March 1, 2018
March 1, 2018
Empty-nesters. Your children are grown and gone, which is what makes you empty-nesters in the first place. Your last child just left the nest, and now it’s just the two of you wandering around your suddenly oversized home. What do you do about that?
A lot of people prefer to stay in the same home they raised their children in. That’s understandable from an emotional standpoint. But there are many advantages of trading down on your home, maybe too many to ignore.
Here are five big ones.
If you still have a mortgage on your home, you may be able to lower your house payment by trading down in one of two ways.
The first involves buying a smaller home with a much lower mortgage amount. Let’s say that your current home is worth $300,000, and you owe $150,000 on it. By trading down to a $200,000 home, you may be able to transfer the net equity from your current home to the new one. That will leave you with a mortgage of no more than about $50,000.
The second is to trade down and eliminate the mortgage. That would mean selling your $300,000 home, paying off the $150,000 mortgage, then using the cash to buy a home for not more than $150,000. Boom – you’re mortgage free, even though you never actually paid off your mortgage.
Either strategy will result in a much lower house payment. What’s more, the lower-priced home will likely come with lower property taxes and homeowner’s insurance. If the house is smaller, you’ll probably see lower utilities and maintenance costs as well.
By lowering your house payment, which is probably your single biggest expense, you’ll have more money to save for retirement. If you’re already in retirement, it can be the perfect way to dramatically cut your living expenses.
If the home you raised your children in has say, 3,000 square feet, do you need all that space? Probably not. Sure, we can always find ways to use unused space. You can create hobby rooms or use them for extra storage.
But remember, you’re paying for all of that space. At best, the alternate uses of your children’s bedrooms, and maybe a finished basement, will probably be no better than marginal uses.
By trading down, you could avoid paying for space that you don’t need. The family room – which is just a second living room – and a finished basement may have been highly desirable when you were raising your children. But now that it’s just the two of you (or just you), you probably don’t need the extra space. So why pay for what you’re not using?
With the disappearance of traditional defined-benefit pension plans, there’s something of a retirement crisis in America. Saving money through retirement plans has become mission-critical. But it’s often forgotten that the family homestead is one of the very best retirement plans.
Earlier, I used the example of trading down from a $300,000 home, with a $150,000 mortgage on it. But here is a retirement-centric twist on the same example…
Let’s say you sell your current home for $300,000 and walk away with $150,000 in cash. You purchase a new home for $200,000. But rather than putting the entire cash proceeds from your current home into the new one, you instead make a down payment of $50,000. You take a new mortgage for $150,000 to cover the difference.
In effect, you will have moved the mortgage from your current home to the new one.
That will leave you with $100,000 in cash remaining from the sale of your current home. It would make a nice addition to your already existing portfolio of retirement savings. It might even fast-forward your retirement savings, enabling you to retire early.
Think about it.
It’s probably true that most people fantasize about living someplace else. It could be near a lake or the ocean, or close to major attractions. If you have a secret desire to move to such a place, it can work well in combination with a plan of trading down on your home.
You may be able to sell your current home and move to a less expensive one in a more desirable location. For example, there may be a beachfront community that’s off the beaten path and has lower house prices. You may be able to easily afford it by selling your current home.
And if you use the last strategy – buying a lower cost home and banking the difference – you may find yourself moving to a more desirable location with a much larger bank account. It could be a nice life!
I think it’s safe to say most people have a lot more stuff than they need. In fact, we need very little to survive, and not much more than that to be happy. By trading down, particularly to a much smaller house, you’ll eliminate a lot of storage space. You may even eliminate a disproportionate amount of storage space since a smaller home will require that you maximize actual living space.
The point is, trading down to a smaller home could force you to get rid of a lot of stuff that’s mostly just taking up space. Most people will keep their stuff – even if they never use it – simply because they have a place to store it. But if you eliminate the extra space, you’ll be forced to get rid of it.
Perhaps more significantly, since you’ll have less storage space, you’ll be unlikely to “rebuild your inventory.” You just won’t have enough room for it. You may even find that reducing your stuff leaves you with more living space. That can even happen in a smaller home.
With all the many advantages of trading down on your home, what are you waiting for?