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Downsizing your home is most commonly associated with empty-nesters and retirees looking for smaller spaces after the kids have moved out, but it's also becoming a more popular move for a growing number of hard-working, money-smart homeowners. It's also a move that makes a lot of financial sense.

 

From a corporate perspective, the whole concept of downsizing is financial. Companies close facilities, shed business lines and lay off workers in order to save money. When they do, shareholders cheer and stock prices rise because lower expenses lead to bigger profits. The exact same thing occurs, on a smaller and more personal scale, when you downsize your house.

Chasing the Savings

Soaring home prices, soaring energy prices, and high gasoline prices all add to the cost of living. As a result, the financial benefits of moving to a smaller place are numerous, and well worth exploring.

Reducing the Mortgage Payments

The monthly mortgage payment is generally the largest single expense consumers face. It routinely accounts for 25% to 30% of their gross income - possibly accounting for close to 40% of their net income. Downsizing your house can have a dramatic and direct effect on mortgage expenses. At the very least, it can result in a significant reduction in your monthly expenditures, a significant increase in your free cash-flow and massive savings in interest over the term of the mortgage loan.

 

If you make the right move, you might be able to trade in your house and use the profit from the sale to purchase your next home in cash. If you're really in great shape financially, you might even pay off the new home and have tax-free profits from the sale of your old home left over to invest and start earning income for you!

Lowering the Cost of Utilities

The cost of utilities is another big bill that's easy to downsize if you move to a smaller place. If you've got less space to heat or cool, you should end up with more money in your pocket at the end of the month. This is especially true if you move into a newer home with more energy efficient appliances and windows, and higher insulation values.

Calculating Taxes and Mill Rates

Real estate taxes are generally the next largest expense for homeowners and, unlike the mortgage payment, they never go away. Downsizing your home is an easy way to minimize real estate taxes. Simply moving from a 3,000 square foot home to a 1,500 square foot home can cut your taxes by half.

 

Downsizing your house is a great way to lower your real estate taxes due to the lower assessments on a smaller home, but it's also an excellent opportunity to move yourself right into a new neighbourhood. The site of your primary residence can have a big impact on the cost of groceries, gasoline, car insurance, commuting and more. A new location can result in a shorter trip to work and may, if you move from the outlying areas to an area close to public transit, enable you to get rid of your car altogether.

Cutting the Maintenance

Over the long term, less space to maintain translates into less money spent. If you move to a smaller place, you can cancel the landscaping and snow removal service, paint fewer rooms and resurface a smaller driveway. When things get old, dirty or need to be redone or replaced, you'll save money by fixing the smaller roof, buying one furnace instead of two and laying 1,000 square feet of carpet instead of 3,000.

Downsizing Presents Opportunities

When you move to a smaller place, reducing your expenses is just one of the opportunities that will become available to you. Others depend on what you do with the money that you save. Just saving $500 per month for the next 10 years turns into $6,000 per year. That's $60,000 over the course of the decade. You could invest that money, accelerate your mortgage payments, or grow your RSP.

Looking Beyond the Money

In addition to substantial cost savings, moving to a smaller place has other benefits. For example, you're likely to have substantially less work to do around the house. With your newfound time, you can start a hobby, visit friends and family, travel or simply relax instead of spending hours cleaning, improving, or fixing your too-big house. You can even move into a condominium and delegate most of the chores to the maintenance man!

Stopping to Think First

Before you trade your palace for a condo or small bungalow, consider all of the angles. Carpenters say to "measure twice, cut once." Did you know the average size of a home in 1970 was about 1,400 square feet and by 2004 they were nearly twice that size? Today they are even larger and family sizes are smaller. Think about your current home: How many rooms do you have? How many of those rooms do you actually use more than once per week? How much time do you spend in that basement that you have to pay to heat and cool? But before you call the movers, remember to think through your reasons for moving. Is a new lifestyle right for you? Can you live in a place where neighbours are a little closer? Could you live without a car? If you're considering a condo and it doesn't allow pets, will that bother you?

 

Like any major lifestyle decision, planning is the key to success. Plan first, then move! It just takes a little bit of strategy to make sure that you're doing the right thing and that you won't be sorry about it after the fact.

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