Double fooey on downsizing. fooey! fooey and fooey again!!

[oldcrowcall]

Several years before I ER'd I went with the standard line of downsizing the hacienda. Kids had left home so no little slaves to help with maintaining the brick McMansion on a beautiful piece of land. As it turns out, it has been the biggest financial blunder of my entire life. I could have paid somebody $500 bucks and hour do to EVERYTHING around the house and would have been further ahead.  The worst thing is that I loved the place and still dream about it.  I know- get over it.  My point? Think long and hard about how the homestead may effect your net worth over the long term. Of course, maybe this is a good time to sell. I have been out of sync with the real estate market my entire life.

 

[sgeeeee]

hI oldcrowcall,

How did downsizing lead to higher expenses? I haven't done it myself and doubt if my DW will ever be willing to do that, but on paper it looks like a no-brainer.

You get equity out of your house to add to your portfolio. And you reduce your annual house related expenses (taxes, utilities, maintenance, insurance, etc.) so you reduce the amount of your portfolio that is required to support those expenses. This creates additional portfolio value.

I take it that it didn't work this way for you. What happened?

 

[Rich_by_the_Bay]

Care to explain .

I can understand missing the old place, but you say nothing about the rest. What happened?

 

[audreyh1]

Besides the fact that he loved his old house. Maybe the value of his old house has increased considerably over the last few years whereas his portfolio hasn't?

Audrey

 

[Dawg52]

Downsizing put me in position to retire a little earlier than orginally planned. Also lower property tax, insurance, utilities, etc sure helps with the budget.  But I can understand how you would miss the house if it is where you lived for years and raised your children.

 

[Andre1969]

Sometimes, when you've been in your house a long time and your taxes have been held low by a Homestead Act, won't that sometimes set you up for a big surprise when you sell and buy another house?

For example, here in Maryland the re-assess us every three years, but then take three years to phase that value in. However, because of the Homestead Act, if the house is your primary residence, your taxes can only go up 10% per year. Meanwhile, the actual assessed value might go up 20% or more. And in late 2005, I think they changed it to where your taxes can only go up 3% per year. However, once you sell, I think the the property taxes end up getting accelerated to where they catch up to the assessed value of the house.

So because of this, if I've been in my house for a long time, my taxes might be extra low, because of the cap set by the Homestead Act. They might only cost me $2500 per year, but the next buyer might get stuck with a bill of $5000 or more, as the taxes get "caught up". And likewise, whatever I end up buying would most likely have an increased tax rate as well, since I'm now paying on the full assessment, and not a partial phase in that was capped, as the seller had been doing.

So that might be one way that downsizing can hurt you. I've heard that a lot of people who moved from California to Florida got burned when property taxes shot up. They would sell their house in CA for a nice profit, and be lulled into a false sense of security by their property taxes which had been capped for so long, but then move to a place in Florida which, while it came with a lower purchase price, the property taxes would get accelerated to the full assessed value, and that would offset much of their savings from moving to a supposedly cheaper area.

 

[Rich_by_the_Bay]

Sometimes, when you've been in your house a long time and your taxes have been held low by a Homestead Act, won't that sometimes set you up for a big surprise when you sell and buy another house?

Yes, that's certainly possible. I had thought, though, that the approximate taxes on the new home could be estimated before the decision to purchase is made, so that it wouldn't come as a surprise. Oh, well. Maybe he'll share more.

 

[justin]

Maybe oldcrowcall is eating crow because the McMansion that was downsized sold for $500,000 in 2000, and now it is worth $1,500,000 (only in California : ). That's $1 million "lost" on the transaction. It's a twisted way of looking at it, but I suppose it would be painful if it happened to me.

 

[cute fuzzy bunny]

Eh, my mcmansion is probably worth a lot more now than it was when I sold it. So is my new house. New one is a lot cheaper to operate and maintain. Old one needed a lot of work. I miss the 'trophy' status of having people saw "WOW" when you open the door and they walk in. Just a little though.

Double fooey on downsizing. fooey! fooey and fooey again!!

