Uncategorized April 7, 2020

The Downsizing Dilemma: What About the House?

The Downsizing Dilemma: What About the House?

If you’ve made the decision to downsize from your current home into a smaller home or condo, or to move into assisted living or a retirement community, you need to figure out what to do with your house. Though you may have a deep sentimental attachment to your long-time home, it might not make sense to keep it. Let’s take a look at your options.

Should you keep the house?

If you are in great shape financially, you may consider allowing a relative or friend to live in the home. With this option, you can be assured that your home is in good hands. And since you don’t need the income from selling or renting out the place, you may feel most comfortable with this option. You can allow a family member or good friend to take occupancy of the home, handle all the upkeep and repairs, pay the utilities, and live rent-free.

Even if no money is exchanging hands, you should have a written agreement detailing how house matters will be handled. For example, who will pay for major repairs, such as a roof replacement? Will you be allowed to visit the home whenever you please? Will you still be storing belongings in the home? As long as you have an honest discussion about these questions and any others that concern you, this type of arrangement can be very beneficial to everyone involved. Keep in mind that unless you are passing on such costs to your loved one, you will still have to budget for homeowners insurance, property taxes, HOA fees, and other expenses associated with home ownership.

Should you rent out the house?

A 2018 survey indicated that fewer than 10 percent of landlords are of retirement age, but that doesn’t mean you shouldn’t consider renting out your home, particularly if you already have the money you need for the down payment on your new place. Renting will allow you to bring in some income, which could go toward your monthly expenditures or other needs.

In this situation, you will still need to pay the aforementioned expenses such as insurance and taxes, plus you might have to pay a property management company. Typically, property managers take a percentage of the monthly rent as their fee. You need to take a very good look at your finances to figure out if renting out your house is financially prudent. Factor in all your expenses on your old house, as well as your new home, to determine if becoming a landlord is right for you.

Should you sell the house?

Do you need money to buy your new place, to pay off debts, to fund medical expenses, or for something else? If so, then you should probably sell your house. Though it might be tough to let go of a home that you’ve lived in for many years (or decades), you want to put yourself in a good position financially. If you have enough equity in your house, the profits you make by selling it could help pay for a new smaller place.

You will incur a number of expenses when selling your home, including closing costs as well as real estate commissions which are typically 5-6 percent of the home’s sale price. You may also have to pay capital gains taxes or money to prepare your home to sell, such as for repairs, renovations, and staging costs.

Before listing your home for sale, you should figure out how much it’s worth by using an online home-proceeds estimator, which gathers data from other homes in the area that were recently sold. Seeing how much your home is worth can help you decide whether it’s worth selling it to finance your new home.

Finally, if you’re buying a new place, you’ll need to start shopping for mortgages. If you’re looking for a low-cost loan with lower monthly payments, consider a conventional mortgage. This type of mortgage can be used for many different types of properties, and you won’t have to pay for private mortgage insurance if you put 20 percent down.

It’s always difficult to move on from your home, especially when you’ve made so many memories there over the years. However, downsizing into a smaller place can allow you to enjoy your golden years with fewer expenses, maintenance issues, and hassles. Take your time and carefully evaluate your income and expenses in various scenarios before making a final decision as to how much you can spend on a new home and what you should do with your old one.

Jim Vogel