Almost 1 in 4 baby boomers plan on moving at some point in later life according to the Demand Institute. Here are some questions to consider before downsizing your home:
- Will you sell or rent your existing home? How will you manage your property if you rent?
- Where do you want to move to? Examine your goals and motivation.
- Thinking of moving out of the area or out of state? Research and visit the area.
- What will you do with all your “stuff.” Downsizing means reducing your “stuff.”
Figure out how much money you will get from the sale of your home. Determine a realistic sales price, and deduct the mortgage balance, closing costs and cost of sale to figure your net proceeds. This will help in deciding what price you are willing to pay for your next home.
Consider the tax implications of selling and moving to a smaller, less expensive home. Downsizing can have many financial advantages; releasing potential cash from a sale, keeping up a smaller home and lower monthly expenses. Under current law, if you sell your principal residence for a profit, up to $250,000 of that capital gain is excluded from tax. Married couples filing a joint return can exclude up to $500,000. Calculate your cost basis by taking the original purchase price, and adding any significant capital improvements made to the home over time. Specific IRS rules apply so be sure to consult with a professional tax preparer. Furthermore, you may also want to speak to your financial planner to see how this would affect your long-term retirement goals.
Assess your actual needs. Getting organized for a move to smaller home will include measuring the furniture you want to keep, assessing new storage areas, and analyzing your current lifestyle and priorities. Those items that are not used on a regular basis should be sold, donated to charity, friends and relatives or tossed out. For those items which are hard to get rid of, put them in storage. After 6 months if you haven’t needed them, get rid of them. For help in sorting out many possessions, you can hire a personal organizer. “Downsizing the Family Home” by Marni Jameson is a good book on the subject.
Organize and sell your stuff. Room by room go through every drawer, cabinet, cupboard, shelf and closet. Only keep the things you cannot live without and use on a regular basis. This includes the garage. Those items that you want to keep and store, pack in plastic bins and label. Organize a garage sale, advertise on Craig’s list, Next Door Neighbor, Facebook and eBay. A liquidator can be hired to do an estate sale. Fees are usually 30 – 40% of the total earnings. Expect to spend between 3 -6 months getting rid of things you won’t need in your new home.
Once you decide to sell determine what needs to be done to prepare your home for sale. This may include deep cleaning, carpet cleaning, window washing, and some fresh paint. Small improvements and repairs along with freshening up the entry way with new plants and flowers go a long way.
What about buying before you sell? Today we are in a seller’s market which means that sellers are reluctant to accept an offer subject to the sale of your home. A seller is more inclined to accept your offer if you are in escrow, with most if not all the buyer’s contingencies signed off. At the least, you need to have your home on the market with a solid marketing plan in place with your realtor. You can buy yourself some time to look for a new home if you put your current home on the market with the stipulation that the sale is subject to you finding a replacement home. You may need to give some thought to selling your home outright and renting temporarily while looking for your new home. This way you can take your time to choose the home you want and not feel pressure to make a hasty decision.
If you need help with knowing the value of your home, determining your net proceeds, or some tips on low cost-high return things to do to your home to ready for sale, please contact me.
Original article by Elizabeth Field.
Allison James Estates & Homes