If your kids have flown the coop, selling the family home and buying something smaller is likely to be on the horizon.
Many of my pre-retiree clients have grand plans to sell their home and buy an apartment closer to the CBD when their children move out. But they’re usually surprised to discover how expensive this can actually be.
This transition can be difficult because often where people picture themselves moving to and what they can realistically afford are two different things. That’s why I prefer to use the term ‘rightsizing’. After all, you are looking to make the right move to the right home that is best suited to your future lifestyle and financial needs.
Where people picture themselves moving to and what they can realistically afford are two different things
So, before you put your family home on the market, there are some important things to consider. Here are some ideas to get you started.
Start the conversation
Many people wait until they are over 60 years old before they even think about downsizing, but this is often too late. It’s best to begin this conversation at least five years out from retirement.
It can be daunting but the big decisions you make now will have a significant impact on your finances later in life. If you’re unsure of how to approach this next phase, it’s a good idea to discuss your needs and goals with a qualified financial planner.
They’ll be able to work out how much you can afford to spend on your next place and determine the best time for you to sell your family home.
Read more: The art of downsizing
Assess your situation
The good news is empty-nesters are usually past their most expensive life stage. School fees should be a thing of the past and you should have a sufficient cash flow, low or no mortgage, and a growing super balance.
If you’ve started to think about what to do next, letting go of the big family home can be a great way to free up some capital.
The whole idea of rightsizing is to do just that, so before committing to a new property be clear on what you need. Do you really need three bedrooms, when two would reduce your spend significantly? Do you need a two-storey house or will a one-storey home suffice? Is a big backyard necessary or something you’re willing to give up?
By assessing your situation and knowing the answers to these questions you’ll be able to rightsize with ease.
Letting go of the big family home can be a great way to free up some capital
Is your house sellable?
If you were to put your home on the market tomorrow, would you get the best possible price for it?
Before you move into your next house, you’ll probably have to sell your current home, so it’s worthwhile factoring in the time and money it could take to do so. It’s always a great idea to visit a local real estate agent to see what homes are worth in your area. They will also be able to provide a better perspective on what buyers are looking for and inform you of any improvements that may need to be done to maximise the value of your home.
Don’t worry, it won’t break the bank – sometimes it only takes a fresh coat of paint and new carpet to add wow factor.
Buy now, move later
If downsizing is not the right option for you now but you don’t want to miss out on the opportunity of buying a smaller house in your dream location, consider buying an investment property. You can put tenants in there right away to assist with mortgage repayments and also be one step closer to living your golden years in your desired location.
This will help you to lock in tomorrow’s capital growth today, which is a great financial motto to stick to. You can then rent the new property to help service the mortgage, and when you sell your existing home at retirement the proceeds can be used to pay off the loan.
Not only will you avoid having to pay capital gains tax on the home you’re selling, there are also other tax incentives that could make it a sweeter deal.
It’s possible you’ll move two or three times in your retirement, so start on the right foot to reap the benefits later on.
Read more: Aging in place – to move or not to move?
originally posted on realestate.com.au - click here to see more