how much does downsizing save in taxes, utilizes, upkeep etc?

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RevFran
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how much does downsizing save in taxes, utilizes, upkeep etc?

Post by RevFran »

I am endlessly thinking of downsizing and never actually doing it. My current pondering turns not on savings of cost of the actual house, but cost of all associated costs. I often read that people downsize but actually wind up spending no less on a new, smaller house because they redo the bathroom etc. I would happily net nothing on selling my current house and buying a smaller one if I were persuaded that the month-to-month savings would net enough to make a notable difference. What have folks' experience been?
bloom2708
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by bloom2708 »

The major difference would be the money in your pocket less selling fees.

If we sold our house for $500k and could find a $300k house we could live in, you would put $160-$170k in your pocket. A FIRE boost.

Property taxes would be less. A smaller footprint could mean lower heating/cooling. Two story to one level for example.

You might go to a "less maintenance" house in an association. That has fees likely, but maybe that means you don't need a lawnmower, snowblower, shovels, yard equipment, etc.

Some also change areas when they downsize, so certain costs may be drastically lower. Maybe you used to live closer to work and now you don't have a commute, so 30 minutes "out" means lower prices.

Lots of variables. Some downsize but up-price. I see the extra $150k or $200k or more as a couple extra years of retirement maybe 3-4 depending on your spending.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
coffeeblack
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by coffeeblack »

Freeing up capital to invest.
Lower taxes.
Lower utilities.
Lower maintenance cost.
OnTrack2020
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by OnTrack2020 »

We have every intention of "downsizing" to a smaller home with a smaller yard, but upgrading in a few years. Cost-wise, the purchase price of a newer home will probably cost the same, if not more, than where we currently live. Property taxes will probably go up because I'd like to go to a larger metro area. Upkeep, hopefully, will go down. I am not thinking there will be any less expenses.
DSInvestor
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by DSInvestor »

Property taxes may not be lower. I am thinking of residents of California who may have owned their homes for decades and enjoy low real estate taxes due to Prop 13. If they sell, even to downsize, the real estate taxes on the smaller home could be many times larger than the real estate taxes on the larger existing home.

I think Prop 13 causes many people in CA to renovate existing homes rather than sell and buy another home. They may even go as far as to keep only one wall of an existing home to qualify as a "renovation" and maintain the low real estate tax.
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sport
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by sport »

A lot of upkeep expenses are related more to the age of the house rather than the size. Our retirement house is actually a little larger than the old one. However, the old one had wood siding that needed to be painted; the new house has vinyl siding. The new house is better insulated than the old one and the AC is more efficient. So, heating and cooling costs are lower. Other things are more expensive. So, a proper analysis will consider more than just the size of the house. Like many things, the devil is in the details.
adamthesmythe
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by adamthesmythe »

It depends.

Choose wisely and you will save money. Don't and you won't.

When I moved from the northeast to the southwest I bought a less expensive house. I pay less for maintenance, taxes, and utilities.
wanderer
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by wanderer »

We moved at retirement and "downsized" marginally. We bought a one story house with a smaller yard to reduce our routine upkeep (yard, etc) in a neighborhood of similar "patio homes". Nothing glamorous. We can travel more with less concern for home maintenance issues and the layout will allow us to "age-in-place" once we "retire" from travel. We have friends that watch the house and a lawn service. The retirement house was slightly less expensive, slightly newer, and a much simpler layout that better suits our empty-nest life.

Overall housing costs are about a wash, but life is "simpler".
iamblessed
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by iamblessed »

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Last edited by iamblessed on Tue Jul 20, 2021 4:01 pm, edited 1 time in total.
BrooklynInvest
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by BrooklynInvest »

It's a great question. Friends are doing it in our neighborhood and, while they'll likely clear some money I'm not sure I'd do a similar thing, but each to their own.

Transaction costs on buying and selling - might include cap gains but you're also paying lawyers, realtors, movers etc.

"Downsizing" - it might simplify things and that's a benefit but I often wonder when it comes to reductions in living space whether the savings are proportional. Ie if I cut my living space by 30% are my expenses cut by similar amount? May not matter to some.

Hassle - Might just be me, but the thought of buying and selling a house if it wasn't financially necessary would annoy the heck outta me.

