Downsizing Dilemma

[Escapevelocity]

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.

Thanks for sharing your experience. I'm really not 100% sure we will like it, but we're 100% sure we want to experience it for a while and see how it works. We've lived in the burbs for so long, it's time to try something new and a little bit more exciting I think. The part about shared space in the building actually seems great to me because I want to meet new people and I like the energy of seeing people milling around. Let's see how we like it in day to day living though. Who knows.

 

[Escapevelocity]

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.

Good points! We replaced the roof with a 40 year roof back in 2018 so that should be good. We probably will need some carpet and paint though. Maybe 5k in total. The HVAC might need to be replaced but I think that's a once in 20 years sort of expense. No new kitchens or baths since we did those already. Realistically, our house can be kept up over the long term for around $3-4k on an average annual basis when it comes to these type of things, definitely not $1000 per month but your premise is still valid.

 

[latexman]

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.

Yes, it is. It was the first conservative return that popped into my head. If you prefer 5%, go for it.

I think my operative word was:

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

 

[marko]

Depends on where you live.

Around here (just north of Boston) any decent apartment in a good neighborhood will run about $4000 a month. You gotta sell a lot of house to have that make sense.

 

[brett]

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

No longer renting. We rented for four years. 1200 sq. condo with view onto golf course and view to city downtown. Five minute walk to rapid transit. Just outside the city core. Underground parking, etc.

The owner was actually loosing money on the condo. Two assessment cash calls. One just before we moved in for 35K, another for 5K just after we left. Real estate values dropped over the four year period.

No comparison in size. Our previous home was 3700 sq. feet.

 

[brett]

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

No longer renting. We rented for four years. 1200 sq. condo with view onto golf course and view to city downtown. Five minute walk to rapid transit. Just outside the city core. Underground parking, etc.

The owner was actually loosing money on the condo. Two assessment cash calls. One just before we moved in for 35K, another for 5K just after we left. Real estate values dropped over the four year period.

No comparison in size. Our previous home was 3700 sq. feet.

We really noticed what it cost to turn the key on our home after we sold and travelled for months. All of those pesky monthly expenses went away. The saving offset some of our travel expenses.

 

[Andre1969]

Most people probably think of "downsizing" as a means to save money, but there are just too many factors involved. For instance, if you're downsizing from some monstrous house that you can get lost in, to a cozy little cottage, apartment, or condo, in the same rough area, you'll probably save money. But if you're opting to move to someplace that's trendier and more in demand, or just more high-cost in general, the savings might not be so great, or even non-existent.

OP, if you were still making mortgage payments on your house, and wanted to move into a $3,000/mo apartment, you might feel like you're actually saving some money. But, once your home is free and clear, it's probably going to be difficult to go from free-and-clear to renting, without your monthly payments going up.

 

[brett]

Agree. We certainly did not downsize for financial reasons. Our home was too big. Three levels, four full bathrooms, five bedrooms, etc. for just the two of us.

The last thing DW and I wanted to do was keep living in about four rooms all the while taking care of the indoor and outdoor mtce. Not to mention taxes, utilities, upkeep, insurance, etc.

Plus..we wanted to travel at least 4 months a year, probably more. That meant no garden work, no snow removal, etc. Had to be an almost lock and leave property.

That desire only increased after coming back from seven months of travel and another three months of a furnished one bedroom in the city.

 

[Deej]

NJ taxes are crazy high, though, home sales are lower, than say, the Philly Burbs. Have you looked over the bridge which is still close to the parents? Hopefully, within 2 years, homes AND rentals will come back down to relatively "normal" rates. Also, no state tax in PA after retirement. Just a thought.

 

[Escapevelocity]

NJ taxes are crazy high, though, home sales are lower, than say, the Philly Burbs. Have you looked over the bridge which is still close to the parents? Hopefully, within 2 years, homes AND rentals will come back down to relatively "normal" rates. Also, no state tax in PA after retirement. Just a thought.

Yes, Philly is very much a possibility. Maybe somewhere like Ardmore or Manayunk also that have a little downtown with shops and restaurants.

 

[brett]

We have friends who also downsized but invested significantly more in their downsized real estate than was invested in their previous home.

