Downsizing Dilemma

[Escapevelocity]

I'm 54, married with 3 kids (age 20, 21, 25) and will be retiring in 6 months.

We currently live in a medium cost of living suburb of Philly in South Jersey. The suburb requires driving to everything although it is convenient/close to most things once in the car. We own our 4BR split level home outright currently valued around $430k. Annual property tax is $11.5k, homeowners is $1.2k and utilities around $4k for a total cash outlay of around $17k or $1400 per month. We do our own yard work and cleaning and basic upkeep. No major renovations needed or planned in the next few years.

We'd like to sell the house in about two years once the 20 and 21 year old are finished college and hopefully have jobs and out of the house (crossing fingers). Our preference is to stay reasonably close (within an hour or so) of our current area while in-laws are still alive since they might require our help. We'd like to rent and ideally to be in a walkable town. We're thinking 2 BR and 1.5 or 2 BA.

The problem is that anything appealing based on our wish list is in the range of $3k per month give or take. We want something fairly modern and attractive. This is more than 2X our current cash outlay to stay in our current house. I thought downsizing was supposed to free up cash not drain it!

I suppose if the money from the house is invested at our 60/40 allocation it would earn a return approx the cost delta. We could buy a condo or townhouse instead of renting, but the purchase price will be close or maybe more than our current house is worth and then we need to pay a maintenance cost or HOA fee! Any advice?

 

[Sarah S]

It is a lifestyle choice.

I sold my house 3 years ago and moved to a 2/2 apartment The apartment is much more expensive on a monthly basis though of course I don’t have maintenance surprises and the house money has been invested and has obviously grown nicely.

I had to move because I am disabled and needed no stairs However, I have never regretted it and in fact wish I could have lived here when working. If I had to trade current lifestyle or future security to do this I might feel differently.

You have time to decide of course but if you can afford it and want it then it is a lifestyle investment.

Ps start decluttering NOW. Even if you never move it is worth doing. Someone here recommended a book about preparing to move and downsize and it was a long term process. I didn’t find it in time to implement but did skim it. Maybe someone remembers the title?

 

[RunningBum]

This is more than 2X our current cash outlay to stay in our current house. I thought downsizing was supposed to free up cash not drain it!

You would be freeing up cash, the cash you get from the sale of your house. You thought rent was going to be cheaper than the monthly cost of a house without a mortgage?

 

[ivinsfan]

Why don't you just wait a year or two and see what happens with your kids/parents?



A lot can change. In your shoes I'd be more concerned about being out of the real estate market then the cost of renting.


And as RB says what about the 400K you are pulling from your home, can't have it both ways.

 

[Ronstar]

Why don't you just wait a year or two and see what happens with your kids/parents?

+1 and start decluttering now

 

[latexman]

430 x 4% rule = $17,200/yr = $1,433/mo

3000 - 1433 = $1567/mo

1567 - 1400 = $167/mo

Apartment costs roughly $167/mo more than the house.

 

[ivinsfan]

430 x 4% rule = $17,200/yr = $1,433/mo

3000 - 1433 = $1567/mo

1567 - 1400 = $167/mo

Apartment costs $167/mo more than the house.

OP isn't going to get the entire 430 there will be selling fees....plus first and last on the rental and perhaps HOA or other costs.

 

[Escapevelocity]

You would be freeing up cash, the cash you get from the sale of your house. You thought rent was going to be cheaper than the monthly cost of a house without a mortgage?

Yes, I get that. I see how my post could have been worded better. It's just that the overall cost even after accounting for the investment returns on the house sale proceeds is still a more expensive proposition than staying where we are even though our living space will be less than half the square footage. I thought we would be able to at least break even on the deal not incur more cost than what we have on a total return basis.

 

[latexman]

OP isn't going to get the entire 430 there will be selling fees....plus first and last on the rental and perhaps HOA or other costs.

So, why didn't you put all those numbers you mentioned into the analysis for the OP. Or, are you just full of . . . hot air?

 

[Escapevelocity]

430 x 4% rule = $17,200/yr = $1,433/mo

3000 - 1433 = $1567/mo

1567 - 1400 = $167/mo

Apartment costs roughly $167/mo more than the house.

This is a good way of looking at it. I guess I need to get used to the idea that a 2BR apartment is more expensive on a monthly basis than a 4 BR house in a subdivision.

 

[ivinsfan]

It's all guesswork anyway..the apartment will still be more per month than the house.

 

[ivinsfan]

It's all guesswork anyway..the apartment will still be more per month than the house.