That, by the way, is triple fooey. Exceeded only by hong kong fooey.

 

[Andre1969]

I sold my condo for $185,000 back in November 2004. At the time, it was the highest priced sale of any unit in that particular development. Nowadays though, it would probably go for $240K, if not more.

I don't sweat it, though. I'm just glad to have the thing off my back. For one thing, it was costing me about $1100 for every month it sat. And I had moved out of it in late '03, so while it was sitting empty, I worried about someone breaking into it, especially once I remodeled it. Then there was always worry that the condo fee would go up, and that the market would finally fizzle out. And the heat pump was really past its prime, as well.

And getting rid of that condo has freed up a lot of money so that now I can invest a lot more. Not to mention max out my 401k and ROth IRA. Plus, I was able to build a 4-car garage, without having to borrow any money to do it. And splurge on an old '76 LeMans that I really, really needed. Sure, I might be $35K better off right now if I'd waited (minus the profit I've made from being able to invest the smaller amount over a year ago), but having that condo just made me feel like I was putting my life on hold.

 

[oldcrowcall]

Sorry, for the lack embodiment on my post. I had a large portion of my land in a category that this state taxes at practically nothing. The house has doubled in value since I sold it for $365,000 some years ago. Of course I am up more than that in the retirement portfolio and my net worth has probably doubled. I never did a calculation as to how much savings from downsizing has offset the rise in home value. HEY! Maybe it is not as bad as I thought. Anyway, shame on me, it is better to be thankful for what I have  rather than looking backwards!! Thanks for the comments.

 

[Rich_by_the_Bay]

The house has doubled in value since I sold it for $365,000 some years ago.

And don't forget the earnings on the profits from the house since you sold it. House may have doubled in price, but your freed up money probably grew, too.

I always felt you can't look back. Make the best decisions, learn from your mistakes if you can, but little gained by hand-wringing.

 

[sgeeeee]

. . . Exceeded only by hong kong fooey.

Is that politically correct? Are you going to start gay-bashing now?

 

[cute fuzzy bunny]

Hong Kong Fooey was gay?

Well...now that you mention it...

 

[Jarhead*]

hI oldcrowcall,

How did downsizing lead to higher expenses?  I haven't done it myself and doubt if my DW will ever be willing to do that, but  on paper it looks like a no-brainer.

It would probably help us out to down-size, but we'll never do it either.

When I retired, I moved from a 2200 Sq. foot home in So. Calif. and had a much larger home built in the Sierra's of No. Calif. (1987).

I used to go fly-fishing every year in the area I bought, had been eyeing a 3 acre parcel for a long time.

Was pretty much a pain in the a--- to have it built. Had to run in lines (Not cheap), and had only a logging road as access. Graveled that.

In any case, that was almost 20 years ago.

The home is 3400 Sq. feet, built on the rim of a canyon. (Our nearest neighbors are about a mile away). Unobstructed view of the snow covered Sierras.

Because of the location, and all the work has already been done, have been offered an obscene amount of money from "refugees" from the bay area, but we'll never sell it.

Couldn't imagine moving back to the City, and living next door to anybody.

Don't care to travel anymore, been there, done that.

I can envision when I can no longer play tournament golf, folks saying, "That old crazy s.o.b. used to be a pretty darn good golfer,
but he can't play that banjo worth a plugged nickel."

Sometimes a home is just a home.

 

[REWahoo]

I used to go fly-fishing every year in the area I bought, had been eyeing a 3 acre parcel for a long time....

The home is 3400 Sq. feet, built on the rim of a canyon. (Our nearest neighbors are about a mile away). Unobstructed view of the snow covered Sierras.

... have been offered an obscene amount of money from "refugees" from the bay area, but we'll never sell it.

So much for the "I'm just a poor ol' boy, retired and living out in the sticks doin' a little fishing" persona.

 

[Jarhead*]

So much for the "I'm just a poor ol' boy, retired and living out in the sticks doin' a little fishing" persona.