When we mentioned to our bank advisor that we selling with an eye to eventual downsizing her first comment was that majority of her customers that did this actually spent more on their next property. This surprised us at first ...until we met a number of people who did downsize their home and upsize in terms of cost. A few significantly.

 

[Sunset]

Thanks for sharing your experience. I'm really not 100% sure we will like it, but we're 100% sure we want to experience it for a while and see how it works. We've lived in the burbs for so long, it's time to try something new and a little bit more exciting I think. The part about shared space in the building actually seems great to me because I want to meet new people and I like the energy of seeing people milling around. Let's see how we like it in day to day living though. Who knows.

It's been a long time since I lived in an apt, but I found the folks worked very hard to ignore each other.

It was a mental exercise to make life a little more private to compensate for the shared hallway, elevator, lobby, mail-room, front door, parking lot, etc..

 

[ExFlyBoy5]

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.

This is a good illustration of how situations are highly dependent on location, prices/budgets, markets and personal choice. While I am generally happy to be a home owner, it does come at a price. The last couple of years have been much more expensive than we had expected (lots of winter storm damage not covered by insurance). Thankfully, we were able to absorb those costs without too much gnashing of teeth.

Nonetheless, had we invested the purchase price of the house (bought late 2018), that money would have almost doubled by now which would covered rent and associated expenses for many, MANY years while not touching the "principal" amount. Of course, past performance is not a guarantee of the future.

 

[pjigar]

We have friends who also downsized but invested significantly more in their downsized real estate than was invested in their previous home.

When we mentioned to our bank advisor that we selling with an eye to eventual downsizing her first comment was that majority of her customers that did this actually spent more on their next property. This surprised us at first ...until we met a number of people who did downsize their home and upsize in terms of cost. A few significantly.

We did that! We halved the size of the house and new property cost us 50% more than the old one. But then again, the new house sits on a 17 acre lot on the edge of a Metropolis!

 

[brett]

What we found odd, after owning homes for 30 plus years, was the number of people who somehow thought that somehow our home equity was squandered, non existent, or spent simply because we traveled for months and then rented for what turned out to be four years.

We very much enjoyed renting. It was a welcome change from the travails of home ownership. We can well understand why people rent. We were happy to buy a home five years after selling our previous one.

But it seems to us that some people have a stigma about those who choose to rent. Renting can sometimes be financially much better than owning. For four year period that we rented it most definitely was.

It was so great, when our rental unit fridge was failing, to call the owner and have a new fridge show up two days later. Same for a few other items over the four year period.

 

[Ramen]

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

I've been doing this for 10 years, renting downtown, walking and biking everywhere. Sold my house, car, and SUV before moving here and don't miss them or their expenses at all. I agree with the first reply above -- it's a lifestyle choice. And a great one if it's what you want.

Suggestion: Stop comparing apples and oranges (owning/renting). Instead, decide what you want and need and then figure out which version of it you can afford. The cost of doing whatever you're doing is kind of irrelevant if it's no longer what you want to be doing.

 

[Katsmeow]

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.

Downsizing and renting are 2 different concepts, not necessarily comparable.

A few thoughts. How old are your in-laws? Do they have other family other than you and your wife to help them? That is -- how driven is your decision by their situation. For example, if your wife is their only family and they are in their mid 80s in poor health that is an entirely different situation than if they are "young" 70 year olds in good health with 3 other children living in the area.

People often think of downsizing as a one time thing but often it is a multiple time thing. We downsized from a very large house on acreage to a 3000 SF house on 1 acre that was less expensive. But -- 6 years later we downsized again. That time we moved 250 miles or so away to house that was about 2400 SF and was 20 years older than the house we sold and was on a 1/3 acre lot. You might thing that would be less expensive. You would be wrong. The smaller house was more expensive. Why? Location. I am not sorry we bought it because I wanted the location. But, it comes at a premium.

And maybe 20 years from now we might downsize again. Who knows? I don't plan to but things change.

In your situation, I do wonder if you might do better just buying rather than renting. I would check out how that might work out depending on your real estate market (of course, you need to do that closer to when you might do this). Another option would be keep your existing house (particularly if the in-laws are older, etc.) You could rent in an area that wasn't quite so expensive a location, etc. Lots of options.

 

[Amethyst]

Are you absolutely sure that 2 BR/1.5 BA as mentioned in your first post, will be big enough? Be very sure you can get rid of that much stuff and still be happy.

