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.
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.