Moving is different. If I'm gonna move somewhere else anyway, we have an opportunity to reevaluate the family's needs, but downsizing "in place" is, to me, a bit of a different animal.

Good luck OP!
drr1099
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by drr1099 »

It only works if done right. I have a 10 year old 5000 sqft McMantion worth 760. I also never sold my townhouse in the same area worth 410 (20 years old, 1950 sqft). I would like to move back to my townhouse someday and did the following calculations
Taxes: 13,000 vs 4900
Insurance: 1933 vs 925
HOA: 80+paying for loan care and doing my own snow removal vs 190 al inclusive
Gas/Electric: 300 vs 200
Maintenance big ticket items: Roof after hail damage : 30 vs 10
Window replacement someday: 35 windows vs 8
HVAC: 2 units vs 1 unit (maintenance and replacement)
etc, etc, etc
Bottom Line: $1000/month cash
Even after a major renovation and sales cost: $200,000 cash

That's downsizing done right in my opinion (if I pull it off someday)

Here is an example of a wrong way to doing it:
There are new luxury new construction townhouses (2200-2600 sqft) or luxury condos (1500 sqft) for 550+, or 55+ 2 bedroom single homes (2700 sqft for 700,000+)
Price: 550+-700=
Taxes: 8000-11,000
Insurance: 1500-1800
HOA: 200+ for townhouses 500+ for condo

Bottom line: Savings of couple hundred per month and 50-100 thousand cash (maybe)

If you are going to save money, save money. If you are going through the cost of a relocation (realtor fees, settlement costs, move, etc), go for significantly cheaper, more utilitarian choice or don't bother. I don't chase marginal incremental improvements.
LittleMaggieMae
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by LittleMaggieMae »

I think there's different ways to look at the question of costs/savings.

Energy has different costs depending on where you live. For example therms of natural gas or watts of electricity can cost vary in cost across America. As do the fees and charges to get that energy to your house. (I didn't use propane or oil because I don't have experience with that). Water and Trash and Sewerage and Cable/Internet are other expenses that I am sure varies by area. You can make your new house as energy efficient as possible to keep costs down - or you can purchase a home in an area with lower costs for the energy you use. This applies to property taxes and insurance costs. It also applies to upkeep costs.

Then there's the "time" issue a smaller house will have fewer rooms you need to keep clean/maintain. Having fewer rooms may mean you buy less "stuff" to put in those rooms. having a smaller yard may mean lower cost for lawn service. having less house/less stuff may give you more free time for other stuff.

It's also a difference in cost up front (initial purchase) and then the monthly expenses (which you would want to be lower than what you were paying on the bigger house).

But, then, isn't this the kind of stuff one looks at when buying a home? How much does the house cost upfront - and can I afford the 30 years of on going monthly expenses? :) I may just be weird but I think about and consider the "on going" expenses of a house when I'm evaluating a house for purchase. That plays a part in my decision to put in a bid/buy or to pass on the property.
LittleMaggieMae
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by LittleMaggieMae »

The other thing to consider... if you have too much house (rooms you aren't using/too many bathrooms you aren't using) you may neglect some parts of your home. If you neglect parts of your home long enough - it lowers the value of your house. Where do all those "neglected" homes flippers are looking to buy for cheap come from?
flyingcows
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by flyingcows »

I think its probably a mistake to use total sqft as the only metric. A few others come to mind: cost per sqft, local property tax rate, local property insurance rates, age of home, condition, utility rates, insulation, weather, acerage, etc.

A 900 sqft home in the bay area is going to be more expensive to buy and maintain and have a greater total cost of ownership than a 5000 sqft home in the midwest
BobTexas
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by BobTexas »

My in laws recently downsized in same neighborhood to a smaller house. My guess is that they saved very little if anything, especially considering the transaction costs. There are realtor fees, moving costs, and they had a couple months where they were paying on both houses. In addition they lost a grandfathered real estate tax assessment on the old house. There isn’t a big change in utility costs, water bill is similar, and they still have to pay someone to mow the lawn

