Downsizing is an increasingly common trend among householders in Australia. Simply put, it is the decision to move from a larger home into a smaller, more manageable residence. Downsizing usually happens when the children have grown and have left the nest, or the choice has been made to retire from work. While downsizing may not be for everyone, there are a number of financial and lifestyle benefits you can gain from living in a smaller home.
So, what perks can you expect from moving into a smaller home?
Lower housing costs
The most obvious benefit of downsizing is the comparatively lower cost of a smaller house versus a larger one. A smaller home has a smaller footprint. Therefore, it will be cheaper than a large house. Because of this disparity in costs, the result – if managed properly – is that you will own your new smaller house outright. At the same time, you will be able to pay off your existing mortgage by using the money earned from selling your larger existing home. If you are not in a position to own it outright, your mortgage repayments will be lower anyway. This will give you more financial flexibility to invest or spend more money on leisure time.
By moving from a large to a smaller house, you will immediately free up time spent on maintenance. Maintenance includes mowing the lawn, fixing broken doors, windows or walls, servicing gas, water and electricity connections, and of course cleaning. Less time spent on maintaining a large residence equals more time doing the things you like to do!
Save money on bills
Due to the smaller footprint, utility bills such as electricity, heating, cooling, gas, and water will be significantly lower. For example, if your new house is half the size of your previous home you can reasonably expect it to cost half the amount to heat/cool the space. Water and gas for cooking will probably give a smaller saving but money saved is money earned. As this suggests, there are possibilities for huge savings in this respect. Below are two examples of what use this saved capital could be put to:
Invest in design and furnishings
With the money you’ve saved and will continue to save, options for beautiful design as well as quality furniture and finishes are now more attainable. Just because a house is smaller in size, it does not mean that it has to be less comfortable or poorly designed. With good design and thought put into the layout of a house it can feel larger than it is. You will also be able to furnish the house in style and quality to suit the design.
Save for retirement
Your increased level of savings week on week will mean you can prepare for retirement in a stress-free manner. Exactly what you do with your larger dispensable income is up to you. You could save and purchase an investment property that generates a rental income, start a property portfolio, or both. By divesting of a large property, you allow your other capital to work for you.
Effects of market uncertainty
Despite the current uncertainty in the housing market, downsizers are generally in a relatively safe position. They already have a significant asset in the form of their existing house. More specifically, once the larger house has been sold, you will be well-placed to purchase a smaller, more affordable home.
In fact, this is the only risk a downsizer will run – buying before they sell. Therefore, in order to avoid paying two mortgages at once, you should always wait to sell the larger property.
To sum up, the mantra ‘less is more’ definitely applies to downsizing. By making the move to a smaller residence you can save money and time which gives you more freedom in your lifestyle choices. If you are at a stage of life where the idea is appealing, you should consider the benefits and remember that a smaller house can also help with managing stress.