Embracing a new chapter in life by moving homes can be both exhilarating and daunting.
Many of us associate upgrading with moving into a larger home, but downsizing can also bring great benefits and has helped many people achieve their financial and lifestyle goals.
To assist those considering their property strategy, we have created a guide to help you evaluate whether downsizing is the right option for you. By approaching this decision with the right perspective and insights, you will hopefully be able to confidently determine whether selling your current home and downsizing will help you live the life you want.
What do we mean by 'downsizing' your home?
Downsizing homes refers to the process of selling your current home in order to move into a smaller house or unit, typically one with less rooms, space and maintenance requirements.
People downsize for a variety of reasons, with lifestyle factors often the biggest driver behind the change.
Why would someone want to downsize their home?
These are some of the most common reasons why people choose to downsize:
Freeing yourself from debt: Particularly as we approach the end of our working life, the feeling of being indebted to a mortgage is tough. Downsizing to a less expensive property can help you pay off your mortgage in full, ensuring that the home you have is fully unencumbered.
Reducing expenses: With costs such as utility bills, mortgage repayments, cleaning and gardening, maintaining a large property can be expensive. Downsizing can help reduce these expenses and limit your overall cost of living.
Empty nesters: After the children move out, parents may find that they no longer need as much space and may want to downsize to a smaller home that is easier to maintain.
Maintenance: As we get older, maintaining and managing our property becomes increasingly difficult, especially when it comes to caring for large houses and gardens. With a smaller home, you can simplify your life and spend less time worrying about maintenance and repairs.
What are the pros and cons of downsizing?
- Increased cash flow: Selling a larger home can free up equity that can be used to pay off debts, invest in other assets, or fund retirement.
- Easier to maintain: A smaller home can be easier to manage and maintain, leading to less stress and more free time.
- Practicality: As you get older, your needs and circumstances evolve. Downsizing can help you afford a more attractive location, a newer home or one that is better suited to your current lifestyle.
- Fewer costs: Downsizing can lead to significant cost savings on expenses such as mortgage/rent payments, utility bills, property taxes, maintenance and heating & cooling costs.
- Environmental benefits: Living in a smaller home can help reduce your environmental footprint by requiring less energy and resources to maintain.
- Less room: Downsizing means having less space, which can be challenging if you're used to having more room to spread out and entertain guests.
- Less flexibility: Downsizing may require you to make changes to your lifestyle, such as giving up a home office, guest room, or storage space.
- Selling: Selling a property is filled with many costs and can be a stressful time for the vendor. Depending on the current state of the property market, you also may not get the sale price you’re looking for.
- Emotional connection: When you’ve spent many years filling a home with memories, it can be hard to say goodbye to your old property.
- Relocation: Downsizing may require you to relocate to a new area, which can be disruptive and may require adjustments to your social life and routines.
Preparing to downsize your home
How to find the right property
Moving your whole life to a new home is a massive undertaking, so you want to make sure you’re choosing a property that’s worth it. Here are three key factors to consider to make sure you are on to a winner:
Location: When buying a home, location is often the most important factor to consider from both a financial and lifestyle perspective. In addition to proximity to your friends, family, and workplace, it's also important to consider other factors such as the availability of nearby amenities like shops, schools, hospitals, and transportation, as well as the safety of the neighbourhood. You can click here to read our blog on how to find an area with the potential for strong capital growth.
Type of property: Consider the type of property you are looking to downsize to, whether it's a house, townhouse, apartment or unit. Each will come with its own advantages and disadvantages, so weigh them up carefully before you reach a decision.
Your financial situation: Your savings, income, and financing options are key factors that will determine the type of property you can afford. To develop a property strategy that best aligns with your financial needs and goals, it's important to review these factors thoroughly. For instance, if you have significant expenses on the horizon such as major travel plans, downsizing to a smaller property that can free up cash may be necessary.
How to successfully downsize in eight steps
- Speak to a mortgage broker: Review your financial circumstances and needs with a mortgage broker before doing anything else. They will be able to work through your goals and provide you with a roadmap to get you there. This will include guidance on your borrowing options, borrowing capacity, budget and how to use your equity to your advantage. If you have already got your heart set on a property, we recommend you get pre-approval before purchasing the home.
- Use the help of the right property professionals: Having the right team of professionals on board is crucial when it comes to buying or selling a home. A trusted real estate agent can guide you through the process of selling your home, resulting in a better outcome for your property while saving you a lot of hassle. Similarly, using a trusted buyer's agent can ensure that you find the right home that meets both your financial and lifestyle goals.
- Prepare for settlement day: As settlement day draws near, there are numerous important tasks to complete to ensure a successful settlement process. These tasks range from arranging a conveyancer to inspecting the property and organising a building and pest inspection. To ensure that nothing is overlooked, use our pre-settlement checklist to ensure that all necessary items are crossed off the list.
- Make a plan: Once you’re ready to move, begin by making a list of everything you need to do to prepare for downsizing. This might include sorting through your belongings, deciding what to keep, donate or sell, finding a new home, and hiring movers. Break down these tasks into smaller, more manageable steps and create a timeline for completing each one.
- Declutter: Downsizing is the perfect time to declutter and get rid of items you no longer need or want. Be ruthless in your decision-making process and don't hold onto items that no longer serve a purpose in your life.
- Measure your new space: Before you start packing, make sure you have an accurate measurement of your new home. This will help you determine how much furniture and other belongings you can bring with you.
- Continue to review your financial goals regularly: After settling into your new home, it's important to establish a routine for regularly reviewing your financial situation and ensuring that your property plan is aligned with your goals. By creating a schedule for this, you can stay on top of your finances and make any necessary adjustments to your property plan to ensure that it continues to meet your evolving needs.