The one improvement is that the new house is a single story house, when the old was 2 story. Retirees should be looking for a single story house. I saw a post above where someone was mentioning retiring to a townhouse, but I suspect that at some point they will have problems with the stairs
rockstar
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by rockstar »

The problem is finding smaller. It seems like everything being built is big.
02nz
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by 02nz »

I think it also depends on how much you downsize your lifestyle. A big house tends to encourage accumulation of more stuff, and if downsizing the house helps curb that, then the savings will extend beyond utilities, property tax, etc.
fposte
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by fposte »

RevFran wrote: Wed Jul 14, 2021 4:20 pm I would happily net nothing on selling my current house and buying a smaller one if I were persuaded that the month-to-month savings would net enough to make a notable difference. What have folks' experience been?
What do you want that notable difference for? How are you doing at meeting your financial goals as you are? How, basically, do you think downsizing will improve your life?

It can be a perfectly reasonable thing to do, but there's no inherent obligation to maximize frugality in every expenditure, either. If you like your current house and your retirement planning is looking strong, there's no particular reason to change your life to get extra money just because.
Topic Author
RevFran
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by RevFran »

To fposte’s question above, for me: my house feels too big for me and I don’t love the upkeep, but there are many things I do love about the house so the abstract idea that it’s “too big” is insufficient to motivate me to move. A sense that I’d have a little extra give in the fabric each month financially would be an added motivation. I think I’d be bummed to move and then find I wasn’t really saving each month.
Freetime76
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by Freetime76 »

RevFran wrote: Tue Jul 20, 2021 11:38 am To fposte’s question above, for me: my house feels too big for me and I don’t love the upkeep, but there are many things I do love about the house so the abstract idea that it’s “too big” is insufficient to motivate me to move. A sense that I’d have a little extra give in the fabric each month financially would be an added motivation. I think I’d be bummed to move and then find I wasn’t really saving each month.
We downsized (in our early 40s). vs our former lifestyle. We’d do it again, no regrets. More time, less drama.

Downsizing, choice of location, cost of living, property tax (less expensive property and lower tax rate) all combine to save us **a lot**. I’d say it costs us about half as much monthly to live.

Your choices will have a bigger impact dollars-wise than the downsize square footage per sae. For example, a smaller house in an expensive area...where you just have to have premium everything plus a mini Viking stove isn’t necessarily going to be cheaper.

You don’t have to answer: I wonder why it’s niggling at your mind? Is it the budget? Something you feel you Should Do? Friends are doing it? Sometimes those nudges are for a reason, and I usually heed them :wink: Disclaimer: I do enjoy The Minimalists podcasts.
Please spell out new acronyms. Thank you.
iamblessed
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by iamblessed »

I ran the numbers. I looked at cutting the house size by about 2/3. I would have only saved about $200 a month. Most of the money is made from the money you can put in the market after the downsize.
surfstar
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by surfstar »

If you can easily convert a portion of the house/garage to an Accessory Dwelling Unit, that would "downsize" your living area, and add monthly income (note I said easily, as in "cheaply" for ROI). Then use the monthly income to pay for people to take care of the upkeep you no longer wish to do on a large house.
Downsize with no move required.
2tall4economy
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by 2tall4economy »

Some have mentioned it but I also see some bad comparisons that aren't really taking it all into account.

Presumably people who are downsizing have fairly large, fairly expensive homes.

They're losing 10% of the transaction price (likely north of $500k)

If they're older and have a large house, they are likely paying movers so they're also losing the cost of moving (depends, but $5k to $25k depending on where you're going)

If you pretend that home appreciation is consistent (it's not, but need to make an assumption) their small house will provide less ROE than their current home.

Just adding those three (ignoring capital gains, ignoring any decoration or remodeling, ignoring and required initial repairs), you've got to save a lot of costs for a long time to climb out of that deficit.

To me, you downsize to have fewer things to worry about and manage, it's not because it's a great savings opportunity (unless, as someone said above, you're moving from a New York penthouse to 1,000 sqft in Detroit).

