Down Size to the Right Size
The Strategies to Employ When You Have More House Then You Need
It is evident to see the emotional connection we have with our homes when it comes to moving. Outside of the hassles of packing and the hurdles of selling a home, it is not something we opt to do without great reasons. Downsizing one’s home is one of those key reasons and unlike relocation for work or upsizing for a growing family, it is probably the one reason that is the most fraught with emotional challenges.
With property values in Pasadena being at an all-time high, many homeowners are pondering cashing out but getting a handle on the costs and challenges can seem overwhelming. I know because I have clients that are going through it as well as my own mother.
My mother still lives in the 1943 California Bungalow that I grew up in and the idea of downsizing comes up often as she approaches her eightieth birthday. What was originally a two-bedroom/one-bathroom home, my father had expanded the home to a four-bedroom/ three-bathroom house decades ago, making this a lot of house for my widowed mother to maintain.
Being 400 miles away from me in the foothills below Lake Tahoe, it is a challenge to remotely diagnose housing problems let alone help my mother fix them and the second story addition is rarely visited due to a spiral staircase. Despite the challenges, my mother only sees the idea of downsizing as a fleeting thought and something I know she will probably never do.
I cherish the idea of her moving to a smaller condo or townhouse that needs no maintenance, a yard that needs no mowing, has a new community of like-minded residents and a huge reduction in utility bills. Naturally she has reservations.
Her reasons for staying in a big house mirror those of most that are facing retirement, have a now empty house or recently gained a grandchild on the other side of the country. I will humbly attempt to cover the most common challenges and benefits of downsizing a home.
Less Space Means No Guest Bedrooms
When the kids grow up and depart for college or their own lives, the folks are left with empty bedrooms. These rooms often morph into a myriad of temporary transitional rooms like exercise spaces, crafts rooms, man caves or mini storage units. New hobbies and the room to stretch out can often justify staying in the bigger house. Plus, all these converted rooms have the similarity of being able to quickly transform into its original use as a bedroom if the kids come for a visit. If one was to downsize you would lose the bedroom-on-the-ready possibility.
Solutions and Suggestions:
Downsizing should be exactly that, a smaller place. Selling a three-bedroom house to only go into a three-bedroom condo is counter-productive and costly. So, what do you do when the kids want to come stay for a visit or you want a gym nearby?
Well, the new popularity of short term rentals like those available on sites like AirBnB or VRBO.com can provide a solution for those infrequent visits.
Personally, I feel no inclination to require my mother to live in the same home just so I can sleep in my old bedroom. Married now, I opt for a local hotel room when I come to visit. It is a nice balance of vacation and nostalgia and I don’t have to worry about my elderly mother fussing over my wife and I when we visit.
If a gym is important, many condo and townhouse developments have modern gyms and sometimes group fitness classes for residents. Just know, they generally won’t let you use the treadmill as a clothes hanger.
When it comes down to it, a two-bedroom condo or bungalow house could be the happy medium giving you extra space without too much space.
Space to Host Holidays and Gatherings
Hollywood loves nostalgia and we all can recall watching movies and TV shows that depict the family at grandma’s house for Thanksgiving. The thought of everyone at a giant table passing dishes back and forth is a fond one for many of us. So, selling off the family home that is used for hosting the family gatherings can be a tough decision.
Sure a new smaller place won’t accommodate everyone let alone a giant dinner table but there are ways families have been overcoming this for generations.
Solutions and Suggestions:
Transitions in traditions is commonplace, I am sure you can recall when the location of the family Thanksgiving shifted to a new location one year. The fact is, this can be a great opportunity for the next generation to step up. With new in-laws and children building a house of their own memories, there is almost always someone to eagerly volunteer and take on the role of host. There is even a growing trend of families, renting a big house for special occasions as people realize they do not need a huge empty house on a day to day basis.
My wife and I have created our own holiday traditions and love the idea of the family coming to us. The urge to make life easier for my mother and the desire to have the opportunity to stem some new holiday memories and traditions outweighs the nostalgia of the old family living room and its artificial tree at Christmas time. Downsizing is a great opportunity to pass the torch of traditions.
If casual entertaining is an important and frequent part of your life post-downsize, my advice is to make sure the next house features an open floor-plan that can accommodate the guests you anticipate. We love to think that we will entertain weekly, reality suggests it happens a lot less often than that.
Selling off real estate that is linked to a large collection of positive memories can be the biggest challenge when considering downsizing. The idea of going back to our childhood home is a fond one for child and parents alike. As an adult the idea sounds comforting and as a parent there is an unspoken obligation to keep this possibility alive. A home literally houses memories of babies coming home, speaking first words, early remodeling projects etc. and selling it off can feel like you are abandoning those memories.
Solutions and Suggestions
Our memories, and the future creation of memories, is centered more around those we create them with then it is the location. Most of us now have troves of printing and digital pictures that help with strolls down memory lane and part of life’s happiness is creating new memories.
My personal memories of my childhood home are favorable as well as they are for my mother, but as a grown child I know that new memories are always created, regardless of where she lives.
Fitting Your Stuff into a Smaller Place
The longer we are in one home, the more stuff we accumulate. Boxes of old paperwork, holiday decorations, passed down furniture and closets jammed with clothes all take up space. Downsizing one’s home coincides with the downsizing of one’s possessions. The challenge is determining what to keep and what to let go and chopping through sentimentality is never easy. Attics full of boxes are easier to offload then prized pieces of large furniture and collections of china. With a new smaller home, what stays and what has to go can be a huge hurdle and a seemingly daunting task.
