We have spent much time and energy considering downsizing from our current home in Sedona to a smaller townhouse located less than a mile away. My in-laws own the townhouse, currently rented on a month-to-month basis. The downsizing subject is an ongoing discussion over coffee in the morning or sipping a glass of wine while enjoying the sunset over the beautiful red rocks.
Last year we decided to put the home up for sale with downsizing in mind. Our result, after eight months on the market, three price decreases, and two deals that fell through, left us feeling we had enough. We took the house off the real estate market in May to re-evaluate our options.
We almost sold our house…..again
A casual conversation at the dentist office a month ago started the house selling process over again. A dental assistant and I talked about a house she was considering buying and that she was at the inspection stage of the purchase. She was commenting how expensive the home was and about the amount of work that it needed. The single best aspect of the house was a partial view.
One thing led to another over a course of conversations that week then she backed out of her first home buying deal. She looked at our house, loved it, and began signing a contract to purchase our home. However, in a matter of days after signing our contract, she got cold feet and backed out of our deal too.
We are now entering round two: there is another party interested in purchasing our home. Their own Sedona home is for sale and purchasing ours would be downsizing space and expenses for them. Since they need the funds from their deal, they do not intend to purchase our house until they sell their place. All of these near deals have begun a second round of considerations to relist our home early in January and downsizing.
The financial savings with Downsizing
There are many financial and lifestyle benefits and considerations we are evaluating in our downsizing decision. For us it has come down to having less money wrapped up in real estate and possessions while simplifying our lives.
Less space to heat and cool. The townhome is newer construction and a third less square footage. Less space and better insulation will translate to lower utility expenses.
Lower property taxes and insurance. Local property taxes are determined by the assessed value of your home. The less the home costs, the lower the property tax. The insurance expense will decline since the coverage will be for inside the walls and the downsized possessions. This will be similar to a renter’s policy.
Less to maintain and replace. I owned a home 15 years ago that was 4,500 sq. ft. It had two furnaces, two ac units, and a large yard. Talk about a maintenance nightmare. An end unit townhome with only one common wall, community landscaping, and maintained exterior will be nearly maintenance free living.
Invest the difference. Once the house is sold and the new one purchased we will have freed up new capital to invest in passive income producing assets.
Our projected downsizing savings
One would think there are many savings expected with downsizing to a smaller space. That was certainly my assumption. This is the first time I evaluated the numbers to compare the cost of both home options. The difference in the cost is somewhat surprising. It is only $112.89 a month or $1,345.68!
But wait there’s more! When you factor in the spare $100k we will have once downsizing is complete, the numbers get better. Using the 4% rule with this money invested in a 75/25 split of index and bond funds, we can draw $333.33 monthly for the rest of our lives without running out of principal. That puts us ahead by $446.22 monthly or $5,354.64 annually. Nice!
The added twist to this scenario is that we will be able to completly remodel the townhouse. Our calculations have an ample budget built in for those projects. If we don’t downsize, in the next three to five years we will probably do $30k in updates to our present home.
Is there a financial downside to downsizing?
Certainly, it is not all rainbows, unicorns, and sunny days ahead when you downsize. In our case, we will lose the 2-car garage and trade it for an open one-car carport. Hey that’s ok, we know how to live as a one car family and this will provide incentive to jettison a vehicle!
If we don’t get rid of other items, we would need to rent a small storage space. We are motivated to not storing stuff and letting that happen!
Let go of everything you think you need to survive and whatever is true will follow you. (psst…the rest is rubbish) Amy Larson
I think the biggest concern is that once we move into a smaller space our hedonistic treadmill thoughts will creep in and we will be convincing ourselves we need to move back into a larger space and single family home. The real estate transaction expense, cost of the new home, and the costs of buying more stuff to fill the space won’t be cheap. In my opinion, that would be the financial downside if we decide later to up-size.
Conclusion
I have concluded that we need to look at downsizing as the next chapter in our lives. Will it be our final chapter? That is highly unlikely! This will give us the huge cash reserve as a contingency for who knows what life throws at us.
The added benefit is our time would be focused on more productive brainstorming sessions. Those new subjects would include where we go camping next, for how long, or what trail we want to hike. I think this is definitely a better and more enjoyable use of our limited time.
We will continue to evaluate our housing options, with a decision coming in the next few months. I suspect if we don’t sell to the current interested party, we will put the house back on the market in December. Stay tuned for an update.
