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Downsize Now or Later?
Old 07-26-2013, 03:03 PM   #1
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Downsize Now or Later?

So here is a question the DW and I keep pondering:

We plan to downsize from our larger home to one of our former homes (currently a rental). The wife has always loved this home and its the perfect size for a couple. We might have to kick out a good tenant, but this would not be a major problem.

If you look at it purely from the numbers it makes sense to downsize earlier, but of course there is much more to it than this. Lets look at the numbers first:

Where we are now (Current Home) is 3,600 sq ft, 4-3, with a pool, HOA, $8k per year in property taxes, lots of landscaping and other maintenance goodies. Our old primary home (currently a rental) is 1,800 sq ft, 3-2, and just a few years older than our current home.

Old Home
Mortgage 850
Other Home improvements / mntc 100
Insurance (Home) 75
Property taxes 250
Electric 250
Gas 50
Water/Sewer/Trash 100
Cable 100
Broadband access 100
Total 1,875

Current Home
Mortgage 2,016
HOA 72
Other Home improvements / mntc 250
Insurance 100
Property taxes 708
Electric 300
Gas 50
Water/Sewer/Trash 150
Lawn service - 100
Cable 75
Broadband access 100
Total 4,006

So it essentially costs $2k more per month for the "Big House". Sounds like the quicker you get out the better...

The issue is if we leave the old home as a rental for 5 more years it will be paid off. Also at this point when we sell the current home we will clear (after all upgrades to sell, RE commissions, staging, kitchen sink, etc.) just over $100k. If we sell today we might still clear 20-30k after all commissions and expenses, but would owe money on the old house. (The rental barely cashflows, but this is on a 15 year note.)

Then there are the intangibles.. Our original plan of 5 more years in the larger home would allow our 13 year old daughter to continue to enjoy the nicer home through high shool. Are we being selfish trying to force a downsize so that we can retire earlier? Same school district so we are not moving her away from friends...

With a sub 4% 15 year mortgage in our current home..making the $2k per month payment is not as bad as it seems as you get over half of it back when you sell. It's the rest of the monthly nut that makes me want to move up the downsize.

It's hard to say how much quicker we could retire if we downsized now vs later. The fact that mortgage payments paid now are increasing our cash out when we sell complicate it. Then the intangibles...

Ok, the question.... Has anyone downsized too early and wished you had stayed in your larger place longer? or Are you wishing you would have downsized quicker than you did? Anyone else going through this conundrum of a decision?
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Old 07-26-2013, 03:27 PM   #2
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We are 300 miles south of you and wished we could have downsized two years ago. The prices of newer (less than 10 years old) homes in our area have gone nuts and are rising faster percentage wise than the older, less energy efficient ones.

We are in a house approaching 30 years old and it needs siding and a roof. I believe I cold have made a better deal (out of pocket costs) if we sold/bought two years ago.

I think as long as your daughter has her friends, same school and a cell phone, she probably will be just fine with the move.
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Old 07-26-2013, 03:36 PM   #3
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I wouldn't put too much importance on having the current home paid off in 5 years if you stay, because that comes from the mortgage payments you are making, so you are basically paying yourself. If you sold now, you would be able to invest that $20-30K plus the extra $2k/month which would be $140-150K in 5 years plus whatever return you get on the investment.

Hard to answer the intangibles, especially about your daughter. Does she like the pool? Is there more privacy here than the other house? Are her friends in the neighborhood or would she be as close to them at the other house? Have you talked to her about it? Who knows, she might have reasons to prefer the other house. And really, you can make a home anywhere. During my high school years we moved to a new town and had to rent an apartment for the rest of high school. I liked a house better but it didn't ruin my life.
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Old 07-26-2013, 04:23 PM   #4
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Originally Posted by LandlordInvestor View Post
So here is a question the DW and I keep pondering:

We plan to downsize from our larger home to one of our former homes (currently a rental). The wife has always loved this home and its the perfect size for a couple. We might have to kick out a good tenant, but this would not be a major problem.
For who?
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Old 07-26-2013, 05:51 PM   #5
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Financially there is no question: it makes sense to downsize now. Renters take the risk that their landlords will want to occupy the property. Don't be upset at asking them to move. Your daughter can attend the same school after the move. Assuming she does not have a temper tantrum about it, there is no good reason not to move now especially if that's what you plan to do long term. Bear in mind that having a right sized home will encourage your DD to leave once she has a job or is in college.
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Old 07-26-2013, 06:05 PM   #6
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If it were me, I would prefer to keep the stability of the same home for my daughter's sake and downsize later. Kids do recover from changes quickly, but there seems no compelling reason to make this change and you are in the last of the family years to enjoy the larger house. Might as well enjoy it for that purpose.
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Old 07-26-2013, 06:05 PM   #7
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We went from 3600 sq ft. plus to nothing. Sold and put everything in a container and travelled for seven months.

It was a very liberating process. It was difficult at first, but well worth the effort of downsizing. When we returned, we rented a furnished 2 br. condo while we looked for a place. Long story short, we ended up renting a condo. 1375 sq. feet. We like it. Not sure if we will buy or not. When we unpacked to container we had thoughts that we had kept too much. Too many clothes. We are still downsizing. Too many pictures/art/etc and not enough walls, shelves, etc.

But downsizing for us was great. We would have done it two years earlier but our property value was increasing It is lock and go for us now.
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Old 07-26-2013, 07:33 PM   #8
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We have a similar issue, though our kids are older and it is 3K a month net to keep the bigger house. With a smaller house (maybe a townhouse) and lower expenses, we can keep our MAGI lower and pay less in taxes, get health insurance subsidies and possibly financial aid for college as our assets are mainly in FAFSA exempt asset classes.

Another option is to just suck it up and work more hours or do some contract work to make up the house cost difference for a few more years instead of downsizing.

If it was just us we'd cash out and downsize next week and move into a condo like Brett described in the post above.
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Old 07-27-2013, 08:33 AM   #9
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Two thousand s month is a lot of money. You could pay for college with those savings over 5 years. We are in a similar situation in that we could sell our more expensive home and move into one of our rental homes which is actually nicer but not as good of a view. The determination to stay was based on the fact that we have enough invested in securities if the markets behave even semi rationally. If they don't, then I certainly don't want any more money in there! Good luck to you in your decision.
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