Suggestions and Solutions
I personally enjoy eliminating possessions I rarely or never use and there are always needy charities that appreciate the donations. The “one year” theory of dumping things you haven’t touched in a year often proves to uncover the things that we are needlessly holding on to. Decluttering can be liberating and passing on prized family heirlooms to the next generation can spark a whole new life of appreciation for these belongings. While giving away grandmas wedding china may not be the most fun thing to do, one could hold on to a few prized pieces and display them proudly in a new home. Trimming one’s possessions to a smaller footprint while sharing them with loved ones can be a way to hold on to the past and ensure it will continue providing happiness to others in the family.
Transaction Costs of Downsizing
Real estate transactions aren’t cheap for home sellers. There are closing costs, possible Capital Gains tax, Realtor commissions, costs to prepare the house, transfer taxes, moving costs and more to consider. All of this is outside the costs of purchasing another property in a prime priced time for the market. Let’s break down the most common costs to consider.
Preparation: Selling an older home will take some prep work. Painting, cleaning and minor repairs can add up if not tackled in intelligently. I penned a guide on how to do this affordably. Get it here.
Commissions: Realtor commissions are paid by those selling houses. These generally run between 5% and 6%. While the actual dollar value can be significant between this range, the difference is the quality of representation. There are $100 an hour lawyers and there are $1,000 or more an hour lawyers, they are not equal in their return to the investor. A good Realtor will justify the commission by making sure a sale completes, it is profitable and stress free. Note: when considering selling a home without a Realtor, just know 80% of these homes end up hiring a Realtor after the fact.
Closing Costs: Depending on the negotiation, most buyers and seller transactions split closing costs like transfer fees, natural hazard reports, escrow fees etc. These always vary by property. I or any lender can estimate these costs for you.
Capital Gains: If you earn less than $250,000 on the sale of your home (or $500,000 if you file taxes jointly) you won’t owe a thing in the way of capital gains. However, if you are set to earn more than this amount, which is common for those with ample equity, you may be responsible for a capital gains tax. Like anything tax related, there are a lot of nuances. This article can clarify more on capital gains. HERE. If faced with capital gains, another option is to look into a 1031 exchange which can defer in some instances. More here on 1031 Exchange.
Moving costs: Moving all of your possessions takes one of two routes: the expensive or the labor intensive. Hiring movers can be expensive but will take less time. Moving all of your belongings with the help of friends and family will cost you less financially but a lot more in time and stress. Finding a balance where movers move the big stuff and family helps with the rest may be a way to meet costs in the middle.
Property Costs of Downsizing:
If you are a person that is considering downsizing, you know how different real estate prices are now than when you originally purchased. With the average home price in Pasadena being $800,000 the initial thought of selling a home you bought for $200,000 and owe little to nothing on to just buy another home at today’s prices sounds crazy. Why take on a new home payment or a monthly HOA bill when you live in a comfortable place? Well the math is a key part of any real estate transaction and it may make more sense than you think.
Your home is up dramatically in value, you have twenty plus years of equity which makes selling an easy concept to consider. The challenge is the cost of going into a new home. If staying in Pasadena is the only consideration, depending on your current homes value, it may not make as much sense. Newer two-bedroom condos will cost around $700,000, luxury condos off Orange Grove cost even more and older condos aren’t dramatically lower. What you are selling and what amount of those proceeds should go to the new place will determine your options.
Solutions and Suggestions
You can buy older condos in and around Pasadena that need kitchen and bath upgrades which can be found in the mid $500,000 mark, or you could look at areas just south of Pasadena like Monterrey hills where Condos built in the mid-eighties sell for the mid-$400K range.
Better yet is the idea of moving out of the immediate area, which we see a lot of. Downsizing in space but upscaling in location can be quite rewarding. Seaside towns in Southern California can be a great change of scenery. Beachside enclaves like San Clemente and Encinitas to the south or Santa Maria and Pismo Beach to the North offer affordable options while the evolution of nearby Long Beach can be great for those looking for ocean breezes and highly walkable living.
Going out of state is another common option for Pasadenans looking to downsize. I have reported on out of state options quite a bit because we see it so often. Finding bliss in Ashland Oregon or Chattanooga TN is more possible in 2018 as these towns offer many of the things we seek in a city (dining, entertainment, the great outdoors etc) while the options for real estate under $300,000 is abound.
In conclusion, downsizing is one of the most challenging decisions a homeowner can make. The possible financial gains of selling Pasadena real estate at its peak can more than provide for the costs of retirement while a smaller square footage will not only save on monthly utility bills, but also cut the work involved to maintain a big older house and a giant yard.
It is never an easy decision, but at Podley Properties we do our best to help homeowners with these challenges.
If you have any questions regarding your current home value, relocating out of California or real estate in general, please contact me direct.
Michael Robleto is a REALTOR® with Pasadena based Compass. His analytical and open approach to sales has served his clients well in his twenty years of sales. Michael brings a modern data and technology-driven approach to real estate while focusing on the historic architecture of Bungalow Heaven. Michael takes a client first approach to real estate and enjoys sharing interesting topics of conversation for homeowners and home buyers. He can be found on Facebook, YouTube, Twitter and Instagram under the common profile name of his blog BungalowAgent or at www.BunaglowAgent.com/blog. For Sellers or Buyers Agent representation he can be contacted directly.