Utilities should be lower and some might be included with your rent number

 

[Escapevelocity]

Utilities should be lower and some might be included with your rent number

Thanks for the reply. I did include the utilities in the OP in the cost of the house, although I neglected to include future major expenses such as new HVAC since I don't expect those to happen inside of my time horizon.

 

[momoftwo]

It IS possible to find a downsized SFH that will cost you significantly less than youre current home, even in NJ.

We did it 3 years ago, even in the same county in HCOL norghern NJ.
Compromized on a very few features but very happy with the outcome.
We did spend 6 months finding the right home.

Good luck.

 

[Escapevelocity]

It IS possible to find a downsized SFH that will cost you significantly less than youre current home, even in NJ.

We did it 3 years ago, even in the same county in HCOL norghern NJ.
Compromized on a very few features but very happy with the outcome.
We did spend 6 months finding the right home.

Good luck.

SFH = single family home?

Our goal is to move to a walkable town or city which means high density housing like apartment, condo, or townhome.

 

[RetiredHappy]

SFH = single family home?

Our goal is to move to a walkable town or city which means high density housing like apartment, condo, or townhome.

Based on the numbers above, it is going to cost more to rent an apartment/condo than what you are spending now.

2 things come to mind.

1. Do you really want to not own a home? Rental prices can continue to spiral up with inflation. If I want to be closer to "stuff", I would look to buy something closer to where the action is. You could be priced out of buying a home later down the line if you decide to stop renting.

2. Are you absolutely sure that you want to live in a condo/apartment/high density housing? We had always lived in single family homes and we decided to buy a luxurious penthouse condo for our retirement - 3000 sq ft home with amazing views. After living in it for a few years, I started to feel "trapped". I started to resent having to park in my 2 deeded parking space, sharing an entire lower floor space with other homeowners under the condo building. I was not thrilled having to ride an elevator up to our floor. It was a huge / hospital size elevator but still, I had to get into the elevator. Then when I got home, I felt like I was confined to our home, even though we had 2 huge private patios on each side and a french balcony in our living room. We are now back in a single family home and it finally feels like home again.

 

[momoftwo]

Yes SFH= single family home.

Sorry, I missed the apt/condo part in your post.
Our downtown has many restaurants, coffee shops, retail, small gyms, hardware store, nail salons, pharmacy, etc. Lots of free parking.
Im still able to walk to it, about 1.5 safe miles. I realize that wont be the case forever. But for now its great exercise.
There are a very few downtime condos.

Best of luck in your search!

 

[RunningBum]

1. Do you really want to not own a home? Rental prices can continue to spiral up with inflation.

2. Are you absolutely sure that you want to live in a condo/apartment/high density housing?

Those are conflicting factors, IMO. If the OP is just renting, they don't have to be absolutely sure they want to live in high density housing. They can try it by renting for a year, and reevaluate if the don't like it. Easier to walk away at the end of a rental lease than have to sell a condo/townhouse.

Both are good questions though.

 

[Aerides]

Any apartment I'd fancy is going to be at least $3k per month. That's for an area like you describe, walkable, nice, good amenities. I'd also be looking for an end/corner/top unit, to avoid the sounds of neighbors.

Good/newer/modern apartment buildings often come with parking, gyms, pools, some utilities, and all the maintenance of the building. You might not need/want all that, but it is included. Also big things like a new roof, new appliances, you don't pay for those so your cost-of-ownership isn't quite apples to apples.

But 2 years from now in Real Estate might as well be a lifetime away. Can't really make solid plans now. Rentals may go co-op, or demand may go up. SFH homes may start to come down in price, or not. It might be a good idea to rent for a year before selling, to provide some flexibility.

 

[pb4uski]

...We'd like to sell the house in about two years once the 20 and 21 year old are finished college and hopefully have jobs and out of the house (crossing fingers). Our preference is to stay reasonably close (within an hour or so) of our current area while in-laws are still alive since they might require our help. We'd like to rent and ideally to be in a walkable town. We're thinking 2 BR and 1.5 or 2 BA.

The problem is that anything appealing based on our wish list is in the range of $3k per month give or take. We want something fairly modern and attractive. This is more than 2X our current cash outlay to stay in our current house. I thought downsizing was supposed to free up cash not drain it!

I suppose if the money from the house is invested at our 60/40 allocation it would earn a return approx the cost delta. We could buy a condo or townhouse instead of renting, but the purchase price will be close or maybe more than our current house is worth and then we need to pay a maintenance cost or HOA fee! Any advice?

We have both 2,400 sf SFH and a 1450 sf condo. The condo is a lot easier and if it wasn't for the waterfront fun of the SFH, I would prefer the condo.

I'd look at it this way... let's say the place you rent is $36k a year and that you clear $405k from the sale of your home... you would only have to yield 4.7% on the proceeds from the sale of your home to cover the difference between $36k of rent and the $17k that you are paying now.

