In decades past, the downsizing of one’s residence was often viewed as a negative event. This is no longer the case. Many homeowners are choosing to opt out of a large home in a traditional neighborhood and instead are embracing the chance to have a new adventure by purchasing a smaller property, offering the opportunity to escape the maintenance of their current home and enlarge their lifestyle. Downsizing to a sexy high rise apartment in an eclectic urban chic location is hardly what downsizing in your parents’ or grandparents’ day used to be. In fact, many downsizers are able to sell their home and purchase a smaller home in their current location to be near family as well as a vacation home or second home in a new and exciting destination! This enlarges not only their own lifestyle but also that of the entire family.
As you make plans to downsize with distinction there will be, of course, many emotional decisions to make and lifestyle preferences to consider. And we can’t neglect to examine the financial ramifications of your decision, in fact, for downsizers the financial side of the move is often the most important to sort through before moving on to the needs and wants in their next home.
As you begin this process you will want to examine:
- Are you looking to lower your monthly obligations and maintenance?
- What will the capital gain tax ramifications be?
- What will it cost to purchase your next home?
- Moving costs, staging and repairs on your current home.
- The timeline needed to make it all happen.
- How to accomplish all of this with minimal stress?
And perhaps the biggest question of all… “Do I buy first or sell first?” The answer to this question will largely depend on whether or not you can afford to purchase your next home without selling, by either paying cash or by carrying two mortgages until your current home sells and closes.
Many downsizers would find owning two residences to be very stressful, and this is why most sell first before buying their next home. Some who have large sums of cash on hand may choose to pay cash, and move many if not all their possessions to the new home before listing their current residence.
To make a decision that is right for you, it might be best to discuss all of the options with a professional real estate agent, talk to a lender if financing will be needed, and consult with your CPA or tax attorney.