Retirement can be a very exciting time for individuals who have the financial ability to do it. Some make choose to use their retirement as a chance to travel or use their retirement funds as a chance to spend money on things. Other individuals who are forced to retire because of their age or years on the job may find it a bit difficult to keep up with the cost of life in their current situations. Those individuals may choose to downsize by putting a price on their home and moving into a smaller, less expensive one. If done correctly, downsizing in retirement can be a great idea. It may result in more money in your pockets by reducing the cost of keeping your home. But with the choice to downsize may come some hidden dangers that will eventually find you. Here are four things to be aware of when downsizing in retirement.
1) Pricing your home for more than what it is worth is a common mistake that most homeowners make when wanting to sell their home. According to a survey conducted by the real estate website HomeGain in 2012, 75% of homeowners attempted to sell their homes for more than what it was worth.
When downsizing in retirement, a way to make sure that you do not overprice your house is to consult your real estate agent or any real estate agent to get an estimate of your house’s current value. Consulting more than one agent is beneficial in case one is eager to make a sale. Also, there are websites that are willing to give information on all of the homes in the area that have recently been sold. The sites are equipped with estimators as well.
If you wish to sell your home for more than what it is worth, consult with agents about low-costing strategies that will add value to your home. Remodeling the home is not a good idea; it rarely increases the value of the home. Instead, a simple repainting of the outside of the home, or tidying up the landscaping will make the home more valuable.
2) Pricing your new home for less than what it is another common mistake when it comes to downsizing in retirement. Some individuals take what they believe their old home will sell for and use that number to determine the price they will pay for their new home. Just remember, if you thought that your home was worth more than what it was, the homeowners you will be buying from was probably thinking the same thing.
Instead, use the same tools that you used for selling your home as a way to buy your next home. Conduct your own research on the selling prices for houses in your desired area so that you can know what to expect when buying your new home. Spend time visiting new homes. This tactic is beneficial not only in seeing what the houses are being sold for, but also to get you familiar with the area you want to live. Consult with your realtor or a number of realtors.
Take caution with add-ons that could potentially raise the cost of your new house. Make sure that if you are looking at buying a two-bedroom home, you are not paying the price of a four-bedroom home. Consulting your real estate agent will help determine if you are paying the right amount for the type of house you want.
3) Not considering the tax requirements is a costly mistake that individuals selling their homes can make. The only way to not have to pay any income tax on the profits gained from selling your home is to sell the home at a price that result in a big profit. Those implications also depend on the number of years you have owned the home you are selling. Even if you do not have to pay an income tax, you should still consider that your new home may require that you pay property taxes that are high.
If you decide on downsizing in retirement, try determining the profit you will make in selling the home. Making this determination means that you take the difference between your house’s base cost (including the cost for permanent repairs) and the sale price. Also, know the income tax and property tax for the area of which you plan to move. Ask about deals that some locations offer for homeowners who are a particular age.
4) Not considering the closing costs for your new home is a big mistake to make as well. These costs usually include legal and recording fees, insurance for the title, and other miscellaneous charges. Not only are there charges to be paid for your new home, but also charges for selling your old home. Those charges include paying your real estate agent.
If you decide to carry out the process of downsizing in retirement, make sure to negotiate with your agent a set percentage for their commission. Try finding a home with the lowest price so that other costs would not be the thing that puts you in financial jeopardy.
When retiring, a person may decide to downsize in an effort to save money on a new living area or a new home. When choosing to embark on the journey of downsizing in retirement there are certain things that are crucial to avoid. Just remember the warnings listed above and follow the guidelines given as an alternative to each issue.