 million of your home value as a low guide.
Length of Time to Find the Right Property: The process of finding an ideal apartment can take longer than anticipated. The search involves balancing personal preferences, budget constraints, and available properties in desired locations. Market conditions and competition for sought-after units may extend the timeline, adding pressure to the transition.
Selling First or Buying First: Homeowners must decide whether to sell their current home before purchasing a new property or vice versa. Selling first provides a clear budget for the next purchase and avoids the risk of owning two properties simultaneously, but it may create pressure to find a new place quickly. Buying first ensures that the ideal apartment is secured, but it may necessitate bridge financing or lead to financial strain if the current home takes longer to sell. You may even consider financing the downsizer home and selling your place over time. There is still market risk with this option.
Stairs: Those knees aren’t getting any younger. A client of mine once owned an apartment with internal stairs. Each of them damaged their ankles at different times, which almost made them hostages—they couldn’t get up and down the stairs to the bedroom for a period. I won’t say totally avoid stairs, but think carefully.
Do I Stay Where I Am Currently or Leave a Major City Centre for the Coast or Regional Areas? This is the big one, and everyone has an opinion on it. So, first thing, keep it to yourself and maybe use the clean air to try a few things. One of my friends moved north for about 12 months, got away from the rat race of the big city, and only returned for employment. But I think he’s returning when the time is right. Don’t be turned off by irrational and sometimes emotional arguments. Walk your own line. If you can, get some employment where you intend to retire. This will give you insight into whether that town or region is right for you. And if it is, don’t hold back.
Don’t Relocate Regionally Thinking Everyone Will Visit You: The fact is, people don’t visit as much as you think. So, beware of a period of resettlement when you leave a major city centre. Jump into the local community if you can. This will smooth the transition process. A number of clients and friends have done this successfully. I think they have a better retirement, as creating new relationships after age 60 is great for your mental and emotional health.
Decluttering Your House and Cleansing the Mind: How about cleaning out all your stuff (crap) from the last 20 or 30 years? Why are you keeping that school report from Year 8 of a child who was less than average? Along with all the other stuff? Take a picture, create an online or physical album, and let it go. I have clients who do not intend to “death clean” their stuff before they go. They leave it to their adult children. To be frank, this is unfair and perhaps a little selfish. We should take the time (since we have it) to relocate some of our possessions so they don’t end up in a landfill when they still have life left in them.
(To be continued)
Brett Tarlington