Young says
We’re absolutely going to downsize as soon as my husband retires, that would be next year. Primary reasons for downsizing are to save money and move to somewhere we like to retire. It is too much for us to maintain as we grow older anyway, we have four rest-rooms for just two of us, we don’t even have a pet. I do like a townhouse, just don’t like HOA fee. I am exploring all the options these days. I’m wondering where you two and us end up next year.
Bryan says
It sounds like you and your husband are on a similar path and timeframe as us. You still have a couple adult children at home, right? I can’t wait for it to happen!
The cleaning, maintaining, and all the other tasks associate with a single family home will go away for us with downsizing. Life should be simpler. The biggest challenge will be finally getting our house sold! Hopefully it will actually happen this time.
Steve @ Think Save Retire says
Hey Bryan,
Downsizing is a GREAT way to not only add more immediately-available cash into your coffers, but also helps to generally reduce overall lifestyle expenses, which of course adds up to potentially BIG savings into the future. I think your plan to downsize is an excellent one, and we’re looking to do the same thing next year, in a big, big way.
Back when my wife and I were toying with the idea of moving to Sedona, the real estate market quite frankly made me a bit nervous, and it looks like there is some general “unease” with buying real estate up there. We then refocused our efforts on exactly the same thing that you’re doing – the townhouse. We’ve looked on Zillow a lot for townhouse in the $150 to $180k range and found a good number of possibilities, but a lot of them have been on the market for some time, which made us a bit nervous about resale. But then again, real estate is always changing so those fears were probably unjustified.
I couldn’t agree more with your sentiments about financial savings that result from downsizing. The less space to pay for and maintain, the better. We live in a 1600 sqft home now and close off two of the extra guest rooms because we don’t use them, but we DO still pay for them!
Sometimes, less truly is more, and real estate might be the shiniest of the examples. 🙂
Good call on the downsize!
Bryan says
I do have a glimpse of your downsizing in a big way – full time RV’ing! 🙂
The whole Sedona living is a convoluted story for us Steve. We bought this townhome almost nine years ago. We rented the townhome out from the day we bought it with the hopes of paying it off and moving into it someday. Four years later Dianne found an awesome job, accepted it, gave her two weeks’ notice, we rented out our CA place, and moved into her parents Sedona home. Six months later, we trade the townhome and cash to buy her parents’ house. Now we are thinking about going back to our original plan by moving into the townhome. Whew!
During all this moving and planning, we kept eliminating the extra crap in our lives. We know we can have a great living experience in a smaller home. The added bonus, we can go camping with the trailer to add some variety to our experiences.
Financial Velociraptor says
This helps. I have a paid off home but I’m thinking of downsizing anyway. It’s more about getting away from a neighborhood with a HOA though. What a PITA.
Bryan says
We too have a paid for home and are considering the tradeoffs of staying or moving. If we go the downsizing route we will have a nice slush fund to use as a safety value or blow on bucket list items.
The good news is the HOA for the townhouse consists of a well-balanced group of people. No militants! We would actually be buying back the place we sold to my wife’s parents 4 years ago. We have experience with the HOA and are comfortable with the community.
Abigail @ipickuppennies says
4,500 square feet?! Yowza. That’s three times the size of our place. I can’t imagine heating and cooling that kind of space.
I definitely think we shouldn’t downsize. We like our stuff. Not to excessive levels, but still… Three bedrooms gives us a guest room and an office. If we do manage to have a kid, we’ll nix the office space.
Bryan says
Yup, 4,500 square feet of upsized living. Of course we needed to remodel, decorate, and buy new furniture, once we moved in. I have to mention that we also added a 3rd car for our two drivers, since it had a three-car garage! Plenty of mistakes made in my life.
Now we are moving to the “simpler times”. A smaller space and simpler living. If we could just sell our house that would certainly get the process rolling…….
Holly@ClubThrifty says
I’m not sure if we’ll need to downsize when we retire. Our hours is big enough for the 4 of us, but not so big that it won’t work for 2 people either. We’ll have to wait and see!
Bryan says
I have noticed that for us, our ideas and lifestyles changed as we hit our thirties and forties. With no children in the house and very few guests, we really don’t need three bedrooms anymore. It should be an interesting process the next couple months as we make our decision on downsizing!