Just a cotten-pickin minute, Mr. Moderator.

In the first place, my drug of choice is golf, and very occasionally fly-fishing.

As I mentioned, I will never sell my house, so the value up or down makes no difference to me.

So therefore, I insist that I continue to be carried on the roles as a "good old boy", just trying to make ends meet.

Jarhead, who's main goal in the next 15 years
or so is to stay in good enough shape to be able to elbow JG and little old ladies out of a good position in the "Dumpsters". 8)

 

[REWahoo]

Just a cotten-pickin minute, Mr. Moderator.

As I mentioned, I will never sell my house, so the value up or down makes no difference to me.

So therefore, I insist that I continue to be carried on the roles as a "good old boy", just trying to make ends meet.

Sorry Jarhead, but I don't think we can stretch the truth quite that far. But maybe we can at least partially accomodate you and change your designation to "landed gentry".

 

[Sam]

I never did a calculation as to how much savings from downsizing has offset the rise in home value.

Oldcrowcall,

Cheer up, hindsight is always 20/20.  If you did do the calculation, how would you have come up with a percentage for the rise in home value?

I bet at this very moment, million californians, bostonians are doing that calculation, convincing themselves that they need to hold on to property regardless of need, because it would double in value in a few years.

I have personally experienced the 1990-92 Boston crash.  I have many friends and relatives living through the 1986-90 Houston crash.  So, yes I'm happy if my home appreciates in value, but as soon I no longer have a need for it, I would sell.

Sam

 

[Zipper]

How is the ambulance service to the mansion jarhead?

After a certain age I would want ready access to emergency medical care.

Anything over 4 minutes is going to be bad news.

 

[Nords]

The house has doubled in value since I sold it for $365,000 some years ago.

Can I introduce you to my father-in-law?  He still occasionally kicks himself, 23 years later, for selling too soon.

He bought a Levitt home in 1964 for $17,500 and sold in 1983 for $122,500.  Bowie, MD is probably going for close to $300K today.

I have many friends and relatives living through the 1986-90 Houston crash.

I remember a friend buying a Houston condo then for $20K. We thought he was an idiot. Today he knows that we're idiots...

 

[Arif]

We're in the process of buying our dream home right now. Almost embarassed to say how big it is but it's located in a gated community with an ocean view. Despite the home being a great deal I don't think we'll ever move as I have always wanted to live by the ocean.

 

[wabmester]

We're in the process of buying our dream home right now.

Heh. We're in the process of selling our dream home right now (it goes on the market next Monday). When we bought it, I didn't think we'd ever sell. After living there for five years, we found another place that was just more practical for us. So, we're selling the Holy Grail of houses to somebody else.

Of course, I'm doing a little market timing too. I'd probably keep the place if I didn't think the market had peaked and if I wouldn't lose that killer capital gains exclusion by not living there.

I'll probably kick myself in a few years, but I think I prefer dreaming about dream houses to actually owning them.

 

[Ol_Rancher]

"The house has doubled in value since I sold it for $365,000 some years ago.
Can I introduce you to my father-in-law? He still occasionally kicks himself, 23 years later, for selling too soon.

He bought a Levitt home in 1964 for $17,500 and sold in 1983 for $122,500. Bowie, MD is probably going for close to $300K today."

.. 101 shares of American Funds = Washington Mutual Investers at $11 per share bought in 1967 = $1111 invested

That holding is now just under 9000 shares at around $32 - $33 per share - no maintenance .. tell Dad not to kick himself too hard. now around $330,000

 

[AltaRed]

House value is just house value. Have to live somewhere and I can look back on any one of about 10 homes I have owned throughout my life and say they could be worth a lot of money now. But that is not relevant.

What is important is what you have now AND it is an extra bonus to have the ability to downsize if you so choose. My last house was the McMansion type, but when I took an assignment we downsized from well over 4000 sq ft to about 2600 sq ft. With my pending retirement, we will re-locate again to about 2000 sq ft for our retirement bungalow. We do not care, or have interest in, all the trappings and costs of a fancy house.