One of my gym friends is a local real estate agent about my age. She and her husband downsized from a large home up north, to a much smaller home in Florida. She now is looking for something bigger, for the two of them are feeling cramped - especially since there's no basement. She said they were really surprised at how much they missed their spacious former home.

 

[chassis]

@Escapevelocity

Just today we completed our third downsize in 3.5 years. Not entirely planned, but that’s how it unfolded. 3.5 yrs ago we were in the SE Pennsylvania 4BR home we raised our kids, today we are in a 1BR lakefront rental in the Midwest.

It’s outstanding, renting. Maintenance time and effort was zero in 2 of the 3 rentals. This time we cut our own tiny yard.

Main reasons for us to rent:

- deploy capital in the stock market

- maximize liquidity for planned mid-ticket commitments

- create flexibility to move anywhere we want. We don’t know where we want to live in retirement, so renting feels like a more nimble situation to take off should the desire arise.

On your target features: I think you are barking up the wrong tree with the target features and price/cost combination. SNJ is relatively HCOL but I acknowledge not DC or NYC. Our first rental was slightly lower total cost vs our owned family homestead. Second rental was a good deal in every way: very inexpensive, great quality and layout house, and landlords that were off the charts in honesty, flexibility and kindness.

Third and current rental is almost the same total cost as the family homestead, something of a disappointment. However, it is lakefront and we are much closer to elderly parents. The RE market shenanigans played a role with low supply and high demand. We didn’t have much to choose from and zero time to spend deeply contemplating the options.

In summary:
- we love renting and our portfolio does also
- your target features and cost expectations seem out of line.

 

[brett]

We went from 3700 sq feet. A year later into 1200 sq feet. Four years later 1500 sq. feet.

We had no trouble downsizing. In fact, it was so liberating to get rid of things we did not need. Plus all the dust collectors.

We were both thrilled. Less house to take care of.

We did a furnished smaller 2 br. apt in town. 900sq feet or so. Furnished rental for three months. Walkable to everything.

Then a the 1200 sq foot condo overlooking a golf course. Very close to town, walk to rapid transit, stores, restaurants.

Then a 1500sq foot attached bungalow HOA area.

It was all good. Took us a while to understand what we really wanted.

Downsizing the house was not as easy as it seems. We went down to an 8X8X16 storage container. Plus one box of hard copy docs that were stored by our son. It was challenging at times. Took us about 4-5 passes. By the third pass we got serious. One problem was the give aways. Some people wanted items but never showed up. SO, when we gave people a date. Pick up by this date because Women in Need is coming the day after to take things. This approached worked a treat.

Five years later....we still have a few unopened boxes. Most fine china that we do not have much use.

 

[Yipper]

When I think of downsizing (and we did just that about 4 years ago) I think more about reducing cost and effort vs. square feet, acreage or type of dwelling.

For us, we went from a 4,000 sq. ft. 4 bedroom on 1.5 acres to a 1,700 sq. ft. 3 bedroom on a postage stamp lot. It’s been awesome- FOR US - but it’s only been slightly less expensive. The benefit has been in reduced utility bills, eliminating lawn/snow services, fewer rooms to furnish and clean, etc. etc.

We like to do stuff ourselves and what used to take 1.5 hours (lawn) now takes 15 mins. I have other examples if needed.

This may not be right for everyone but it’s been great for us. Also - the big bonus here is that we moved to a very desirable town with many restaurants, shops and other amenities within a 15 minute walk vs. a suburban sprawl house that required a 15 minute drive to get anything. The house we sold has not really appreciated at all but the new place is up almost 50% in the time we’ve owned it.

Our costs are slightly reduced and our efforts are greatly reduced. This equals more money and more time. I like that combo now at 57. [emoji4]

 

[Escapevelocity]

@Escapevelocity

Just today we completed our third downsize in 3.5 years. Not entirely planned, but that’s how it unfolded. 3.5 yrs ago we were in the SE Pennsylvania 4BR home we raised our kids, today we are in a 1BR lakefront rental in the Midwest.

It’s outstanding, renting. Maintenance time and effort was zero in 2 of the 3 rentals. This time we cut our own tiny yard.

