The Rules of Downsizing | Part 2: Financial and Practical Planning for Downsizing
Non-Negotiable Items When Downsizing
Before making the move, homeowners should establish their non-negotiables, essential features that must be present in the new apartment/townhouse. These can include proximity to family and friends, access to public transport, the presence of green spaces, sufficient storage, pet-friendliness, and building amenities such as a gym or pool. Clearly identifying non-negotiables helps streamline the decision-making process and ensures that the new living situation aligns with personal priorities and lifestyle needs.
Be Flexible – Change Your View as the Facts Change – It Is Okay
In the first few weeks of the downsizing process, treat this as an education process. Be open-minded.
We almost purchased the second apartment we viewed. It would have been okay, but not quite right, so we are grateful to the cantankerous owner who would not come to the negotiating table.
Three weeks after this, it became a little clearer what we wanted. We just did not know it at the time. It was too early in the process.
Over 55s (Now Over 60s) Apartment or Standard Apartment?
Homeowners should consider whether to move into an Over 55s-labelled apartment or a standard apartment. Over 55s apartments come with some rules, and most residents will be over age 65.
Practical Items for Consideration When Inspecting a Property
Water Pressure: Check this by turning on a tap or asking.
Cupboards and Drawers: Do these work or need to be replaced? Open a few.
Building Age and Maintenance: How old is the building? What maintenance should you reasonably expect over the next 10 to 15 years?
Balconies and Exterior: Check for water runoff or damage.
Gyms and Pools – Expensive and Unnecessary
I have seen a few complexes with these two amenities. I have had comments from potential buyers who don’t swim or go to the gym now!
You could have a $100-per-month gym membership for 40 years to offset the extra capital cost of a gym or pool.
Ask anyone who owns a pool about the time and costs to run one of these.
Irrational Arguments
We recently looked at an apartment with a shared laundry. I did not see a problem with this; my wife did not want any part of it. Cross that one off the list. This was not an irrational argument, I was told.
Considerations – Returning Children
Like marine life and birds, children do return to the family home from time to time.
How to accommodate this (or not)? Tell them! They may have their own ideas.
Build Your Knowledge Base
We walked into this like deer in headlights. I am a financial planner and assist clients in selling properties on a regular basis.
Reverse-engineer the sale. Use a real estate search engine and look at sales over the last 12 months in the area you think you want to move to. This will do a few things: one, give you an idea of different property types available; two, identify which agents sell in the area regularly; and three, provide insight into the pricing of properties.
The more information you have, the more realistic your expectation of your purchase price. The same is true for the sale of your own home.
Real Estate Agent Blackmail: We agreed to a sale contract with an agent who was also acting for the vendor of a property we were looking to buy. I am not convinced this was the right thing to do in hindsight.
Use a Buyer’s Advocate: Find the property you are after and let someone else handle the negotiations on your behalf.
Keep in mind, this is an emotional sale. You will sit at home one night, maybe on your own, and think, “This might be the last time I mow the lawn.” Before you know it, you have a tear in your eye you did not expect. I also just bought a new mower.
Considerations for Family Pets
Fur children give you more enjoyment than your human children. I get this.
For those with pets, considering their well-being is crucial when downsizing. Check the pet policies of potential apartment buildings, as some may have restrictions on the size, type, or number of pets allowed. Ensuring there is enough space for the pet to live comfortably, as well as access to nearby parks or pet-friendly areas, is essential for maintaining their quality of life.
Get Your Finances in Order
A critical step before downsizing is organising your finances. Homeowners should assess their current financial situation, including mortgage obligations, equity in their current home, and additional savings. Will there be surplus funds? If so, how much, and what should you do with it?
Keep in mind that a high percentage of downsizers do not walk away with surplus money from the transaction in high-value areas.
Consulting with a financial advisor can help set realistic expectations, create a budget for the new property, and ensure there are sufficient funds for associated costs such as real estate fees, taxes, and renovations. Preparing financially ensures a smoother transition and prevents unexpected financial strain.
Where to Move?
Selecting the right location is crucial for a successful downsize. Many homeowners look for vibrant, well-connected areas that offer a blend of convenience, amenities, and lifestyle benefits. Suburbs with good public transport, nearby green spaces, and access to healthcare and shopping centres are popular options.
The presence of green spaces not only provides aesthetic and recreational benefits but also promotes mental well-being and a sense of tranquillity. City neighbourhoods that strike a balance between urban activity and quieter residential zones can also be appealing. Researching neighbourhoods for affordability, safety, and community resources is essential.
Financial Implications
While downsizing can release significant equity—on average about $200,000 to $500,000 in a really good outcome—you need to consider the associated expenses that can reduce the net financial gain.
Key costs include:
Real Estate and Legal Fees: These can total 1.5% to 2.5% of the property value, potentially $30,000–$50,000 for a $2.0 million home.
Moving Costs: Professional movers, packing services, and insurance can amount to $5,000–$15,000.
Renovations and Apartment Customisation: Renovating the new space or personalizing it may range from $20,000 to over $50,000.
Additional Costs: New furniture, homeowners’ association fees, and ongoing maintenance costs can impact savings.
Expect that you may need to undertake some renovations when you move. Most of us did a lot of this when we moved into the home we have been in for an extended period.
Downsizing can ultimately provide financial and lifestyle benefits, but navigating its complexities requires thorough planning and realistic expectations.
Getting Your Home Ready for Sale
We kind of started this process. We made an offer on a property, and then the agents came in the next day to our house and gave it the once-over: get rid of this, move that, clean the outside of the house—the list was exhaustive.
Over the years, I have watched clients fuss over very minor details when selling a property. Ask the agent if this is going to make any difference to the end price.
Only recently, I looked at an apartment with new carpet. If we purchased it, the carpet would be ripped up and replaced with floorboards. The agent was not apologetic; he commented that he could not sell the place in the state it was in before the new carpet. Fair enough!
Work out if your home is in high demand. Will this be an easy or hard sale?
Where to Start?
Follow the link to the financialwellnesshub.com.au.
Check out the Topics tab.
Book an online special topic: Downsizer session.
Brett Tarlington