It is always a daunting exercise to try and downsize. Let’s explore some factors that might help you with this enormous decision. Here are 7 things to think about when downsizing your home.
Timing
How do you know if it is the right time for you to downsizing your home? This is a very personal decision that affects everyone differently. You might be making the decision alone, with a partner or with your family. A good question to ask is whether you can retain the same lifestyle experiences you enjoy now with less property maintenance. Can you have the same access to your preferred lifestyle choices (hairdresser, shopping, cafes etc) and the ability to host friends and family. If you can keep all the enjoyable aspects of your life and eliminate the less enjoyable things, it might be time to make the move.
Market conditions
Most ‘downsizers’ I work with are moving from a big family home to a large comfortable apartment. If money is something you are factoring into your decision, moving in a bullish market might be the best time. If you own a $2m house and you are trading for a $1m unit in a market that is declining by 10 per cent, you will soon be selling for $1.8m and buying for $900k, the difference being $900k. On the other hand, if the market is growing by 10%, your home will soon be worth $2.2m and your apartment will be worth $1.1m, the difference being$1.1m. That is, if it’s a growing market, you will be ahead by $200k.
How much do I need to live?
Take time to ‘run your numbers’. Make sure you take into account all expenses, any passive income or investments you may have, agent’s costs, solicitor’s fees, stamp duty, strata fees, rates and the cost of living. It is a good idea to speak to your accountant and review worst-case scenarios to make sure you will be comfortable long after your transition.
Start your research early
You can never start your research too early. If you are even flirting with the idea of downsizing your home, but aren’t really interested for another year or two, start the education process now. Monitor the market and find out what you think your home might sell for and what you will be looking to buy. The market can move very quickly and it might take 3 to 6 months to acquire a good understanding of the current trends. Treat property as a hobby – view a number of properties and ask questions. The more you immerse yourself in the market, the more you will be able to decipher the truth from the dubious stories being told. You will need to engage with various agents at some point, so it is a good idea to get some practice.
Sell first with a long settlement
Many people do not realise that they can choose – to some extent – the settlement period they would prefer. A standard settlement is 42 days, but I have been involved in deals that have settled anywhere between one week and two years. If you sell first, you know exactly how much money you can spend on your next property. To reduce the pressure, you might negotiate a 3-6 month settlement. You can also ask your solicitor to add clauses to the contract that enable you to bring the settlement forward if you find your new property faster than you expect.
Negotiate a lease back
It can be stressful to change your place of residence. A useful strategy is to negotiate a lease back arrangement. This allows you to rent the property you are purchasing for a period of time before you settle on your current home and the home you are purchasing. We recently negotiated this arrangement for a client so that she could move all her belongings into her new property a week early under a lease agreement. She had a week to move and clean her old home prior to the settlement of both properties, rather than try to complete everything in one day.
Look for ‘red flags’
If you are thinking of downsizing your home, you most likely want this to be your final move. This means choosing a property that you fully understand and are confident will not throw any ‘spanners in the works’ down the road. If you are moving to a house, you will need to have a building and pest report completed, and if you are moving into an apartment you should review the strata report. Look for things that may cost extra money in the future. If it is a strata block, you need to make sure that it is well operated and maintained. Examine the financial details closely. If you have a good solicitor, you should be able to ask them to review the report as well. Indeed, it might even be worthwhile asking a solicitor if they can undertake this task before you engage them.