FWIW, the annual costs of our condo are actually only a little less than the annual costs of the house... that is property taxes, insurance, utilities and maintenance... ~$8k for the condo and $10k for the house.

 

[brett]

We downsized, sold our home. A year later we went into a rental for four years. Best decision ever.

It changed our minds about what type of housing we wantd.

It was very financially advantageous. Down real estate market, much better equity market.

During travel and subsequent rental we were surprised how some expenses went away or were greatly decreased. Home insurance, property taxes, home maintenance...etc.

When we considered our rent against our previous home ownership expenses AND the after tax spin off from our investing the home equity that we put in the market renting was very much financially advantageous. Not to mention that real estate where we lived decreased in value for three-four years.

I suspect that it depends on your personal wants, the market where your live, and the alternate forms of investment other than your home.

 

[Escapevelocity]

We downsized, sold our home. A year later we went into a rental for four years. Best decision ever.

It changed our minds about what type of housing we wantd.

It was very financially advantageous. Down real estate market, much better equity market.

During travel and subsequent rental we were surprised how some expenses went away or were greatly decreased. Home insurance, property taxes, home maintenance...etc.

When we considered our rent against our previous home ownership expenses AND the after tax spin off from our investing the home equity that we put in the market renting was very much financially advantageous. Not to mention that real estate where we lived decreased in value for three-four years.

I suspect that it depends on your personal wants, the market where your live, and the alternate forms of investment other than your home.

Are you still renting? Can you share some info about your rental like general location, type of place, etc?

 

[Sunset]

.......

... We own our 4BR split level home outright currently valued around $430k. Annual property tax is $11.5k, homeowners is $1.2k and utilities around $4k for a total cash outlay of around $17k or $1400 per month. We do our own yard work and cleaning and basic upkeep. No major renovations needed or planned in the next few years.

We'd like to sell the house in about two years .....

The problem is that anything appealing based on our wish list is in the range of $3k per month give or take....

OP , it seems to me you are thinking of less costs than the house actually costs. While you will move in 2 yrs, should you stay another 20 years, the cost of large replacement items has to be included:
Roof, furnace, waterheater, A/C , etc...

Add those in to the cost and it changes the equation.
It's valid to include these costs because if you rent, you can be sure the landlord thinks of those costs spread over time.

 

[Koolau]

430 x 4% rule = $17,200/yr = $1,433/mo

3000 - 1433 = $1567/mo

1567 - 1400 = $167/mo

Apartment costs roughly $167/mo more than the house.

Sorry. I guess I still don't understand this. Is the 4% rule the FIRE SWR? If so, I'm not sure why it applies here. Not being critical, I'm just not sure I understand.

BUT, here is the way I look at it:

OP has calculated that DIRECT monthly costs are $1400. But, realistically, that doesn't cover the costs of owning the house. There are deferred maintenance costs (which may come out of the house's sale price - would you pay full price for a house with a leaking roof? 10 year old washer/dryer? Worn carpets? etc. etc.). These costs include such things as new roof, furnace, appliances, painting exterior and interior, other periodic refurbishing/redecorating, etc. etc. A "sinking fund" for deferred maintenance could run $1000/month??

ALSO the money "invested" in the house (let's say $400K) could earn you maybe 5% over inflation per year?? That's $20K/year = almost $1700/mo. Throw all these "hidden" costs in and the rental is starting to look pretty good. Now, I admit that some might consider their house an investment that earns 5%. I doubt that, but I suppose it does work that way sometimes - especially right now during Covid inflation.

Something to think about so YMMV.

 

[pjigar]

We own our 4BR split level home outright currently valued around $430k. Annual property tax is $11.5k, homeowners is $1.2k and utilities around $4k for a total cash outlay of around $17k or $1400 per month.
.......
The problem is that anything appealing based on our wish list is in the range of $3k per month give or take. We want something fairly modern and attractive. This is more than 2X our current cash outlay to stay in our current house. I thought downsizing was supposed to free up cash not drain it!

This is a good example of mental accounting. You should consider cost of capital of opportunity cost of $430K in these calculations. VWINX has lowest return of about 7% which means you need to account for 30K of lost return in your calculations. You know the math from here on.


The hard part if subjective: convenience, amenities, size, etc. No one can help you value of these! But remember there is no free lunch. I remember when we upsized to last house, we had young kids and were in heavy accumulation phase. It was costing us about $1000 extra every month. We decided the cost was worth the bigger/better house with pool in a good school district so we pulled the trigger. It still feels like a bitter-sweet decision looking in the rear view mirror after 10 years.