Broker Check

The New Downsizing? Upsizing!

| February 09, 2015
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Downsizing.  It seems to make so much sense.  Under the typical storyline you buy a house, have and raise some kids, said kids go to college, graduate, get jobs, etc.  You’re then left with a big house, 2 people, and lots of stuff.  Wouldn’t it make sense to simplify things?  To de-clutter?  It would also seemingly make sense that you would want to forgo the yard work and the high taxes associated with a home larger than you need.  Plus, if you downsized, you could tap into that home equity that you’ve been building for years.  You could purchase a new, smaller place for cash, lower your expenses and travel the world with the savings.  My, the efficiencies that could be achieved through this novel downsizing concept!  Sounds reasonable, right?  Everyone must do this, right?  Not really.  What you’re about to read is based on the results of a non-scientific poll, years in the making called ‘meeting with TrestleBridge Capital clients and talking with my friends, neighbors, and relatives’.  Maybe it’s just me, but it appears that while most people talk the talk of downsizing, very few actually walk the walk.

For example:

My Parents: They purchased a starter home right after getting married and subsequently purchased 2 other properties, prior to settling into the house that I grew up in.  They benefitted from a favorable real estate market in the Boston area over that time and accumulated significant home equity.  My father complained of yard work, keeping up the pool, the sky-high taxes in their town, and the fact that they didn’t need all of the space in their house.  So what did they do?  They moved out of state and bought an old farmhouse that was bigger than the house that they just sold.  The house had a staircase to the second floor that gave me pause to walk up/down for fear of breaking my neck.  And yes, the house had………… guessed it: A POOL!!!  What happened next?  My dad continued mowing the lawn, shoveling snow, taking care of the pool, and complaining about it.  Their ‘aha’ moment occurred when a flood almost washed this farmhouse from its foundation and they decided to sell the property and truly downsize.  It took a while, but they finally accomplished their downsizing mission.  They now live in a condo with zero maintenance issues and just enough room.

My Neighbor:  A former neighbor sold his house several years ago.  When I asked him why he was selling he gave me the old, ‘empty nest/hate yard work/too much space’ song and dance.  It made sense to me.  So what did he do?  He bought a newer, larger, more expensive property 2 miles away.  His follow-up report to me included the fact that he now had one more bedroom than his old house, and had just installed 8 new televisions.  Go figure.

Clients:  We hear about a desire to downsize and simplify all the time from clients.  It’s odd though, clients say they want to sell their home to have less space and to cut costs, and then we hear things like:

Well, we’d love to have some more space.” or

We think we can sell our house (that we own outright) for 500k, and we’re probably looking to purchase something in the 650-700k range.  I guess that means we’ll need to get a mortgage?”  or

You know, we need to downsize and get real.  We’re going to sell our 3500 square foot home for 500k and purchase an 800 square foot condo downtown for 800k.  We’ll need a mortgage, we’ll have a $600/month condo fee, and our property taxes will be higher.

I guess downsizing means different things to different people, but one thing is for sure, it’s rarely what you’d think it is or should be.

So what’s the point?  The takeaway?  This post is not meant to be instructional or judgmental, but rather, observational.  Clients often ask if their budget is ‘in-line with other people’ or if they have as much money as other clients at a specific juncture of their life.  As you can imagine, every client and set of circumstances is unique and cannot be viewed through the lens of heuristics.  All that being said, I wanted to share these observations to get people thinking about the topic to determine what downsizing means to them, if it makes sense, and if they even want to do it.  People need to consider all of the costs of a downsizing, both explicit and implicit.  It’s also important to view downsizing in both of its dimensions: actual square footage/size, and cost.  Just because you purchase a smaller home, it doesn’t necessarily mean that you’ve truly downsized if it costs you 20% more than your previous property.  Most people go into a downsizing expecting to downsize on both the size and cost dimensions, but my experience is that they often only hit one, and sometimes miss both altogether! Meeting only one of these could be just fine for some people and a mistake for others.

Just like the message on your car mirrors (objects may be closer than they appear), proceed with caution when attempting to downsize, your new house could be larger than you intended.

By: Andrew Gonski


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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