If I downside once I buy my forever home (still haven't got it!), it will be because I'm moving from the suburbs to the lake, not because I'm trying to save money.
You can do anything you want in life. The rub is that there are consequences.
Topic Author
RevFran
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by RevFran »

Freetime76 wrote: Tue Jul 20, 2021 3:09 pm
RevFran wrote: Tue Jul 20, 2021 11:38 am To fposte’s question above, for me: my house feels too big for me and I don’t love the upkeep, but there are many things I do love about the house so the abstract idea that it’s “too big” is insufficient to motivate me to move. A sense that I’d have a little extra give in the fabric each month financially would be an added motivation. I think I’d be bummed to move and then find I wasn’t really saving each month.
We downsized (in our early 40s). vs our former lifestyle. We’d do it again, no regrets. More time, less drama.

Downsizing, choice of location, cost of living, property tax (less expensive property and lower tax rate) all combine to save us **a lot**. I’d say it costs us about half as much monthly to live.

Your choices will have a bigger impact dollars-wise than the downsize square footage per sae. For example, a smaller house in an expensive area...where you just have to have premium everything plus a mini Viking stove isn’t necessarily going to be cheaper.

You don’t have to answer: I wonder why it’s niggling at your mind? Is it the budget? Something you feel you Should Do? Friends are doing it? Sometimes those nudges are for a reason, and I usually heed them :wink: Disclaimer: I do enjoy The Minimalists podcasts.
Thanks, this is very helpful. I am not sure why it’s niggling- good question —definitely no friends downsizing. I think it’s a combo of 1) the imagined sense of freedom i think I would have if I saved on average say $500/mo 2) the sense that there is just something wrong/off kilter about one person living in a 2600 3 br house 3) I have a lot of books and art - which I love - yet I think I’d feel lighter if I sliced those collections in half
Topic Author
RevFran
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by RevFran »

2tall4economy wrote: Wed Jul 21, 2021 5:45 pm Some have mentioned it but I also see some bad comparisons that aren't really taking it all into account.

Presumably people who are downsizing have fairly large, fairly expensive homes.

They're losing 10% of the transaction price (likely north of $500k)

If they're older and have a large house, they are likely paying movers so they're also losing the cost of moving (depends, but $5k to $25k depending on where you're going)

If you pretend that home appreciation is consistent (it's not, but need to make an assumption) their small house will provide less ROE than their current home.

Just adding those three (ignoring capital gains, ignoring any decoration or remodeling, ignoring and required initial repairs), you've got to save a lot of costs for a long time to climb out of that deficit.

To me, you downsize to have fewer things to worry about and manage, it's not because it's a great savings opportunity (unless, as someone said above, you're moving from a New York penthouse to 1,000 sqft in Detroit).

If I downside once I buy my forever home (still haven't got it!), it will be because I'm moving from the suburbs to the lake, not because I'm trying to save money.
Thanks for this - I appreciate it. The codes of redecorating and the moving costs are part of what give me pause.
Topic Author
RevFran
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by RevFran »

iamblessed wrote: Tue Jul 20, 2021 4:05 pm I ran the numbers. I looked at cutting the house size by about 2/3. I would have only saved about $200 a month. Most of the money is made from the money you can put in the market after the downsize.
Fascinating! If you have a spreadsheet of these numbers, I would love to know more!
iamblessed
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by iamblessed »

RevFran wrote: Sat Jul 24, 2021 6:41 pm
iamblessed wrote: Tue Jul 20, 2021 4:05 pm I ran the numbers. I looked at cutting the house size by about 2/3. I would have only saved about $200 a month. Most of the money is made from the money you can put in the market after the downsize.
Fascinating! If you have a spreadsheet of these numbers, I would love to know more!
I don't have a spreadsheet but the $200 is saved by the new home. Another 15k a year could be made in the market over time with the money saved on the cheaper home. The new home is not in as nice an area. I was surprised that the actual home made so little savings. Most of the savings came from putting money in the market.
musicmom
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by musicmom »

We downsized suburb to nearby lake.
1900 sq ft to 900.
Two story to one story.
Mortgage to no mortgage.
Taxes 10K to 6K
Utilities down approx 35%
Has worked for us after 3 years.
YMMV
HomeStretch
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Re: how much does downsizing save in taxes, utilizes, upkeep etc?

Post by HomeStretch »

Even if the financial savings are minimal, downsizing may be a good option, now or in the future, if your current house is not aging-in-place friendly.
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