When to Downsize Your Home

Life is a constant struggle and real estate is at the heart of that struggle. You spend your youth getting the education you need to earn money; your young adult years saving for your first house, and your forties and fifties desperately trying to increase the size of your assets.

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Bigger is always better throughout this time. If you find a new home that has more rooms and more square footage than your current home, you feel like you’re moving up in the world. It means you’ll have more room for that gym you’ve always wanted, the home office you need for your new creative project, and the extra bedrooms for your growing family.

But what happens when your children grow up and move out. What happens when you’re too old to care about a gym and have retired from all professional and creative pursuits? You now have a house that is much bigger than you need and is a chore to maintain.

When to Downsize

The idea of downsizing may seem abhorrent to the ambitious go-getter who is intent on going bigger and better, but there are several times when a smaller home and less space makes more sense, including:

Empty Nesters

If you have a big family, with several children and a busy household, it makes sense to get a big home. Kids want their own rooms and putting multiple family members in a small space is only going to cause arguments and fights.

But when those kids leave home, the noise of a busy household turns into the silence of an empty nest and a larger home no longer makes sense.

Sure, you have extra rooms to do with as you please, but extra rooms mean extra cleaning and maintenance. If you’re not very mobile, it doesn’t make sense to live in a multi-story house with several bedrooms that need dusting and bathrooms that need cleaning. 

You’re also sitting on a small goldmine, because by selling up and buying a smaller place, you can use the additional funds to take vacations, buy flash cars and enjoy life a little more.

Struggling Debtors

A big family home costs a lot to maintain, especially if it still has a mortgage. And when you add credit card debts, car loans, personal loans, student loans, and other debts on top of that mortgage, you’ll be left with very little money.

You could take out a home equity loan, but only if you want to cling onto a large home that you don’t really need. In situations like this, it makes much more sense to buy a less expensive home and use the additional cash to pay off debts.

As an example, let’s assume that you live in a 5-bedroom townhouse. If we take the national average, that house could be worth just under $500,000. If you have just $100,000 left on your mortgage and sell for the asking price, you can clear the mortgage, drop $200,000 on a new 2-bedroom house, and once all bills, closing costs, and new furniture expenses have been accounted for, you’ll have around $150,000 to clear your debt.

Being debt-free is a great feeling, much better than owning a large house that you can’t afford.

Homeowners Who Struggle with Upkeep

Bigger homes require more maintenance, and if you’re not very mobile you may struggle to give them the care and attention they need.

Pipes burst, wood rots, doors break, faucets leak. And that’s before you consider all the essentials that need to be replaced every few years. If you lack the DIY skills and can no longer afford to pay someone to help, it might be time to downsize and get a newer and more manageable property, one that has far few maintenance requirements.

Homeowners Struggling with Utility Bills

In stories from the mid to late 19th century, there was a cliché of the old widow who lived alone in a large house that was always cold and poorly maintained because she couldn’t afford the utility bills. She was usually confined to a small portion of the house and left everything else cold, dark, and in a poor state of repair.

This cliché exists for a reason, and while it was once the reserve of “old money” landowners who were desperate to cling onto their family homes despite dwindling income, it is now common in many middle-class homes.

If your financial situation is so dire that you can’t afford to heat the home you live in, it’s time to downsize. 

Bored Retirees

If you’ve spent your entire life working, earning, and sculpting a life for yourself, the last thing you want to do is spend your retirement years walking around an empty house in the middle of nowhere.

You need to live a little. 

By selling up and getting a smaller space, you’ll have more money left over to enjoy yourself. Go on a few cruises, take a trip across Europe, fly to Australia—live your dreams. 

It’s not just about vacations and frivolous spending, either. You can also buy a house that is more suited to your current lifestyle and your desires. You might have purchased a house smack-bang in the middle of suburbia, ideal for raising kids, but what if you’re a city dweller at heart and you miss the big lights? You might have your heart set on going the other way, delving further into solitude by purchasing a cabin in the middle of the woods.

You Want an Investment

Downsizing is often the right move for older homeowners, but younger ones can also benefit by shaving a few square feet off their living space.

Let’s imagine, for instance, that you’re in your forties and have been lucky enough to purchase a large house that is now more or less paid off. You have been working in a high-paying dead-end job for most of your life and want to go out in style before you retire.

You can sell your home and move into a smaller house, before using the money to fund a business or just to invest. You could even purchase several homes, living in one and renting the others. You’ll earn yourself some additional retirement income for when the time comes and if you play your cards right, you won’t have any mortgages to worry about.

Bottom Line: Big Decision

Whatever the reason and whatever you decide, it’s important to take your time and think this through. Buying a new home is a huge step and downsizing is even bigger, because in addition to the buying process, you also have to think about how you’re going to spend all the money you’ll have left over (assuming it won’t go toward clearing your mortgage).

You also have to think about capital gains tax and what will happen to your loved ones’ inheritance. 

It’s a big decision made for the long-term and is therefore not one you should make quickly or take lightly. Speak with a financial planner, chat with other home buyers who have done the same thing and get advice from your real estate agent and loved ones.