Should I stay or should I go? The downsizing dilemma
Your kids have all flown the coop and you suddenly find that the family home seems a lot larger than it used to. Whereas every surface may once have been strewn with muddy soccer boots, university textbooks and never-ending loads of laundry, whole spaces now go unused for weeks on end. It seems to take much more effort to maintain all the rooms – most of which aren’t being used – not to mention the front lawn and backyard.
The question of downsizing naturally arises in these situations, but is it right for you?
The downsizing dilemma
Downsizing sounds straightforward enough: sell the family house and buy a smaller, cheaper property, saving money in the process. Easy, right?
Yes, in theory. If you still have a mortgage then downsizing could reduce your debts significantly, with the added bonus that you won’t need to maintain such a large area. However, you’ll need to factor in the costs of moving. The heftiest of these will be stamp duty, but real estate agent commission, pest and building inspection costs and removalist fees also need to be considered.
The 2017 McGrath report found that the combination of stamp duty and agents’ fees can be around $55,000 for an average-priced Sydney home. As you can see, it’s not as simple as subtracting the cost of your new home from the sale of your current home.
Staying put: what are your options?
All of the additional costs associated with moving are prompting increasing numbers of Aussies to stay in their family homes for longer instead of downsizing, according to property professional John McGrath. If you think you won’t lose out by purchasing a smaller property after accounting for all the relevant fees, downsizing is probably a good option. However, there could be many reasons not to downsize.
For example, your kids might have moved back while they’re saving up for their first homes. You might feel a strong attachment to the family house because of all the memories you’ve shared there. Maybe you love the area and can’t imagine living elsewhere. There’s still plenty that you can do to increase the equity of your existing home, as you might end up selling it later down the line.
Renting out a room or section of your home to a young couple or university student is a great option to get some extra cash that you can put towards your super (or perhaps that trip to Europe), especially if you’ve suddenly found yourself living alone. Additionally, you’ll get some company to boot. You may also want to consider renting out a larger area of the home – effectively downsizing without going anywhere.
More and more Australians are renovating their homes, according to the 2017 McGrath Report. The popularity of shows such as The Block can probably claim some credit for this, but the truth is that renovating your home can really improve its value in the long-term. You might not be ready to downsize right now, but you might be in a few years’ time. Doing up the kitchen or bathroom or adding an extension can give you a project to work on and will increase your equity significantly.
If your main incentive for downsizing is to minimise your debts but you’re not keen to move, home loan refinancing could be an option for you. Mortgage Choice brokerscan help you compare home loans from banks and lenders across Australia to find the best alternative to suit your personal situation.
Whatever option you decide to go with, it’s important to get financial advice from a qualified financial adviser.