Main reasons for us to rent:

- deploy capital in the stock market

- maximize liquidity for planned mid-ticket commitments

- create flexibility to move anywhere we want. We don’t know where we want to live in retirement, so renting feels like a more nimble situation to take off should the desire arise.

On your target features: I think you are barking up the wrong tree with the target features and price/cost combination. SNJ is relatively HCOL but I acknowledge not DC or NYC. Our first rental was slightly lower total cost vs our owned family homestead. Second rental was a good deal in every way: very inexpensive, great quality and layout house, and landlords that were off the charts in honesty, flexibility and kindness.

Third and current rental is almost the same total cost as the family homestead, something of a disappointment. However, it is lakefront and we are much closer to elderly parents. The RE market shenanigans played a role with low supply and high demand. We didn’t have much to choose from and zero time to spend deeply contemplating the options.

In summary:
- we love renting and our portfolio does also
- your target features and cost expectations seem out of line.

Hi chassis - thanks for the reply. Regarding the features and cost that you’re questioning can you expand on this? Are you saying we can’t find something for 3k per month? I think from the informal browsing I’ve done that 3k would get us something suitable

 

[Escapevelocity]

When I think of downsizing (and we did just that about 4 years ago) I think more about reducing cost and effort vs. square feet, acreage or type of dwelling.

For us, we went from a 4,000 sq. ft. 4 bedroom on 1.5 acres to a 1,700 sq. ft. 3 bedroom on a postage stamp lot. It’s been awesome- FOR US - but it’s only been slightly less expensive. The benefit has been in reduced utility bills, eliminating lawn/snow services, fewer rooms to furnish and clean, etc. etc.

We like to do stuff ourselves and what used to take 1.5 hours (lawn) now takes 15 mins. I have other examples if needed.

This may not be right for everyone but it’s been great for us. Also - the big bonus here is that we moved to a very desirable town with many restaurants, shops and other amenities within a 15 minute walk vs. a suburban sprawl house that required a 15 minute drive to get anything. The house we sold has not really appreciated at all but the new place is up almost 50% in the time we’ve owned it.

Our costs are slightly reduced and our efforts are greatly reduced. This equals more money and more time. I like that combo now at 57. [emoji4]

The stuff you mentioned about walkable versus 15 min drive to everything is the key for us. We want to ditch one of the cars and do the bulk of our daily commerce within walking distance.. also to take advantage of cultural activities like museums in walking distance would be a major plus l.

 

[Escapevelocity]

Are you absolutely sure that 2 BR/1.5 BA as mentioned in your first post, will be big enough? Be very sure you can get rid of that much stuff and still be happy.

One of my gym friends is a local real estate agent about my age. She and her husband downsized from a large home up north, to a much smaller home in Florida. She now is looking for something bigger, for the two of them are feeling cramped - especially since there's no basement. She said they were really surprised at how much they missed their spacious former home.

I’m 100% sure we don’t or need “stuff”. Regarding space, it’s possible we might end up feeling too cramped but only one way to find out hence rent instead of buy.

 

[Scuba]

OP, would you consider putting most of your things in storage, renting out your suburban home to a long-term tenant, and renting a smaller place in the walkable urban area you’re wanting? This would give you maximum flexibility. You could experiment with downsizing and see if you’re happier in a smaller place, see if you enjoy the urban neighborhood as much as you think you will, and see what you think about renting vs owning.

If you decide you love your new lifestyle, you can sell your existing home later, but if you miss your large suburban home or your old neighborhood, you can move back in a year or two.

That is what DH and I have done. We actually upsized from a 1,600 sq ft oceanfront condo to a 2,600 sq ft suburban duplex on a golf course in the desert. We leased our beachfront condo out to a long-term tenant. So far we love the desert lifestyle, but we are also glad we still own the beachfront place. Options are good.

We lived in a walkable urban area for most of the last 30 years. One thing you may not realize if you’ve never done that is you will probably need to be prepared for a significant increase in petty crime and homelessness. You may or may not be a direct victim of crime, but it did get pretty depressing for us when we lived at the beach regularly seeing homeless intoxicated folks passed out on the sidewalks surrounding our building or intoxicated/mentally ill people screaming at the sky. This was not a rare occurrence. The suburb we live in now is a 5 minute drive to great restaurants and nightlife, but it feels so much more peaceful. Urban life has its benefits, but also its challenges.